Although it has the largest and broadest based economy in Africa, SA’s vast mineral wealth has laid the foundation for its industrialised economy. Initially gold (where SA dominated global output for around a century) was the principal driver behind the country’s growth.

However, as economic gold resources diminished dramatically over the past 40 years and output fell sharply, other metals and minerals have taken over as key providers of the nation’s GDP and as its principal export earners.

Coal and platinum group metals have been important in this respect and in recent years toppled gold from its once dominant position in terms of the value of metals and minerals mined. Even iron ore has moved ahead of gold in value of production in the past year, although this is probably as much a function of declining gold prices as huge changes in output.

According to the most recent figures from Statistics South Africa, gold is currently only the fourth most valuable mined metal or mineral by value in SA. Yet 40 years ago, SA accounted for almost 80% of global output. Now that figure stands at only around 6% and SA has fallen from the world’s number one producer by a large margin to number six, having recently been overtaken by Peru during 2013. At the current rate of decline it may be overtaken by Canada too within the next few years.

Even so, gold still remains significant to the economy not least because even at currently reduced production levels, it remains a significant contributor to SA’s export earnings. Labour-intensive gold mining operations also employ large numbers of workers – important in a country with an official unemployment rate of 26% and an unofficial one that may be far higher.

Platinum group metals (PGM) – for which SA still dominates global production and resources – is also largely mined from similarly labour-intensive underground operations on the very narrow Merensky and UG2 reef horizons. In truth, working conditions on the underground platinum and deep gold mines, are not pleasant. Conditions are hot and dusty with miners working in cramped areas, which may have contributed to recent labour unrest and high wage increase demands, stimulated by inter-union rivalries.

While a number of SA’s platinum mines are perhaps uneconomic at current PGM prices, it is unlikely to experience the decline in output seen by gold miners, particularly given recent new discoveries to the north of existing mining areas that have the potential for high volume mechanised mining from far thicker reef horizons.

The problem is, to develop major new operations such as the North Bushveld platinum projects, substantial capital is required – probably more than can be comfortably raised in SA. Both companies exploring these areas and hoping to develop them are Canadian with Japanese backing.

Given the mining industry’s contribution to the SA economy in terms of production, exports and employment (the value of mine production constitutes close on 10% of the nation’s GDP), it is not surprising that the government keeps a close eye on the industry. But some of the state’s latest proposals to amend the Minerals Resources and Petroleum Development Act (MRPDA), particularly with regard to defining some metals and minerals as ‘strategic’, is raising concerns among mining companies.

The ‘strategic’ categorisation will mean that any metal or mineral defined as such will potentially be subject to tighter (so far unspecified) government controls. The industry may regard this as interference, and this has raised the spectre of potential state intervention in mining, processing and pricing.

The metals and minerals that may be classified as ‘strategic’ have not yet been defined. This in itself contributes to industry unease over what lies ahead. Besides, investors do not like the unknown.

So, the big question is: what metals or minerals are government likely to define, and why? Logically all major exported metals and minerals might fall into this category – given their importance in allaying SA’s current significant balance of payments deficit.

For a country often classified as a ‘resource economy’, it’s an uncomfortable position in which to find itself. With most metal and mineral commodity prices weak on global markets and completely outside SA domestic controls, there is no quick way out unless – or until – there are price increases. And state tinkering with the minerals industry is unlikely to help investment sentiment.

Few concrete solutions have come from government ministers and mining industry negotiators

Anglo American CEO and former South African Chamber of Mines president Mark Cutifani, speaking for the industry in August 2013, was quoted as saying: ‘We’re all getting very nervous … the message is stop changing the rules.’

But at the time no one knew what rules would be amended, metals or minerals affected, or when any changes would be implemented.

But evidence shows the two sides are moving towards a solution, even though disagreement exists on specific points. In addressing the Chamber of Mines in November, Minister of Mineral Resources Susan Shabangu was quoted as saying: ‘There are a few issues outstanding in the amendment bill, but I am positive that we will find each other. We are very close to each other. There is a lot of good will and we are all committed to find a lasting solution in the MRPDA.’

She then said the media should not project the industry and the government as being ‘miles apart’.

Cutifani partly concurred that there could be agreement in the MRPDA amendment bill. ‘We’ve probably navigated 80% of the toughest position in MRPDA. There is still some hard stuff to go, but given the will and constructive spirit, I’m sure we’ll get there.’ This certainly does suggest that miners and government are moving closer to a resolution, but the significant outstanding matters between the various parties are yet to be resolved. Or perhaps they might still be imposed.

One mineral that is predicted to become ‘strategic’ is coal – but this poses a dilemma for government. Coal exports are significant and important to the country’s export earnings (SA is currently the world’s seventh-largest miner and sixth biggest exporter of coal).

However, most of SA’s own power generation capacity, currently operating close to crisis point, is from coal-fired power stations (around 94% according to the World Coal Association). SA’s domestic coal prices are generally below those of the international market and speculation exists that government may try to control exports to ensure there are sufficient products to meet domestic demand at what it perceives to be an equable price level.

With new coal-fired power stations being built, this could be seen as a ‘strategic’ initiative worth taking. However, it could curb investment in what the industry sees as the very lucrative coal-for-export business. SA exports around 30% of its coal output, but miners would probably like it to be more.

There are also proposals being considered to increase the domestic beneficiation of certain metals that are currently primarily exported as ores. These changes to the MRPDA are supposedly subject to consultation with relevant parties, but the mining industry is concerned that its worries are not being heeded.

Overall few concrete solutions have come from government ministers and mining industry negotiators on exactly where the proposed policy looks to be going and what is, or is not, likely to be included.

One matter not on the agenda is the possible nationalisation of the industry, or sections of it. Successive governments have back-pedalled on original ANC policy at the time of power transfer in 1994. However, it does still raise its head from time to time, despite President Jacob Zuma and Shabangu stating categorically that this is not the ruling party’s policy.

Nevertheless the SA administration does feel the need to keep some of its internal critics in some semblance of order.

While full nationalisation may be off the agenda, the idea of classification – and potentially greater controls – could be seen as a standard operating procedure for those who would like matters to stay under state control.

By Lawrence Williams
Image: David Maclennan