A Mining Crisis Looms in South Africa
The world these days seems highly polarized, where evenly divided groups of people are taking extreme positions. This can be seen in several recent elections and referendums, and it has shaken the status quo. This is also having a knock-on effect on mining. Some governments who realize the importance of mining to regional economies have reversed course and created an environment conducive to mining-related investments. Others, many of which take mining for granted, are moving in the opposite direction, not realizing that excessive taxation and regulation may be killing the Golden Goose.
E&MJís lead news story this month covers the new mining charter that was introduced in South Africa during June. The country is blessed with an abundance of natural resources. Some of the worldís deepest and richest gold mines are located near Johannesburg. They are steeped in history. They are also mature and costly to operate. This new mining charter, however, covers all mining, not just gold. South Africa produces platinum group metals, diamonds, coal, iron ore, etc.
The mining business is shrinking in South Africa. In 1980, a year considered the pinnacle for mining in South Africa, the mines accounted for 20% of the GDP. Now, that figure stands at a little more than 7%. E&MJ routinely reports the problems the South African mines face: high mining costs, labor issues and low productivity. These are challenges all miners face around the world and they are exacerbated by relatively low metal prices. These issues are more acute in South Africa.
The new mining charter introduced by the South African government will not help the situation. Itís a populist move related to black economic empowerment (BEE) initiatives. As readers will see in much more detail, it will force companies to ensure that at least 30% of their shares are controlled by blacks, even if they decide to sell them. Thatís an increase from 26%. South African mining companies will now face a host of new BEE requirements.
The charterís release initiated a sell-off of South African mining stocks worldwide. As this edition was going to press, AngloGold Ashanti, a major multinational gold miner, announced plans to lay off 8,500 miners, nearly a third of its workforce, from mines it now considers unprofitable. E&MJ expects to receive more similar reports from the field.
South Africa was not the first country to surprise its mining industry with additional regulations. They also were not the first to introduce policies without thinking them through. And, they wonít be the last. Without a change to a more free-market approach, the mining sectors in these countries, and South Africa in particular, tragically will become history.
One manís loss is another manís gain as they say. Those mining-related investments, which eventually become jobs, will be redirected to other mining-friendly jurisdictions. While everyone would like to see metals prices increase because of demand, removing output from the market will have the same effect.
Steve Fiscor, Publisher & Editor-in-Chief, E&MJ