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Coronavirus: Pandemic is the needed catalyst for South Africa’s mines

In depth
This article is part of the dossier: Corona Chronicles: 4 May – 7 May

By Peter Major
Posted on Monday, 4 May 2020 12:29

Mine workers at Cullinan mine, near Pretoria, South Africa, February 1, 2019. REUTERS/Siphiwe Sibeko

I am a mining engineer by profession, and in my youth, and until the end of the 1980s, South Africa was the Silicon Valley of mining engineering.

I graduated from the Montana School of Mines in the US in May 1981 and came to South Africa on 7 January 1982 to work for Harmony Gold. At first, I planned to stay for three years. But I fell in love with the country and so I extended my stay for a year, then another and then another.

Like many, I wanted to see the end of apartheid and the new South Africa that would emerge. So the years turned into decades.

READ MORE: No apartheid, just a bit different

The sad truth is that for the last 18 years the legislative burden on South African miners has become horribly larger, more intrusive, and negative.

Since 2002, South African mining has accumulated over 2,000 pieces of legislation and 3,000 policy changes putting multiple more obligations on our miners. Each one of these is like an extra kilogram of weight in the industry’s backpack.

Last year, we lost our status as Africa’s largest gold producer to Ghana. This year, AngloGold, which had mined in South Africa for more than 100 years, sold its last business here.

The commodity boom of 2003 to 2008 at first served to obscure the impact of this legislative onslaught. But the Great Financial Crisis was enough to make the damage visible. The mining industry in South Africa has never recovered since then. A new mindset urgently needs to emerge – based on government and business working in partnership. 

Until that change of mindset happens, interest rates at any level right down to zero will do nothing to kickstart business. And an economic collapse on the scale witnessed in Zimbabwe is increasingly becoming a possibility.

Economic incentives

South Africa’s mining industry was already on its knees when the coronavirus pandemic started and is probably now in its worst condition since the Boer War. Mining as a share of our GDP declined from 15.7% in 1994 to 8% in 2019.

READ MORE: Coronavirus: South African mining losses sealed from lockdown

Last year, we lost our status as Africa’s largest gold producer to Ghana. This year, AngloGold, which had mined in South Africa for more than 100 years, sold its last business here.

South Africa still has perhaps half of the world’s known gold. The idea that it is too deep to be profitable is just an excuse.

There is plenty of exploitable gold at depths of less than two kilometres and even more above three kilometres that we are not mining, mainly because there are no economic incentives to do so. And we have the technology and expertise to mine further down than 4 kilometres.

No-one here does any exploration now. In 2018, South Africa accounted for just 1% of global exploration expenditures. That compares with 14% in Australia, 14% in Canada and 13% in the rest of Africa. Of our 1%, only 10% was spent on greenfield sites. So, that’s 0.1% of the global total on South African greenfield exploration: an obvious economic distortion in such a resource-rich location.

A culture of incentivisation is urgently needed to prevent South African mining from entering terminal decline.

COVID-19 is the perfect time to provide relief from our legislative burden, even if it’s only temporary at the start. It’s time to get the patient back on his feet.

Government needs to help, rather than hinder, explorers and miners. The government should create information for exploration companies such as geophysical and drilling data and make it available on a free and open basis.

A mining cadastral system would be useful for all prospective explorers. Tax incentives for local venture capital funding should be provided. In established mines, tax holidays could be offered in return for a commitment not to lay off workers.

In order to foster development of solar power, which can give South African industry access to a reliable electricity supply, Eskom must be obliged to guarantee offtake and distribution of solar production.

READ MORE: Eskom woes cast long shadow for South African mining

Bottom line: South Africa in the past prospered through having a highly trained and incentivised mining workforce. The natural resources have not run out. But the skills and capital to exploit them will not wait around forever. A culture of incentivisation is urgently needed to prevent South African mining from entering terminal decline.

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