SA mining industry will look ‘very different’ in 20 years, says Baxter

29th October 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – South Africa’s mining industry will continue to evolve over the coming decades, eventually transitioning into a mechanised, modernised and automated industry staffed by a highly skilled, well paid and lithe workforce, Chamber of Mines acting CEO Roger Baxter said on Wednesday.

Describing the sector as a “sunrise industry”, the economist told financial services firm KPMG’s Mining Tax and Law seminar, in Johannesburg, that the country would see the increasing introduction of “technologically sensitive” mining methods, as well as a potential doubling of the size of the industry – in terms of gross domestic product (GDP) contribution and sales – by 2030.

“Mining in the future will be very different. We will still have people involved, but there will be fewer of them and they will be highly skilled. [However], more employment will be created by associated industries,” he commented.

Baxter, meanwhile, took the opportunity to defend the industry against its critics, saying that the true contribution of mining to the economy and modern society was not appreciated nor well understood.

“We can’t do without mining. If it can’t be mined, it has to be grown,” he said.

Adding that it was not simply a “dirt digger” industry, he noted that the sector contributed some 18% of GDP alone and around 50% of GDP when all its associated industries were considered.

Moreover, in 2012, the industry spent around R2-billion on communities, R4-billion on skills development and paid R20-billion in corporate taxes. It had also decreased worker mortality rates by 80% in the last ten years.
“I challenge you to find an industry that has contributed more [to the country]. Mining really does matter,” he enthused.

Despite local wages having increased at an average of 12% a year, Baxter said the South African and global mining sectors were not “super profitable” and, for the top-40 mining firms, “things are tough”.

In the 2013/14 financial period, the world’s top-40 mining majors posted flat revenue, a 72% contraction in aggregate net profit to a decade-low $20-billion, record impairments of $57-billion and a 42% increase in net debt.

“While the global economy is gradually recovering, commodity prices are still fragile. At the global level, the pressures are still there, [and they are impacting on] the South African mining sector,” he outlined.

Baxter asserted that an improvement in South Africa’s economic growth would hinge largely on an expansion of the country’s tradeable export sectors – of which mining was one.

The industry had significant potential to contribute to the objectives of the National Development Plan, he said, maintaining that, if the growth rate of the nongold mining sector grew by between 3% and 5% a year, the size of the industry could be doubled by 2028.

“But the reality is that South African mining is not meeting its potential. In real GDP terms, it was actually smaller in 2013 than it was in 1994, and a large [proportion] of our gold and platinum mines [continue to be] loss-making,” he noted.

For the sector’s true growth potential to be achieved, its “unique” characteristics should be taken into account by lawmakers and legislators, he argued.

The industry was high-risk, highly capital and labour intensive, geographically captured, bound by long lead times from exploration to production and vulnerable to cyclical commodity markets.

Moreover, it was a “price taker” and was unable to pass on price increases to the final consumer.

“Given the long life-cycle of mines, the industry needs a predictable, stable and competitive policy and regulatory environment. If we are continually changing the game, we make it very difficult for investors to make decisions,” he cautioned.

This position was iterated by advocate Leon Bekker, who added, at the seminar, that there had been several attempts to amend or alter mining legislation over the past few years, not all of which had been successful.

“As a result of several [possible amendments] to legislation, such as the Mineral and Petroleum Resources Development Act, things are still lingering and this creates uncertainty. We are still hearing different stories from different sources.

“How do [investors] make decisions if [they] don't know what’s going to happen?,” he asserted.

Bekker added that it had become increasingly difficult to advise his clients owing to the uncertain regulatory environment and the fact that several possible mining sector transactions had failed or been delayed as a result.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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