MINING companies have rehabilitated themselves from the overspend of the previous commodity cycle but it was crucial that the sector begin spending again in order to renew their resources and reserves, said Northam Platinum CEO Paul Dunne.
Commenting in an article published by the Financial Mail, Dunne added that it was critical host countries harnassed the economic and social benefits that the mining sector brought through appropriate policy.
“We are more conservative in nature and appreciation of risk is more nuanced. Board governance has been overhauled, and mining companies have changed for the better, and changed for good,” said Dunne.
“Today, mining companies present themselves in rude health and the fairly recent recovery in commodity prices has helped generate plenty of free cash. This is precisely why investors choose our equity counters; it’s quite exciting,” he said.
“It means the allocation of capital under these circumstances is a “good problem” for boards to grapple with. But it implies very careful consideration nonetheless, taking into account the requirements of the company and the providers of capital (the shareholders and lenders), both today and in the future.
“The long-term success of a mining business demands an optimal balance between sustainability of the operations, the option to grow, and the ability to return value to shareholders and debt funders,” said Dunne.
“Crucially, not reinvesting sufficiently is a fatal flaw for a mining company. At best this is a standstill option; ultimately, however, not investing money into operations begins a process of terminal decline,” said Dunne in the Financial Mail.
“That’s because the underpin for sustainability for any mining company is the sustainability of the ore body and its ability to produce into the future. Continued and disciplined conversion of resources into reserves through the application of capital is the lifeblood of any mine and shareholders should always ask: “Are we spending enough?”, he said.
“The industry is closely tied to societal outcomes and the politics of the countries where we operate. We are a powerful economic force which should be harnessed and driven hard to the benefit of all stakeholders.
“Governments need to create the conditions to attract and retain capital, providing security of tenure and long-term certainty for investors. Correct policy adoption plays an enormously important role here, and unfortunately some of South Africa’s policy decisions are antagonistic towards capital providers,” said Dunne.