Africa-Press – South-Africa. South Africa has missed out on billions in potential tax receipts, economic activity, and export earnings, as its mining output has stagnated for two decades amid a deteriorating operating environment.
Once one of the world’s mining powerhouses, South Africa’s industry has been constrained by onerous regulations, increasingly disruptive labour disputes, and a stagnant economy.
In the case of some precious metals, South Africa has also effectively mined out its reserves, leaving it with dwindling resources that are increasingly expensive to extract.
South Africa has risen and fallen with the cycles the mining industry is characterised by, with it offering a substantial opportunity to boost tax receipts and investment in times of rising prices.
In times of declining prices, the industry is beset by significant impairments and thousands of job losses as miners fight to stay afloat to capture the next bull market.
The excess profits and tax the industry generates in a bull market have long been seen as a catalyst for sustained economic growth and fiscal health. However, this money is often misspent on short-term consumption and not long-term investment.
Chief investment strategist at Old Mutual’s Symmetry Izak Odendaal pointed to the 1970s as a bull market where South Africa raked in the cash.
At that point in time, South Africa was the largest gold producer by far and, amid elevated inflation in the United States, gold prices soared.
Today, gold production is 90% lower, mainly because most of it has been mined out over the past 100 years. Around a third of all the world’s gold was extracted from the Witwatersrand Reef.
South Africa is no longer the biggest producer in Africa, with Ghana and Mali competing for the top spot on the continent.
However, Odendaal pointed out that South Africa still produced around 100 tonnes of gold last year, which at current prices is worth around $14 billion (R241.7 billion).
This is a sizeable bonanza for the local gold mining industry, which should translate into increased tax revenue that can stabilise the government’s deteriorating finances – if used correctly.
The decline in South African gold production in comparison to overall mining output can be seen in the graph below, courtesy of Odendaal.
Dark clouds gather over mining in South Africa
The boost from the elevated prices of gold and other precious metals is masking broader problems in South Africa’s mining industry, with output having stagnated for two decades.
Once the economy’s backbone, mining is playing a declining role in South Africa’s growth, with services making up the lion’s share of local economic activity.
This does not mean the industry is not important, as it is still a vital generator of foreign exchange earnings, tax revenue, and employment.
The industry has come under increasing pressure from onerous regulations, policy uncertainty, and difficult labour relations.
Odendaal previously also noted the disappearance of South Africa’s junior miner funding as a reason for the country’s declining output, with investors and banks unwilling to invest heavily in fledgling miners.
In effect, South Africa has gone from one of the best mining jurisdictions in the world to among the worst in less than three decades.
The Fraser Institute, based in Canada, conducts an annual survey on the attractiveness of different countries as mining jurisdictions. These days, South Africa ranks among the ten least attractive mining destinations.
Even excluding gold, South Africa’s mining output has been flat for 20 years, and with the decline in exploration, production is not going to rise quickly.
This is even in the best-case scenario where regulatory bottlenecks, infrastructure, and security are resolved. This means that while the country benefits from commodity price booms, it doesn’t benefit nearly as much as it should, Odendaal said.
Anglo American CEO Duncan Wanblad explained that it takes about 17 years from the time a mineral deposit is found until a mine can operate at full capacity.
Addressing the Johannesburg Mining Indaba conference, Wanblad said the country’s mining potential was under-explored “due to unsupportive policy for exploration in the last 20-odd years”.
“That’s a very important part of a mining life cycle. The data will show you that it takes about 17 years from the time that you find the deposit until the time that you get it permitted and ramped up into full production,” Wanblad said.
“It’s a generation of mines that have been foregone.”
For More News And Analysis About South-Africa Follow Africa-Press
