Challenging times for SA mining

With low prices for most commodities in recent years, the South African mining industry has endured a difficult time. Revenues have fallen further than export volumes, but there is no doubt that the amount of money passing through the sector has reduced the amount of financing available for port and rail investment.
 
A partial recovery is underway but remains shaky because of price uncertainty and the political and economic difficulties affecting South Africa as a whole.
 
Mining Charter
 
The volume of mining commodities carried in South Africa over the next few years is likely to be influenced by the fallout from the country’s new Mining Charter. Mining companies are bitterly opposed to sections of it, including a requirement for 26% of all mining projects to be owned by black empowerment enterprises (BEEs) at all times, even if the original BEE investors sell their equity to a non-empowerment company.
 
Mining firms want a policy of “once empowered, always empowered” but Pretoria will have the right to revoke mining licenses if companies don’t comply. At present, projects comply with the law if the 26% threshold is reached when they are launched. Mark Cutifani, CEO of Anglo American, which is one of the biggest mining companies operating in South Africa, said: “We’ve had an industry that’s been shrinking for 20 years. If we are going to stop the rot, we need a document and a framework that encourages investment.”
 
He added: “If it doesn’t serve the long-term interest of the industry, it won’t serve the interest of the country. They have to be one and the same.”
 
Fall predicted
 
Many within the industry argue that mining output will continue to fall if the government is not more flexible. The mining industry’s contribution to the country’s GDP has fallen from 20% to 8% over the past 40 years. At the same time, it is clear that much more needs to be done in every sector to correct the socioeconomic imbalances caused by Apartheid and entrenched racism.
 
The Chamber of Mines has suspended its legal challenge to the Charter while it awaits the final version. Mosebenzi Zwane, the minister of mineral resources, said: “We don’t want people to adhere to a norm where they take us to court if they don’t agree with us. We’re determined to reach our objectives. If we believe we’re correct, no one should threaten us. We’re here to govern, and we’ll do exactly  that.”
 
Another, less discussed, aspect of the Mining Charter is the fact that the government will be given the right to restrict the export of coal and other mineral commodities if it needs to guarantee domestic supplies.
 
The Charter was scheduled to pass into law in March, but it has been the subject of several other legal challenges, apart from that pursued by the Chamber of Mines. The government has come under  intense pressure to change its stance, but the issue appears to have been put on the backburner by the political and economic crisis engulfing the country. President Jacob Zuma is hanging on to power by his finger tips following a series of scandals.
 
Most recently, at the start of April, Zuma sacked finance minister Pravin Gordhan, triggering calls from many leading African National Congress (ANC) politicians and the main trades’ union federation, the Congress of South African Trade Unions (Cosatu), for him to stand down. Standard and Poor’s (S&P) reacted by cutting the country’s long-term foreign currency credit rating, giving it junk status. All this makes for an uncertain investment environment.
 
It is against this backdrop that the industry is trying to recover from a period of sustained low commodity prices. South Africa exported 72.8 Mt from Richards Bay last year, while retaining 181 Mt for domestic consumption. This was down on the 2015 export figure of 75.4 Mt, but Richards Bay Coal Terminal (RBCT) has set a target of 77 Mt for this year. It achieved its record monthly shipment figure of 8 Mt in November, so there is certainly sufficient rail and port capacity to sustain 77 Mtpa. 
 
Actually achieving this figure will depend on whether Transnet Freight Rail (TFR) can maintain supplies and whether there is sufficient export demand.
 
RBCT shiploader