BCG Has Identified Ten Priority Interventions and the Roles South Africa’s Government and Mining Industry Can Play in Each, as Well as Three Areas of Leadership for South Africa’s Business Community
Once the solid bedrock of South Africa’s economic growth, the country’s mining industry has been in steady decline for the past 20 years as its international competitiveness has waned.
While it is important to be cognizant of the challenges that face the sector, it is equally critical to be aware of the opportunities and to find ways to revitalize what remains one of South Africa’s most important industries.
This is a key takeaway of Working Together to Reenergize the South African Mining Industry, a report of the Boston Consulting Group (BCG) that is being released today. “We believe that the current positive sentiment in the country has opened a window of opportunity for more constructive engagement among key stakeholders, but the right mindset for collaboration and decisive action is necessary to improve the sector’s competitiveness and achieve higher growth,” says Hans Kuipers, a BCG partner in the Johannesburg office and a coauthor of the report.
The report has identified the following ten imperatives that government, business, and organized labor must prioritize if they are to overcome such ongoing challenges as subdued demand, diminishing cost competitiveness, high fatality rates, and continuing policy uncertainty:
• Provide policy certainty. The goal is to give international investors greater confidence in the country and encourage their investment. To achieve certainty, the government should—as much as possible—legislate mining regulations with the active support of the mining industry.
• Strengthen security of tenure. South Africa’s processes for granting, amending, and renewing mineral rights are complex. To guarantee objectivity and consistency, subjective criteria for granting and revoking rights connected with social and labour plans should be replaced with legislation.
• Improve the mineral rights application process. Ongoing legal and political struggles to clarify and solidify the government’s mining policies, high fatality rates, and contentious labour relations all weigh on investor confidence. Timelines associated with the application process are uncertain, and regional offices have differing criteria. Ensuring consistency could be achieved by introducing a computerized cadastre system that traces ownership details, and mining and water license applications.
• Update geological mapping. The government, which has already started to remap South Africa’s geological profile, should work with business to create an up-to-date online database that includes the most recent data on deposits that have become economically viable through technological advances.
South Africa’s spending on exploration is the lowest among leading mining countries, with its share of the global exploration budget falling from 1.6% in 2009 to 1.1% in 2017.
• Improve financing vehicles. Despite South Africa’s deep financial markets, there is a dearth of capital available for riskier exploration activities. Well-established financing alternatives should include private equity and metals-streaming arrangements. “We believe new incentives should be created to facilitate investment in exploration,” Kuipers says.
South Africa can learn from nations such as Canada, which uses Flow Through Shares (FTS) to encourage investment. FTS allows corporations to pass on exploration expenditure as a tax-deductible expense to shareholders. Well-established financing alternatives also include private equity and metal streaming arrangements.
• Focus on infrastructure and logistical bottlenecks. Government should provide a regulatory framework for building public-private partnerships, and industry should provide its support by sharing infrastructure assets across commodity classes to increase output, as well as provide funding for those partnerships.
• Reduce utility costs. “We recommend that Minister of Public Enterprises Pravin Gordhan’s five-step plan be fully implemented at state-owned enterprises,” Kuipers says, adding that industry can support this by highlighting areas of priority.
• Negotiate sustainable wage agreements and improved implementation of social and labor plans (SLPs). Government, industry, and labor need to work together to reach mutually beneficial outcomes, and SLPs must be tracked accurately to avoid duplication of investments and ensure that money goes where it is most needed in communities.
• Improve technological competitiveness. Technological advances are already revolutionizing mining, and investment in research and development by both government and industry in areas such as machine learning, drones, and mechanized mining can improve safety and reduce costs.
• Stimulate domestic and international demand. Government should encourage nations such as Brazil, Russia, India, and China to reconsider using platinum as a reserve currency. This would stimulate investment demand, as well as domestic demand, by channelling procurement spending to technologies in which Platinum Group Metals has significant input.
“Mining remains an industry of opportunity and challenge. And if government, industry, and organized labor work together, it will be entirely possible to reverse the sector’s fortune and drive the growth it is capable of,” Kuipers concludes.