SOUTH Africa’s mining industry is “crawling on the floor” while mining in Australia, Canada, America and the rest of Africa is on a conveyor belt, says Peter Major, veteran mining analyst and director of mining at Modern Corporate Solutions.
“We didn’t just fall on the floor, we’ve gone backwards because we lost over 480,000 gold miners alone. We’re on a conveyor belt going backwards.”
The nail in the coffin was the 2002 Mineral & Petroleum Resources Development Act (MPRDA), which came into effect in 2004.
“When [then finance minister] Trevor Manuel leaked the document to try to prepare the world and tell everyone it was not as bad as it seemed, the mining index dropped 32% and the all share dropped around 25%. And that was just him testing the water, in effect asking for industry’s buy-in to tone it down. Two years later, when it was officially released, indices dropped almost as much again because it was close to as toxic as the pre-release was.”
In effect it nationalised the mines, which had 75- to 100-year ore bodies. A mining licence was only good for 25 years, a third of the life of the ore body, and only granted when “ludicrous” BEE boxes were ticked.
It was only 25% BEE ownership then, but 70% of the mines’ purchasing had to come from BEE suppliers, which often imported the product from China while local producers had to close shop and retrench thousands.
“Zambia nationalised the mines and the result was catastrophic, but they didn’t have the BEE component like South Africa did,” Major says.
It signalled the end of meaningful investment in the industry and job creation. “Policy decisions over 30 years have consequences. If you keep out investment, you lose jobs.”
The industry peaked at about 850,000 jobs in the late 1980s. Now it’s down to about 475,000. Gold mining jobs have gone from about 575,000 to around 85,000.
Mining’s direct contribution to GDP hovers between 5.8% and 6.1% in spite of a commodity boom and a gold price that has gone from $300/oz in 2003 to $3,000. “We’ve been in the greatest commodity boom the world has ever seen. A 22-year super-cycle, and our industry is dying.”
Layers of legislation
The Mineral Resources Development (MRD) Bill approved by cabinet last year for public comment shows the government has learnt nothing since the MPRDA was unleashed on the industry in 2004, he says.
“It shows they don’t care about GDP or jobs. Nothing about the bill encourages investment or makes it easier to create jobs.”
There’s going to be more bureaucracy, more state control, more power for the minister and more transformation codes of practice made into law.
“It’s just layer after layer of more legislation disincentivising investors. What foreign investor do they think is even going to look at this? Not only is government locking the door to foreigners coming in, they’re incentivising locals to get the hell out.”
He’d like to sit at a table with mineral & petroleum resources minister Gwede Mantashe and President Cyril Ramaphosa and say to them: “You guys know BEE has cost 500,000 jobs in gold. The facts are there. But you keep implementing even worse policies. Does that mean you haven’t learnt or that you don’t care?”
He suspects they don’t believe BEE has cost so many jobs, because they can’t afford to. “If they started believing that, their whole edifice would collapse.”
He has “huge respect” for the expertise and thoroughness with which the Minerals Council South Africa dissects every document from Mantashe’s office it can get its hands on, but thinks it’s been too diplomatic.
Not only is government locking the door to foreigners coming in, they’re incentivising locals to get the hell out – Pete Major
“The government has been and remains almost impervious. Often the Minerals Council, as diplomatic as they are, will say there’s no sign they even looked at their suggestions.”
That attitude is amply demonstrated by Mantashe’s vow to continue fighting a 2021 Supreme Court ruling that “once empowered” means “always empowered”.
“They’ve got to make it clear to Mantashe and the ANC that once you’ve given a BEE partner 30%, then it’s done. The recipients of BEE shares should be able to sell to whomever they want whenever they want, and the company should never have to do it again. Mantashe has got to quit fighting that in court.”
It has been a major deterrent to investment and will remain so as long as Mantashe perpetuates uncertainty around it.
Until Ramaphosa gets rid of Mantashe, South Africa’s mining industry “pretty much” has no chance, says Major. “With Gwede in charge, mining in South Africa will be like going to a casino. You know you’re going to lose, you’re just trying to control your losses.”
Here’s a man, he says, who in 2021 at the height of the load-shedding that was killing the economy and, of course, mining production, was proud of the fact that his boss had to override him before he would raise the cap for private generation of electricity from 1MW to 10MW, and then twist his arm to get him to raise it from 10MW to 100MW.
“So Cyril’s had to override him a couple of times. The best way to override him would be to get rid of him.”
Major believes the only reason Ramaphosa hasn’t is because of the votes it would cost.
“It shows the ANC has always taken preference over the industry, over the citizens and over the country. The party is always way above those.”
Every time Mantashe comes out with a new bill or regulation it’s “more toxic” than the previous one, says Major. Instead of entrenching BEE as his MRD Bill does, he should be reducing it from 30 years to 20 to 10.
The monumental increase in the gold price since 2003 has had no effect in slowing down job losses on the mines and no effect at all on sinking new shafts and building new mines. And these are mind boggling gold prices – Pete Major
He points out that when the BEE Commission issued its foundational report in 2001, it specifically recommended it should be for 10 years, “to right things. That was the original plan, they told us. Now it’s tattooed into the body.”
It’s largely because of this that there’s been no new exploration for 20 years and South Africa is ranked among the 10 worst mining jurisdictions in the world.
“Nobody wants to explore because if you get a hit what are you going to do with it? You can’t raise money on it, you can’t sell it, the banks aren’t going to give you any money, your shareholders aren’t going to give you money and you lose your licence after five years because you’re not developing it.
“If you find a good deposit you’ll have to sell 30% to some BEE crony. In the past you’d want to hold on to your exploration licence for as long as possible, interest a guy who would dilute you down but put real money in it. Gwede boasts they’ve got thousands of applications but it’s scallywags just looking for a quick buck.”
On life support
In spite of huge potential, the industry is on its last legs. The MRD Bill is “more than enough to strangle it forever”, he says.
There’s still 48,000 tons of gold underground with good ore grades “that we know about”. A lot of data pertaining to other potentially rich ore bodies was lost or dumped as companies pulled out of South Africa.
The odds of getting any of that 48,000t of gold are minuscule, says Major. Nobody has sunk a major shaft for more than 20 years. “I’d be amazed if any of our deep shafts are going 10 years from now.”
The elections in 2029 could save them if the gold price stays up. The gold price trumps almost everything except legislation, Major says.
“The monumental increase in the gold price since 2003 has had no effect in slowing down job losses on the mines and no effect at all on sinking new shafts and building new mines. And these are mind boggling gold prices.”
Gold was below $300/oz in the millennium and only cracked $300 in 2003. So it’s gone from $300 to $3,000 — but mine closures have barely slowed down, because of concomitant legislation.
South Africa has a plethora of rich metal deposits besides gold, but this won’t be enough to save the industry, he says.
“Mining’s risky, and nobody wants to risk money on a risky industry when government’s against it. You’ll only risk money when government says: ‘We’re here for you.'”
And starts showing it.
This story first appeared on the FM. The FM and Miningmx are part of the Financial Mail Group.
