Mineral Resources Minister Susan Shabangu has instructed the South African mining industry’s special task team to pull the country back from the global mining brink, after its plunge down to the nether regions of Fraser Institute rankings, where it is keeping company with the likes of Zimbabwe, the Democratic Republic of Congo and Venezuela.

Shabangu told South Africa’s House of Assembly during last month’s debate on the 2010/11 Department of Mineral Resources Budget Vote that she had “specifically tasked” the mining industry’s growth, development and employment vehicle – Migdett – with “not only restoring, but also enhancing” South Africa’s ranking as a mining investment destination.

Migdett is a practical symbol of the new spirit of cooperation that is emerging between government, business and labour in the South African mining sector.

It arises, possibly coincidentally, as a counterbalance to the strident calls for mine nationalisation.

Against the backdrop of the green offshoots of economic recovery, Migdett is committed to positioning the mining industry for the “inevitable upswing” and transformation.

The Minister says that “great strides” have been made towards replacing mistrust among key stakeholders with “a growing spirit of collaboration”.

She is not the only one to notice it. Mick Davis, the CEO of London-listed diversified mining company Xstrata, who resides outside South Africa, says that he is pleased to see that South Africans have got down to discussing all the issues: “That’s absolutely critical to position the industry for future growth,” Davis says.

He was speaking at the Wits Business School, in Johannesburg, last month, and gave a tick to the discussions at the recent Mining Summit, which government, business and labour again convened collectively and again gave practical credence to the growing spirit of collaboration.

Another sign of growing rapprochement is the South African government’s invitation to mining law stalwart Peter Leon to be part of Migdett.

Leon, who coheads law firm Webber Wentzel, has an intimate knowledge of what it takes for a country to be competitive in mining, along with an in-depth insight into South Africa’s Mineral and Petroleum Resources Development Act.

Leon does not hesitate to speak his mind on legislative framework issues that inhibit the growth of the mining economy and government has shown maturity in not taking that criticism personally, but rather engaging with the dynamic tension that Leon symbolises.

The Minister concedes that the cumulative performance of the South African mining industry remains unfavourable relative to other mining jurisdictions.

This is corroborated by the regression analysis of cumulative annual volumes of production that have contracted, with mining’s contribution to gross domestic product in real terms declining by 1%.

Accordingly, South Africa’s share of the global exploration budget has systematically declined, from 8% in 2001 to less than 4% last year in real terms, although there has been a steady growth in exploration expenditure in nominal terms.

Typically, higher nominal exploration expenditure is directed overwhelmingly at near-mine exploration, generally a safe bet.

Less that 20% of the local exploration budget is dedicated to greenfield exploration, the more risky option, but also one that can bring far greater reward.

Most of South Africa’s known reserves have been discovered using conventional explor- ation methodologies, leaving considerable residual potential for the discovery of world- class deposits using modern exploration technology.

One of South Africa’s most successful gold explorers in Africa, Dr Mark Bristow, CEO of Randgold Resources, has for long expounded the theory that South Africa has been ‘exploited’, but not ‘explored’.

“That, to my mind, is where South Africa is – not an explored country, but an exploited one,” Bristow has told Mining Weekly on several occasions.

In the last 15 years, Randgold Resources has discovered and developed millions of ounces of gold in Africa at low cost.

The founding CEO of the London- and Nasdaq-listed company, created in Johannesburg 15 years ago, says that South Africa has been spoilt by the superabundance of the mineral riches of the Witwatersrand and the Bushveld Complex.

He sees South Africa suffering from an overemphasis on mining production and an underemphasis on searching out finds in underexplored areas.

“Geologists have been decorations,” says Bristow.

What is disturbing is that the shrinking of South African gold mining has not resulted in the people of this country sitting down together and asking how the mining industry can be rescued and run better, in partnership with government.

“In the rest of Africa, the mining industry is the biggest job creator; in South Africa, it’s the biggest job destroyer,” says Bristow.

Shabangu says that there are prospects for two additional new minerals to be mined in the short to medium term, adding to nearly 60 minerals being actively mined currently.

Moreover, existing mining infra- structure enables investors to leverage maximum value from their investment in South Africa, while simultaneously contributing to socioeconomic improvement.

Growth and Transformation

But while there is a need for growth, there is also a need for transform-ation, and Shabangu is bracketing the two.

She complains that limited transformation progress has been attained to date and says that the rising tensions between mining com- panies and host communities, typically in rural areas, are sympto- matic of serious challenges that face sustainable growth.

An impact assessment of the Mining Charter illuminates a lack of significant ownership vesting in the hands of blacks, the intended beneficiaries.

Shabangu puts this down to the complexity of funding models underpinning transform-ation transactions, which typically benefited principal partners, financiers, legal advisers and other management firms to the dis- advantage of the intended beneficiaries, who remain not only indebted but also in the absolute minority.

This practice, she adds, is contrary to the aims of the transformation agenda and undermines the aspirations of the populace.

She wants more investment in human resources development and better living conditions of the workforce.

She talks of skills development being the cornerstone of competitiveness and applauds Gold Fields for investing R26-million in the engineering faculties of the University of Johannesburg and the University of the Witwatersrand, specifically aimed at supporting mining engineering.

Despite considerable diversification of the country’s economy, the mining sector remains a key variable in South Africa’s economic growth equation.

In 2009, the industry contributed 9,5% to gross value added; 9% to total fixed capital formation; more than 30% to the country’s total export revenue; and employed 2,9% of the country’s economically active population, currently at just below half-a-million direct jobs and a further half-a-million indirect jobs.

Further, the sector contributed 18% to the country’s corporate tax receipts and listed mining companies represented more than 30% of the market capitalisation of the JSE.

While mining activities consumed 15% of national electricity, the mining industry directly contributed more than 95% towards the country’s electricity generation.

Davis says that South Africa has an opportunity to become a centre of mining finance for Africa as the continent becomes the world’s next major producer of copper and cobalt, but that restrictions currently prevent foreign listed companies from enjoying full indexation on the JSE (see also page 48 of this edition of Mining Weekly).

Chamber of Mines economist Roger Baxter also sees Africa as having the potential for the highest rate of urbanisation in the next 50 years, creating ongoing demand for metals and minerals.

Baxter says that most of the three-billion people that will urbanise globally by 2050 will be Africans.

Moreover, even in the next 20 years, the foremost site of urbanisation will be Africa.

Africa is currently the third-largest area of global expenditure on mining exploration and many African countries have gone through reform processes to attract mining investment.

Shabangu says that the recent mining summit “thoroughly debated” many challenging issues in order to unleash a new vigour that can go a long way towards embedding a spirit of sustainable economic development within the country’s resources fabric. The proceedings were closed to the media to allow for robust interchange.

“We are still a sunrise industry. We still have such a lot of commodities, and we are tapping into a 2030 mining-industry horizon. We are saying: Come to South Africa and we will be ready and competitive and provide a long-term mining business horizon,” Shabangu tells Mining Weekly.

But last month’s Fraser Institute survey of 72 mining countries pushed South Africa down to the sixty-first position, from its forty-ninth position previously, which has galvanised the Minister’s deter-mination to reverse the situation.

The now-published geological map for the entire Southern African Development Community (SADC) region provides a common understanding of the geology between all SADC countries.

It is now up to South Africans to grasp the nettle.