By Raymond Obermeyer, Managing Director, SEW Eurodrive
South Africa’s mining industry was faced with significant challenges even prior to the Covid-19 pandemic. A highly regulated industry, some of the biggest issues facing the industry are around persistent regulatory and policy uncertainty.
Of particular concern to the industry are proposed amended regulations to the Mineral and Petroleum Resources Development Act. These amendments relate to onerous requirements around retrenchments which the industry argues could deter employment; proposed guidelines for the resettlement of communities surrounding mines which stakeholders say does not take the rights of actual communities into consideration; and new empowerment requirements.
According to the latest version of the Mining Charter, the ‘once empowered, always empowered’ clause relates only to existing mining rights. Essentially, this means that if an application is made to renew a mining right, then any existing economic empowerment strategies need to be restructured if the previous levels mean the company is no longer compliant. This latter issue is being challenged by the Minerals Council of South Africa which argues that a renewed mining right should not require new or additional expectations.
Exacerbating the challenges facing the industry is the impact of the Covid-19 pandemic with a number of projects slowed down and others put on hold, despite the rise of commodity prices.
Employing around 420 000 people, South Africa’s mining industry is a significant employer and one that is particularly susceptible to the spread of the Covid-19 virus given that a large proportion of its workforce are migrant. In response the Minerals Council of South Africa published a 10-Point Action Plan after taking guidance from the World Health Organisation and the National Institute for Communicable Diseases in a bid to curb the spread of the virus.
In addition, in recent months mining companies have been forced to contend with volatile commodity prices and – for the duration of lockdown level 5 – limited mining and processing operations.
The economic impact of the pandemic and the subsequent lockdown on the mining industry has been considerable, negatively impacting an industry which has – to all intents and purposes – been in a state of structural decline for several years already. In the past two years alone the industry has lost 50 000 direct jobs while real production output has fallen 10% in the same period. Over the past three years annual capex spend has reduced by 45%.
The Minerals Council of South Africa estimates that the pandemic will further reduce output this year by 15 to 25%, while at the same time reducing capex. In response the council has called for urgent action on eight prioritised initiatives. These initiatives include regulatory reform and an overhaul of current regulations; a focus on modernising the industry to improve productivity and inclusivity; a reliable energy supply and permission to self-generate energy; expanding rail and port capacity; jointly develop community investments; an improved mapping and exploration strategy; the establishment of a government-industry task force to expedite high-impact projects; and promote South Africa as an investment destination.
Taking action on these initiatives, says the Council, provides investors with regulatory certainty and could potentially allow for around 70 000 jobs to be saved while at the same time create an additional 26 000 jobs. Other benefits include increased primary mineral sales which would in turn allow for increased tax revenue.
Going forward it is critical that there is policy certainty in order to encourage investment into the local mining sector given its potential ability to contribute even more meaningfully to the fiscus. Having entered the Covid-19 crisis in a recessionary environment, South Africa’s economy now has little room to manoeuvre with rapidly rising debt to GDP ratio and a significant funding shortfall in the next few years. Unless there is an urgent focus on restoring business and investor confidence, both in the mining industry and other sectors, the future outlook for the country is dire.