The Minerals Council of South Africa is concerned about the country’s persistently low investment and activity in minerals exploration, highlighting that this was choking the key industry of growth potential at a time further headwinds are looming from commodity prices that are expected to remain depressed this year.
A lack of investment and activity in exploration has not made the situation any better, say analysts, ahead of the Mining Indaba, on February 5-8, which brings together national and regional mining industry investors, executives and policy makers in South Africa.
The indaba will focus on mineral supply and will spotlight the limited investment that is flowing into South Africa and Africa’s mineral exploration spheres.
South Africa’s share of global exploration expenditure has remained below 1%, a fraction of what it was two decades ago when it was more than 5%.
Allan Seccombe, a spokesperson for the Minerals Council of South Africa said in an interview yesterday, “Without replenishing the pipeline of resources and reserves, South Africa’s mining industry has no opportunities to grow, create employment and generate benefits for society and the economy.”
It was important for South Africa to have a vibrant exploration and junior mining sector to take advantage of its mineral wealth as the world transitions to green energy supplies and technological advances. Without a favourable investment climate and regulations that encouraged investment, South Africa could not achieve its full mineral potential, added Seccombe.
South Africa’s mining industry has been impacted by power, transport and port challenges. These peaked in 2023 and will likely remain elevated this year.
“Energy and logistics constraints remain a major headwind to the mining sector. We estimate that in the first nine months of 2023, the industry lost out on multiple billions of rands in coal and iron ore export revenues,” said Seccombe.
The mining industry in South Africa is, however, expecting some progress on the energy front, especially as Eskom returns generation units that have been on long-term outages. There have also been notable progress with roll-out of private sector green energy projects.
On the logistics front, and with Transnet acknowledging that the turnaround of its rail performance will take more than a year, there is renewed hope that the worse will soon pass.
“While there should be incremental improvement this year already in the rail performance, bulk export volumes are set to remain constrained for some time. We await the February budget for any news on whether National Treasury will provide financial support in aid of Transnet’s turnaround plan.”
The suppressed commodity prices projected for this year are of “material risk” to the mining industry. Low commodity prices had already seen bigger players in the iron ore and platinum group metals (PGMs) sector lowering their production and fixed investment guidance for 2024 in addition to laying off workers.
ArcelorMittal South Africa shut down its long steel business, while Impala Platinum and Sibanye-Stillwater launched retrenchment exercises owing to low PGM prices.
“For the iron ore sector, prices recovered smartly in the second half of 2023. In this case, the reduced guidance was driven by Transnet rail failures that weighed on export volumes and resulted in a notable build-up of stocks (but) coal miners are also at risk as this sector is facing a double-whammy of lower prices and Transnet rail woes,” explained Seccombe.
Earlier this month, Investec chief economist Annabel Bishop said weaker global growth would muzzle commodity prices in 2024. And with the rand largely a commodity currency, weaker commodities prices would likely have a “suppressing effect” on the South African medium of exchange.
Bolstering the ability to export green energy commodities, and those used in EV production would, however, benefit South Africa substantially.
Nonetheless, the debilitating port congestion, poor rail capacity and load shedding are seen as large suppressors on South Africa’s export activity, and this would in turn weaken the rand, in addition to wider negative effects on economic growth and on tax revenue collections, added Bishop.
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