Edited by Sharyn Macnamara
Urgent policy reforms are the only way to save the mining sector, says Old Mutual Investment Group.
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South Africa’s mining sector, once a cornerstone of the country’s economic prosperity, currently faces a pressing need for structural reform to regain competitiveness and relive its investment glory days. The critical issue at hand is not about the sector’s investability status, but rather the pervasive policy uncertainty that is deterring investors from investing in the sector, according to Ian Woodley, Resources Analyst at Old Mutual Investment Group.
Woodley warns that South Africa lacks a secure investment environment along with an attractive fiscal regime to attract investment into the sector.
For more than a century, the mining sector has been an essential component of South Africa’s economy. Currently, the sector contributes approximately 7.5% to the gross domestic product (GDP) and represents roughly 60% of the nation’s exports by value, and although still strong, the contribution of mining to the GDP has been steadily declining year-on-year for a while now.
Over the past year, the mining sector saw profits decline by nearly R100-billion due to the challenging operating environment, as well as lower commodity prices.
Following a spotlight on the sector generated by the Annual Mining Indaba held in the country from 5–8 February 2024, large mining companies including Impala Platinum, Northam Platinum, Anglo Platinum and Sibanye Gold all reported substantial declines, with losses ranging from 3.57%, to as much as 7.72%.
During the Mining Indaba, mining minister Gwede Mantashe announced a R400-million fund to support new mining explorations. Woodley says that while this is a positive step, it alone cannot resolve the underlying issues.
“The fund starts to address the fiscal aspect but, without the comprehensive and welcoming legislation that investors demand for long-term commitment, this is unlikely to yield many positive results,” says Woodley.
According to the Fraser Institute’s Investment Attractiveness Index, South Africa ranks among the least attractive jurisdictions in the world, placing it in the bottom 10, and the country has been in consistent decline in the index. Although very Canada-specific, this trend cannot be ignored, and it highlights the need for immediate attention to the country’s regulatory framework to restore investor confidence in the mining sector.
While the drive towards decarbonisation is considered to be minerals intensive, the South African domestic equities have limited to no exposure to some of the battery metals that are considered to be the main beneficiaries of this trend (with the exception of Sibanye), says Woodley. This leaves South African investors having to focus primarily on the large mining players, such as Anglo American, BHP and Glencore for exposure to the energy transition.
“However, the overreliance on these established mining giants poses challenges for sectoral expansion and may stifle growth of the smaller players, and this cannot be a good outcome for the sector or the country,” warns Woodley.
“For the sector to regain its vigour and to remain an important part of the South African economy for years to come, there is a need for swift fundamental sectoral transformation, and we can only hope that there are productive discussions between the government and the sector to formulate a plan that will enhance the attractiveness of the country’s mining sector. Without this, South Africa risks degrading a historically significant employer,” warns Woodley.
Source: Supplied Old Mutual Investment Group