Johannesburg - The main deterrent to much-needed capital investments in the South African mining industry is the constant uncertainty caused by a climate of unpredictable regulatory and policy changes, and constant public debates calling for arbitrary and far-reaching changes.
This is the finding of research by Pine Pienaar, former CEO of Mvelaphanda Resources.
This constant uncertainty impacted negatively on investment in mining and largely contributed to the relative poor performance of the industry during the commodity super cycle between 2001 and 2007.
It was mainly caused by government and the ANC, Pienaar concluded.
Further uncertainties were caused, and continue to be caused, by the failures of government-controlled parastatals, the level of service delivery and unpredictable price increase levels.
One of the main findings of his research is that it is fair to conclude that, as custodian of the mineral wealth of the country, the government has failed to create an enabling environment for the industry to perform.
This should have been done through a stable policy and regulatory environment which could attract new investment in an industry which is capital intensive and with long lead times from inception to planned production levels.
The long-term consequence of this uncertainty is a continued decline in investment, which will eventually result in a drastic decline in mining outputs and therefore in the contribution of mining to the South African economy, concluded Pienaar.
In his research he found that all interest groups had accepted that changes to the policy and legislation framework in the South African mining industry since 1994 were inevitable, were to have been expected and widely supported as a social, business and political imperative.
According to the research the objectives of legislation were well supported by stakeholders. The principal objective was to normalise society by encouraging and facilitating participation by the previously excluded black majority.
However, the nature and extent of changes introduced with the promulgation of the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 have since been questioned by the different interest groups to a lesser or larger extent.
The common good, as originally intended and carrying wide support, has been replaced by the enrichment of a few and lately the political connected.
According to Pienaar’s research, the changes brought about by the MPRDA together with the Mining Charter were considered sound. However, the long periods taken to finalise these, combined with speculations regarding the final content, brought about enormous uncertainties which negatively affected investment.
Similarly “the industry failed to gain government trust as it endeavoured to comply with the new regulatory requirements through a ‘ticking of the boxes’ approach, while trying to limit value leakage to shareholders”, stated Pienaar in his research.
“The manner in which past injustices were being addressed was far removed from the original hopeful spirit.”
The unintended consequence of this approach by mining companies was a perception of the enrichment of a few and not the intended upliftment of the broader, previously disadvantaged society, as anticipated, he concluded.
Interest groups interviewed in his research perceived the royalty bill solely as a means for government to procure more non-profit based revenue for the fiscus, without sharing in the risk of mining input costs. In other words, just another cost of doing business in mining.
Again the period since the bill was first mooted until implemented caused unnecessary uncertainty, negatively affecting investment decisions.
Moreover, the changes in the regulatory framework and the inefficiency of parastatals such as Eskom and Transnet have not only caused uncertainties to available and sustainable capacity, but also significant increases in the cost of production. This resulted in a degree of capital flight, especially after the power failures experienced in February 2008.
The current state of continued declining output by SA mining is, therefore, not surprising to Pienaar as mining requires constant capital investment on the back of a stable regulatory and legislation environment to to attract the much-needed investment.
“Capital constantly seeks avenues where the anticipated returns compensate for perceived risks, it waits for no one,” said Pienaar.
Constant uncertainty in the investment environment - together with unpredictable input cost increases such as power and lately labour - can only result in disaster for an industry which was the primary driver of developing SA in the past, according to Pienaar.
The mining industry should remain the engine of the economy to ensure the creation of much-needed jobs. It should get the recognition as the foremost foreign exchange earner of the country.
Commenting on the current state of mining, Pienaar said: “Hopefully, all stakeholders in the mining industry - management, investors, government and labour - will realize that only through open frank dialogue behind closed doors can the future of SA mining be put on track again.”
The government will have to earn the trust of both the providers of capital and the broader SA society in fulfilling its responsibility as the custodian of the minerals of the country, both in its administrative capacity of current legislation and as legislating enabler.
Business will have to engage with integrity and real understanding of government’s objectives, according to Pienaar.
“Every mining executive and manager should by now have studied the National Development Plan’s section on mining as was approved by parliament, crafted by Trevor Manuel under the chair of the deputy president of the ANC, Cyril Ramaphosa, to ensure broader alliance and cooperation,” he said.
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