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SA mining laws cripple investment
Allan Seccombe
Posted: Tue, 07 Nov 2006

[miningmx.com] -- CONCERNS about South Africa's new mining lawsand poor infrastructure like railways and harbours are causing companies to hold back on investing R5bn to R10bn ($683m to $1.3bn) a year in the sector, South African Chamber of Mines president Lazarus Zim said on Tuesday.

The Chamber estimated in its 2006 annual report that the forfeited investment could have added 0.5% to the annual economic growth rate of South Africa.

The local mining industry had not benefited as fully as it could have from the searing run up in global commodity prices because of the rand’s strength, and the logistical difficulties with the railways and harbours to export products, Zim said at the Chamber’s 116th annual general meeting.
this is an alarming situation
“In spite of the fact that mineral prices have risen to record levels over the past year to 18 months, investment in the mining sector is down by almost 33% between the first quarter of 2004 and the first quarter of 2006,” Zim said.

Twenty thousand jobs have been cut over the past two years.

“From a mining industry perspective this is an alarming situation and one that has been the major reason for a six percent drop in production in the first half of 2006,” he said.

In the first six months of 2006, platinum group metal output fell 6.4%, gold 9.7%, coal 4% and diamonds 2%.

“This could have serious implications for South Africa’s current account of the balance of payments as higher rand commodity prices are offset by declines in the physical volume of mining production, slowing real export growth, placing pressure on the current account and undermining economic growth,” the Chamber’s 2006 annual report said.

The Chamber surveyed its 41 members and it emerged that the lack of mining and prospecting rights was holding up investment of R5bn to R10bn a year in the sector.

The R5bn is a concrete number that came from companies that participated in the survey and the R10bn is an extrapolation based on what was happening on other countries like Australia, said the Chamber’s chief economist Roger Baxter.

Three or four years ago, mining companies were investing about R18bn a year in the sector. It is now around R12bn. The stronger rand played a big role, but so did the new legislative environment from 2004 onwards, he said.

In Australia, mining companies reported pre-tax profits rising 95% in 2005 against South Africa’s 12%. Capital investment grew by 34% while in South Africa real fixed investments declined by 16.5%, he said.

In 2004, fixed investment in South Africa fell 18.6%. This is the year that the new mineral laws came into effect, vesting all mineral rights in the state and stipulating mandatory empowerment holdings in mining companies. It also introduced requirements for social investment, employment equity and quotas for women employees.
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The key bottlenecks around investment decisions emerged as the delays in issuing new-order mining rights and differences over how to interpret legislation governing the requirements of companies in providing labour and social plans as well as the implementation of empowerment.

Empowerment transactions to the value of more than R30bn were concluded in the 2006 financial year to end-June.

Water licences and environmental issues were also flagged as problem areas.

There has been a marked improvement in the number of prospecting and mining licences issued by the Department of Minerals and Energy (DME), while differing opinions over interpretations of the mineral legislation between companies and the DME were rapidly narrowing, Zim said.

The DME has said it has issued 1,926 new prospecting rights and converted 299 old-order prospecting rights. It has issued 174 new mining licences and converted 148 old-order mining rights since May 2004 when the new laws came into effect.

“The differences of opinion are almost a thing of the past. We are getting the right rhythm and momentum,” Zim said.

“The biggest challenge for the mining sector now is how to increase investment and how to speed it up,” he added.

Mines minister Buyelwa Sonjica, who was appointed in May 2006, has committed the DME to working with the Chamber to finding out all the reasons for the downturn in investment and to implement corrective measures, Zim said.

A note to his presentation, which was left unsaid, commented on the Sonjica’s predecessor Lindiwe Hendricks. “Engagement with the previous Minister, Ms Lindiwe Hendricks, had never reached the correct levels of collaborative effectiveness.”