2019 is a seminal year for investor confidence in South Africa’s mining sector, and international investors will be closely watching a variety of important issues as they seek the clarity they will need to commit to investments in the country.
With crucial national elections due in May, a debt crisis at state electricity utility Eskom and the country’s new mining charter still pending finalisation, Hulme Scholes, a partner at law firm Malan Scholes, said the need for accountability and transparency in the fight against corruption was critical if international investors were to commit to SA and continue unlocking the country’s vast geological potential.
Paul Miller, Managing Director: CCP Managers 12J Fund Limited led a frank discussion on the key regulatory, economic and political challenges facing junior mining in South Africa at the Nedbank CIB New Generation Mining panel event this week. He was joined by the CEOs of five of the fastest growing junior mining companies operating in southern Africa. Three South African producers – Bushveld Minerals’ Fortune Mojapelo, Orion Minerals’ Errol Smart and DRDGold’s Niel Pretorius – were joined on the panel by Alphamin CEO Boris Kamstra (Democratic Republic of Congo) and, MOD Resources Julian Hanna (Botswana). The CEOs presented their investment cases to an audience of investors on the sidelines of the 25th Anniversary Investing in African Mining Indaba.
Scholes said a recent investment roadshow to Australia has revealed the key issues that foreign investors are focused on ahead of the elections before considering to commit capital to SA. “Investors are cautiously optimistic about the outlook for mining in SA. But we did have questions on Expropriation Without Compensation (EWC), and the state capture enquiry. This was an indicator that they only see our democracy as functioning if those found guilty of corruption are locked up, and will not invest if there is no accountability.”
He also said that it was important that the EWC debate commence only after the election. “We need firm policy decisions, because the uncertainty around policy is causing jitters.”
Scholes emphasised that continuity within the Department of Mineral Resources, the key regulator of mining in SA, was also critical for junior miners to succeed. “We need President Ramaphosa to leave the mining minister Gwede Mantashe there. We hope the current Minister stays there, he can contribute a massive amount because he knows the industry.”
The latest iteration of South Africa’s Mining Charter, which aims to increase investor certainty around mining and distributing the wealth the industry creates more equitably, was released in October 2018 and is currently being reviewed by the Minerals Council, the industry body representing most of South Africa’s large mining companies. Mantashe’s draft follows an earlier version released by former mining Minister Mosebenzi Zwane which saw a robust legal response from the industry, with Scholes leading the legal challenge.
He said the trust deficit between industry and the SA government hit a low with Zwane in 2017, and the charter released that year was a disaster. “Talks broke down completely and the industry did not engage in talks with government for three months.” Under Zwane’s successor, Mantashe, the trust deficit has improved significantly, although recent developments around the long-running strike at Sibanye’s assets and new allegations of corruption have impacted confidence somewhat.
Power constraints and the indebtedness of Eskom were key themes, and DRDGold’s Pretorius said that Eskom is a major risk to South Africa’s mining industry – “it is critical that we have a stable Eskom from a supply and pricing perspective,” Pretorius said.
The panel also discussed the state of funding for junior mining, and Mojapelo said attracting SA money to mining investment was important. He said the company’s vanadium project was a “very South African story”, and that South African investors’ understanding of the country’s geology, risks and vast potential mean that it was essential that mining projects are funded with capital raised in SA, rather than from foreign capital markets like London.
The event was hosted by Nedbank CIB. Reginald Demana, Principal: Corporate Finance said that Nedbank is comfortable with the way it is being viewed by many in the mining sector – very much open for mining business. “Nedbank CIB has arranged, provided and advised on over $7,5bn in financing for mining companies over the last ten years. We are proud of that track record and we look forward to continuing our support for African mining.”
Notes on presenting companies:
- Alphamin – Kamstra said that it was important not to get paralysed by issues, and that he had built a strong team based on a no frills, fit for purpose approach to unlock one of the world’s greatest tin provinces. As Alphamin mines tin in a remote part of the DRC, he said the only answer to unlocking the region’s potential was building roads and other infrastructure that would improve access and economic opportunity around Kivu.
- Mod Resources – With a major resource in the Kalahari copper belt, CEO Julian Hanna said that Botswana was wonderfully managed, with security of title and a new president focused on diversifying the economy. He said a major push on infrastructure including a new ring road around the country was a major positive, but that all mining companies faced constraints related to the global view on capital raising for the development of mining projects.
- DRDGold – Pretorius said that although DRDGold is the oldest listed company on the JSE, it took a modern approach to mining focused on the retreatment of surface dumps. Operating the refurbished Ergo plant bought from AngloGold Ashanti, DRDGold’s recent deal with Sibanye Stillwater saw DRDGold double its gold reserves to 6 million ounces. Pretorius said DRDGold improved the quality of life of historic mining communities by processing and removing unwanted mine dumps.
- Bushveld – Mojapelo said that once Highveld Steel ceased vanadium production, the global vanadium market was left in structural deficit, creating a shortfall equal to 13% of global vanadium supply. Bushveld knew the market had to correct and committed to development of the largest high-grade primary vanadium deposit, Vametco. He said Bushveld occupied a unique position in the vanadium world, with a massive, high quality deposit.
- Orion Minerals – Orion Minerals is developing an old Avmin asset, which Smart says is one of the world’s best copper deposits. Smart said the Company will deliver a Bankable Feasibility Study in the next two months, based on a 2,4 Mt per annum operation, and a 15-18 year life of mine. Smart said the scale of the company’s ore body provided the company with good flexibility, and that the remoteness of the asset in Prieska, Northern Cape is a positive, as it does not experience the same socio-economic issues as assets that are more centrally located.
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