The highlights of the 20th annual African Mining Indaba.
Cape Town was a hub of activity from February 3 to 6, with 7,800 delegates from 2,100 companies across six continents descending upon the Mother City to attend the 20th annual African Mining Indaba held at the Cape Town International Convention Centre. As an official media partner to the African Mining Indaba, Global Business Reports was proud to launch the official Mining in Africa Country Investment Guide for the first time, covering the top 20 most exciting mining jurisdictions in Africa. With the growing fixation on Africa as the final mining frontier and sub-Saharan African economies set to grow at a combined average rate of 5.2% in 2014 (according to the Economist), it is no surprise that the Mining Indaba continues to be one of the world’s top three mining events.
The South African mining sector reclaimed its place at center stage of this year’s conference. While the tone being set by industry representatives was hopeful, a dark cloud was cast on the event by the ongoing platinum strike that started on January 23rd costing the industry an estimated R197 million per day in direct revenue alone, according South African Chamber of Mines COO, Roger Baxter. As the producer of 80% of global platinum, the chronic labor unrests that plague South Africa is indeed a reason for investors to raise an eyebrow. With elections in South Africa set to happen in May, it becomes increasingly difficult for the South African government to placate voters, many of whom are employed by the mining sector and demanding higher wages while at the same time creating an environment conducive to growth in the sector that is responsible for a fifth if the country’s GDP and about 50% of total export earnings.
However, the Minister of Mineral Resources, Susan Shabangu warned against “focus[ing] exclusively on issues such as labor instability”. Chief executive of the South African Chamber of Mines, Bheki Sibiya talks of “cautious optimism” when considering the South African mining sector and is adamant that it is issues with power supply such as rapidly raising cost and stability of supply rather than issues with labor, that is the main concern among investors looking at the possibility of the South African mining sector. On the issue of constrained power generation in South Africa, Shabangu assured the mining community that the South African government is committed to exploring the country’s shale gas potential in a responsible yet decisive manner. Yet little was said on the current policy of “keeping the lights on” instead of keeping industry powered in times of peak electricity demand, which is telling of government’s priorities of keeping its voting base at ease despite the negative impact on the economy ahead of elections.
On the issue of beneficiation Shabangu made it clear that this will not become a prerequisite for mining companies operating in South Africa, as it has become in many other African mining jurisdictions. “No company will be forced to beneficiate or subsidize the manufacturing industry”, said Shabangu. This was welcome news to investors who may have been somewhat anxious as they wait to see the outcome of the amendments to South Africa’s key piece of mining legislation, the Minerals and Petroleum Resources Development Act (MPRDA) that is set to go before parliament before the upcoming elections.
As far as BEE (Black Economic Empowerment) in the sector is concerned, the mining charter stipulates that all mining companies should fulfill the 26% of total equity empowerment quota through shares or units of production by the end of 2014. To this end South Africa is held as a model for ensuring compliance to empowerment targets as most mining companies are already in fulfillment of this requirement. Indigenization and localization across Africa remains a hot topic for prospective investors in the continents mining jurisdictions, though it no longer appears to send them reeling. Warren Beech from Hogan Lovells explains, “Indigenization policy is not a deterrent as long as the investor knows what they are getting into up front. The only problem that arises from these policies is when they change half way through an investor’s tenure and that makes investors wary. As long as policies are stable and as long as the terms are fixed and firm, people continue to invest. The indigenization programs across Africa have various formats. Zimbabwe has a pure indigenization program where Botswana and Zambia are focused on government ownership and both of these models are manageable as long as they are consistent.”
With neighboring mining jurisdictions showing impressive growth, albeit from a lower base, the South African government and industry will have to work together to overcome these challenges and see the sector on its way toward a better growth trajectory. For the moment the situation for South Africa seems less rosy than for much of the rest of sub-Saharan Africa where mining policy is less developed and therefore, for the moment, also less complex with the possibility of higher returns. If the World Bank is able to launch its proposed $1 billion fund to thoroughly map Africa’s mineral resources it will also do a lot to attract investment into the mining sectors of countries where a lack of adequate data has been debilitating to investment thus far.
The end of the African Mining Indaba is just the beginning of what is promising to be an eventful year of mining in Africa and a year in which South Africa is going to have to prove its resilience as a working model for the continent.