The South African mining industry is in a state of decline, with many mining companies struggling to turn a profit, a situation compounded by government stalling the amended regulation framework, according to financial services provider Nedbank Capital mining metals investment banker Paul Miller.

He addressed key mining industry role-players at the thirty-second edition of the Africa Mining Network, held in Johannesburg last month.

A key concern is the significant number of levies and taxes imposed on the industry, which are straining the already stretched budgets of most mines.

Various taxes are levied on mining companies, including a revenue royalty of 5%, income taxes for tax-applicable employees, value-added tax on consumables and fuel levies. A carbon tax is also expected to be introduced in the foreseeable future.

Miller stated that accounting practices would likely turn up aspects like depreciation and amortisation, which would incur a corporate tax. This, he said, presented five opportunities for the State to receive revenue from a mine before the mine had access to any form of profit, which could then be assigned to operating capital, sustaining capital and also dividends for investors.

However, he noted that government could claim even more revenue, because, in South Africa and other African countries, such as Zimbabwe and the Democratic Republic of Congo (DRC), regulations required that a portion of dividends be reserved for noncapital contributing owners.

In South Africa, these noncapital contributing owners comprised black economic-empowerment stakeholders, particularly staff and local community schemes. In the DRC, the State is entitled to a free-carry stake, while, in Zimbabwe, the nationalisation of its mining industry represented 51% of all revenue generated.

“We now have six different calls on that revenue line item before it has reached the mine owner, who is ultimately taking the risk,” Miller stated.

Meanwhile, he said, amendments to the Mineral and Petroleum Resources Development Act (MPRDA) and the delay in finalising the Mining Charter were resulting in uncertainties that discouraged investors, with existing mine operators having doubts about planning for the future.

Such important regulations were critical to the sustainability of a country’s mining environment, said Miller, adding that Botswana was a notable example of how to implement mining regulations. The country had not made a single change to its mining regulations since 1999, which ensured a sustainable sector “that encouraged investors and mine owners”, he added.

“What does South Africa do? First of all, there is nothing consistent and there is nothing world class about either its mining regulations or the manner in which they are applied.”

Miller added that the MPRDA and the Mining Charter were “poorly drafted documents”, which were also “very difficult to understand” and allowed politicians much discretion.

Processing the Mining Charter through Parliament did not leave South Africa with a world-class regulatory environment, he said.

The key to the mining sector’s survival was finding and securing new capital, Miller said, adding that mine managers in South African needed to realise that they had to compete with international miners in terms of attracting investment.

“I do not think South Africa is going to . . . attract capital for new discoveries and new exploration activities until we acknowledge the proverbial elephant in the room – competing for capital against other jurisdictions that are doing it better than we are. We also need to have a world-class regulatory environment that will enable us to do that.”

However, Miller said that, at some point, “something had to give” – either commodity prices had to increase and operating costs had to decrease (although he suggested a limit to cost reduction had been reached), or government’s share of the revenue had to decrease to accommodate the risks associated with operating a mine in the current economic climate and struggling South African sector.