JOHANNESBURG (miningweekly.com) – The findings of a recently conducted Chamber of Mines (CoM) survey indicate that if South Africa’s mining industry shifts its focus to create an attractive policy, regulatory and governance environment – through ethical leadership, good governance and the adoption of competitive, stable and predictable policies – considerable new investment in mining could take place.

“This would create huge economic and transformation benefits for the country and the multiplier effects would be profound,” says CoM CEO Roger Baxter. “Not only would this result in a significant growth in annual investment, but there would be a sizable increase in jobs, export earnings, [gross domestic product] and, importantly, transformation.”
 
Baxter warned that the economic and transformational opportunity cost of the current “toxic” regulatory environment is detrimental to “each and every South African”.

According to the report, published Thursday, real net fixed investment in South African mining projects declined in both 2015 and 2016, going against a generalised recovery in the global mining environment and major mining jurisdictions.

“South Africa is, again, losing out,” stated the report, which details the findings of an aggregated survey conducted among CoM members. The aim of the report is to gain an understanding of the investment and employment potential of the local mining industry in the event of a return to better practice in policy, legislation and regulation formulation.

Through the report, the CoM set out to determine whether the mining industry’s current lack of investment attractiveness and the contrast in rankings for different criteria by international institutions is a result of a lack of potential or a result of the negative impacts of the current policy, governance and regulatory environment.

In total, 16 member companies, representing several mining operations, responded to the survey. These companies represent a cross section of the various commodities and make up most mining production in South Africa. According to the CoM, the responses to the survey offer an indication of the impact of the current regulatory environment.

Key findings of the report indicate that the estimated amount of planned capital spending in the mining sector of R145-billion could potentially increase by R122-billion (84%) in a more stable and conducive environment.

However, the CoM pointed out that most of the currently planned investment is the capital required for operations to stay in business; while investment in new mines has halved between 2012 and 2016.

This increased investment would likely result in 48 000 new jobs being created directly in the mining industry. In terms of indirect jobs, 102 000 could be created with an uptick in investment.

Importantly, the CoM report also revealed that, in the current regulatory environment, five companies responded to its survey showing that they were not considering any potential new investments. In addition, one company suggested it was contemplating divesting from South Africa – a decision to be taken in 2018 if conditions do not improve.

In compiling the report, the CoM looked at what could happen if the policy, regulatory and governance environment improved substantially, enabling the South African mining industry to return to the top 25% of global mining jurisdictions.

However, the local mining industry’s current uncertain policy and regulatory environment has resulted from several major occurrences. These include the unilateral development and release of the reviewed Mining Charter – Mining Charter 3 – by the Department of Mineral Resources (DMR). The CoM report also determines that the publication of the DMR’s reviewed Mining Charter will significantly exacerbate the decreasing trend in investment.

In addition, other factors contributing to the decline in attractiveness of investing in South African mines include the lack of finalisation of the Minerals and Petroleum Resources Development Act Amendment Bill, the inappropriate use of Section 54s (work stoppages) and serious allegations of corruption and State capture.

The CoM states that all these major factors have resulted in the malaise of the South African mining industry, causing the current “freeze on investment in new projects”, according to the CoM report.
 
According to Statistics South Africa, the South African mining industry’s real gross domestic product in 2016 was 2.6% lower than it was in 1994 – “a sad indictment for a country which has such significant mineral potential”, stated the CoM.

By contrast, the CoM report pointed to the financial services sector having grown by 168% over the same period.

Further, the South African mining sector has consistently fallen down the Fraser Institute Investment Attractiveness Index, which is a barometer of best-practice policy, legislation, regulation and operating environments. The CoM report highlighted that the same institute ranks South Africa in the top quartile for its mineral potential, assuming it implements best policy and governance practice.