The South African mining industry is facing unprecedented challenges, most notably reduced global demand for commodities mined in South Africa, tumbling commodity prices, and ever-increasing costs of production. However, the South African mining industry remains a significant contributor to the GDP. When looking at its contribution to GDP, it is essential to adopt a holistic view, which takes into account the full contribution, across the mining lifecycle, from extraction, through to beneficiation, and the significant contribution made by related industries such as construction and engineering (infrastructure), logistics (primarily transportation and storage), and the wide-range of service providers which include supplies and services, such as training, health, employee wellness, etc. Holistically, the direct and indirect participants in the industry therefore still make a significant contribution to GDP.
While countries such as the United Kingdom are phasing out coal extraction, this is simply not an option for countries, like South Africa, where coal mining not only contributes significantly to South Africa's GDP, but is, and will remain a primary source of energy for the foreseeable future. Just one year ago, the previous Minister of Mineral Resources, Minister Ramatlhodi emphasized the importance of the South African Mining Industry, stating that coal remains a major source of energy for South Africa, and accounts for 95 percent of electricity generation, 70 percent of primary energy and 30 percent of petroleum liquid fuels. The coal sector is also the mining industry's third largest employer, and second largest generator of foreign revenue. Minister Ramathlodi, in February 2015, reiterated that the South African mining industry was integral in addressing high levels of unemployment and inequality, and acknowledged that the South African mining industry is a key contributor towards the attainment of national developmental objectives. Minister Zwane has, on several occasions expressed similar sentiments.
Day to day engagement with key stakeholders in the mining industry does not, generally, leave one with an optimistic view for the mining industry in 2016, and the reasons are not difficult to identify: Commodity prices that continue to sink to long term lows, reduced commodity demand, China's "rebalancing" and the resultant slow down, regulatory uncertainty, increase in costs of production, an infrastructure, which is under strain (power, water, road, rail, and ports), ever increasing investor caution, if not, outright lack of confidence, significant reduction in mineral exports, overall contribution to foreign direct investment, and the value of the industry on the Johannesburg Stock Exchange Limited.
There appears to be a common view that the resources industry will not experience another "super cycle". However, there are glimmers of hope (which are, unfortunately, often extinguished as soon as they appear), with a strong emphasis on the exploration for and exploitation of minerals and natural resources on the African continent, including South Africa, and this may be a driver for further African economic development and material change. Despite large reserves of minerals such as Platinum Group Metals, on other continents, Africa, including South Africa, remains the most significant resource-rich continent. While the mining industry does not, currently necessarily contribute 70 or 80 percent to the GDP of many of the resource-rich countries in Africa, a return on investment in Africa remains potentially significant, when compared to other continents.
It is essential for South Africa to be in a position where it can exploit the hoped-for uptick demand for minerals, in the future. It is extremely difficult to contemplate a light at the end of the tunnel, given the status of the South African mining industry. However, it is essential for all stakeholders, to acknowledge that forward-thinking is required, and not to "live for today". This means that a realistic approach must be adopted in relation to preserving assets in such a way that they can recommence full production and beneficiation in a relatively short space of time, in response to any increase in demand. Closing mines down, is simply not an option. Curtailed operations, whether this takes the form of care and maintenance, or reduced production and beneficiation operations, is a preferable option, and provides mine owners with the flexibility to adjust production as and when required.
The various factors that have resulted in the shrinkage of the South African mining industry must also be considered, carefully.
A key concern to many current and prospective investors, is the legal or regulatory uncertainty. The general view that is expressed, is that certainty is a cornerstone of any prudent investment decision. A good example, relates to ownership generally, and compliance with the Mining Charter, in particular. Government's stated intention, is to amend and update the Mining Charter, during the course of 2016, to specifically address (increase) black economic empowerment ownership and introduce stringent penalties, for non-compliance. The "once empowered always empowered" debate which raged in 2015 is likely to have a significant impact on Government's thinking, going into the amendment process and it is possible that the key aspects raised by industry, will be anticipated, in the proposed amendments. If this is the case, it is possible that the amendments will be challenged, adding to the current uncertainty created by the fact that, despite the previous Minister's undertaking and commitment to addressing the matter, expeditiously, this has not occurred, and the matter is subject to a High Court application which seeks to have the original Mining Charter and the Mining Charter, as amended in 2010, declared unconstitutional.
In addition to the empowerment aspects, proposed amendments to the Mineral and Petroleum Resources Development Act, No. 28 of 2002 (the MPRDA), which were made in 2012, have not been settled, and passed into law. It is possible to put a positive spin on this, namely that, as a result of the extensive criticism that was raised in relation to the proposed amendments, the comments were being taken seriously, by the previous Minister, Minister Ramatlhodi, and this has contributed to the delays. Having said this, the process appears to be dragging out, and it is extremely difficult for stakeholders, in the industry to make proper decisions, particularly where decisions must, necessarily, anticipate the potential impact of the proposed amendments.
It may be viewed as strange, to talk about the sustainability of the South African Mining Industry when the South African Mining Industry is in a state of extreme distress, and some may say, actually fighting for survival.
The current state of the South African Mining Industry, while predominantly viewed in a negative light, also however, provides various opportunities, and it is within the context of these opportunities, that it is appropriate to consider the role of beneficiation in the survival, growth, development, and sustainability of the South African Mining Industry. Consideration of the role of beneficiation must of course take place within the context of reality namely the various challenges which are currently facing the South African Mining Industry, and global economic demand and prices. The far reaching challenges facing the South African Mining Industry, generally also apply to beneficiation, due to the mostly integrated nature of extraction and beneficiation. These challenges include regulatory, financial, employment, and currency volatility. An important common challenge is the availability of infrastructure (power, roads, water, and ports). However, beneficiation faces certain unique challenges such as accessibility to raw materials at sustainable pricing, limited innovation, research, development, and access to the necessary required skills. This is of course underpinned by the availability of funding, which is in turn, dependent on the local and global demand for the minerals – the so called "vicious circle".
Beneficiation or, as it is commonly understood the "value add," remains a potential significant contributor to the survival, and sustainability of the South African Mining Industry, even within the current environment. The South African Mining Industry has had a long and proud tradition of rising to new challenges through revolutionary and innovative thinking. In relation to beneficiation, beneficiation made significant strides in the 1990s when South Africa transformed from a primary (raw material) commodity exporter, to becoming a significant exporter of processed minerals. This could only be achieved through the commitment to and the implementation of major beneficiation projects and facilities. There are still significant potential benefits to be extracted from the beneficiation process, with its various stages. Beneficiation is often, incorrectly, regarded as a single concept, without considering the various stages that are normally regarded as being part of the beneficiation process. The primary mining legislation, the MPRDA, defines beneficiation to include four stages namely the primary stage, secondary stage, tertiary stage, and final stage. Generally, beneficiation is regarded as the transformation of a mineral (or a combination of minerals) to a higher value product, which can either be consumed locally or exported. Each of the four stages may therefore provide an opportunity to beneficiate, to greater value, for domestic or export use, and it is perhaps appropriate for the key stakeholders in the Mining Industry, to take a critical view on current beneficiation programs to identify potential value, that can be unlocked in a sustainable manner, and to do things differently.
Given the state of South Africa's mining industry, it is absolutely essential that the new Minister, Minister Zwane, places a firm hand on the rudder, and guides the South African mining industry, with the assistance of all stakeholders, off the rocks.