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There are three main risk factors for the mining industry in South Africa, according to a report entitled Mining Sustainability in South Africa, released by FTI Consulting at the Investing in Africa Mining Indaba in Cape Town on Monday.
The report states that South Africa has a pivotal role in global mining, and it sets out a framework for the future sustainability of the local industry.
"In recent years, the South African mining industry has had a declining contribution to the country's gross domestic product (GDP), which has led commentators to ask whether the industry is now in a 'sunrise or sunset' stage This is on the back of declining production, lagging cost competitiveness, low levels of exploration spend, labour unrest, policy uncertainty and reputation scepticism with regards to the industry's readiness for a greener world," according to the report.
It found that the three main risks for the local mining industry are electricity, corruption and water.
"In South Africa, security of electricity supply is unreliable, and the cost of electricity continues to escalate. As recently as December 2019, Eskom implemented ‘Stage 6’ load shedding across the country. This included requesting mining companies to conserve power and disrupt operations, temporarily reducing or shutting down their underground operations," explains the report.
"The ability for the mining industry to fully resolve this is constrained by supply reliance on Eskom and regulatory limitations on the ability to self-generate."
As for corruption, the report found that the risk of actual or perceived corruption continues for the local mining industry. The report proposes that the corruption risk requires a comprehensive response given that it can occur at any point along the mining value chain.
This could include the approval of mining rights and operational permits; allocating contracts to suppliers; ongoing operating spend and jobs secured by patronage.
Furthermore, water security and water quality are likely to become an increasing risk for mining in South Africa, according to the report.
Although mining is not the most water intensive industry in the country, water does play an important role in the mining process.
"Therefore, finding ways to reduce water consumption and improve productivity and prevention of water quality pollution will be important sustainability initiatives. Managing water more effectively could also reduce the high costs of wastage," according to the report.
Apart from risk factors, the framework proposed in the report sets also addresses the importance of growth in the industry, costs, investing in capabilities to be competitive, and ensuring a higher level of communication and transparency to counter negative investor perception.
