MINING SECTOR: TOP 10 MINING INDUSTRY MUST-DOS

GOING FOR GOLD

The mining industry in South Africa remains a vital component of the country’s economy. The sector contributes approximately R8 for every R100 produced by the national economy and employs 2.5% of the national workforce. Mining remains the largest industry in North West, Limpopo, Mpumalanga and Northern Cape.

2018: A MIXED BAG OF PERFORMANCE

The 2018 financial year was a challenging year for the mining industry in South Africa; however, commodities like iron ore, coal, manganese and chrome performed well.

Says Michal Kotzé, PwC Africa Energy Utilities & Resources Leader: “2018 can be described as a mixed bag of performance for South Africa’s mining industry, with bulk commodity prices continuing to rise during 2018 from the lows at the beginning of 2016, while precious metals continued to struggle. Together with the gold and platinum impairments, it meant that the industry recorded a loss for 2018.”

SA’S LATEST MINING CHARTER

South Africa’s latest Mining Charter is aimed at sharing the benefits of the country’s mineral wealth more equally among its citizens. However, according to AngloGold Ashanti Chairman Sipho Pityana, the Charter doesn’t provide solutions to the industry’s challenges and will make it difficult for companies to buy and sell assets.

“South Africa risks driving away new investment and crippling its mining sector if ‘reckless’ new rules are implemented. When the industry says to you that what you are proposing will kill the industry, you should sit up and listen,” Pityana said in an interview at Bloomberg’s Johannesburg office.

“Layers and layers of these things make mining an uninvestable proposition and you are talking about an industry that basically has its back up against the wall.”

Negative perceptions about the new mining regulations could have ripple effects through the entire South African economy. “If you have gold miners desperately looking for investors and you say, ‘by the way, you also have to contend with this,’ I don’t think you are going to have a long queue of suitors,” Pityana said.

“Consensus is not just about protecting the mining industry, but it’s also about protecting the image of the country that we don’t do things in a reckless way.”

2019 INVESTING IN AFRICAN MINING INDABA

President Cyril Ramaphosa, the first South African president to speak at the Indaba, relayed the importance of the mining industry as a key player in our economy.

This year’s Indaba focused on, among other themes, resource nationalism, innovations in technology, battery metals, and diversity in mining and sustainable development.

“We have prioritised the restoration of a policy and regulatory environment that is stable and predictable. Significant work has been done to remove the uncertainty that held back the development of the industry.

“We have emerged from a period of strained relations where the courts became the main platform of engagement between the industry and government. We recognise the critically important role that mining can and must still play in shaping the future of our country,” Ramaphosa said.

2019 AND BEYOND

The Top 40 mining companies are enjoying a bounce back; however, temptations loom for industry and stakeholders. They will need to stay focused and deliberate towards achieving the long-term goal of creating sustainable value for all stakeholders. In particular, a watching brief will be on the following issues:

Financial capital

• Manage increased shareholder demands

• Consider response to more private equity entrants on an investment-forvalue basis and subsequent disruption

Intellectual capital

• Maintain relentless focus on costs

Human capital

• Manage technology and workforce considerations

Market disruption

• Ongoing macro-economic fluctuations including sanctions and tariffs

• Increased vertical integration as commodity users position themselves in anticipation of price increases

• Consolidation in the steel industry might create greater purchasing power and pressure on prices

• User trends, such as single sourcing versus spot buying

Manufacturing capital

• Address deficit in CapEx and exploration levels while maintaining investment disciplines

Social and relations

• Address stakeholder demands, including changing environmental regulation and tax regimes

TOP 10 MINING INDUSTRY MUST-DOS

1. Bring digital to life Mining companies need to understand how digital technologies, including autonomous vehicles, drones, 3D printing, wearable technologies and the Internet of Things (IoT) will influence the future and the way they do business.

2. Overcome innovation barriers Innovations with high start-up costs that may impact cash flow or the licence to operate are often dismissed. Mining companies are disinclined to collaborate with one another because of concerns about maintaining a competitive advantage and protecting intellectual property.

3. Consider the future of work The industry needs to consider how to create new employment opportunities, and to reskill and retrain employees in the latest technology and tools.

4. Promote the image of mining Mining companies must take proactive steps to address, and change, the industry’s image.

5. Transform stakeholder relationships The mining industry must adopt new approaches to the communities in which they operate to meet increasing demands for local employment opportunities, improved infrastructure and greater environmental protection.

6. Manage water usage Innovative methods need to be found to reduce, reuse and recycle water in water-scarce regions.

7. Change shareholder expectations As shareholder expectations grow, mining companies need to re-establish their credibility in the investor community.

8. Reserve replacement woes Mining companies are struggling to free up the exploration and development budgets required to exploit new resources. At the same time, they remain hesitant to engage in acquisitions to feed the exploration pipeline.

9. Realign mining boards Mining boards need to embrace the full power of digitisation and innovation to help drive change in the industry.

10. Be future-focused Miners need to track fluctuating consumer demands, global demographic and economic shifts, the effects of environmental change, and the emergence and adoption of new technologies.