FOREWORD - JSE MAGAZINE

FOREWORD

For the SA mining sector, 2018 was yet another tough year in which it did not benefit from price increases in the same way global mining communities did

FOREWORD

Ongoing uncertainty around mining regulation, particularly that of the Mining Charter, continued to hinder productivity and diminish investor confidence, resulting in reduced exploration activity in the country.

There were positives though. For the first time in 10 years, the mining index outperformed the JSE All Share Index, and the combined market cap of the JSE-listed mining companies grew from R1.3 trillion in 2008 to R2.6 trillion in 2018. We also welcomed the appointment of Minister Gwede Mantashe, whose willingness to engage with the mining industry – from investors to mining-affected communities – has provided optimism that policy certainty will be forthcoming, more so following his motivation of the removal of the controversial Mineral and Petroleum Resources Development Amendment Bill.

SA’s economy and socio-economic development was built on the backbone of mining, particularly gold, so it is unfortunate that precious metals aren’t performing as well as they have in the past. Gold sales, for example, increased by 33% in 2016 but production declined by 3.6% in the corresponding period. Between 2016 and 2017, the gold price declined by more than 8%, and it continued to decline in the course of 2018.

Coal is another prime example, with a net investment decline of 10% per year from 2009’s R7.3 billion to R3.8 billion in 2017.

While gold and coal, along with platinum and diamonds, will likely remain the largest contributor to the current overall R312 billion the industry makes to GDP, one of the factors that could be a game changer for returning SA to its status as one of the most attractive mining destinations in the world, is that 80% of global platinum group metals (PGMs) reserves are to be found in our country, and an additional 10% in neighbouring Zimbabwe.

It is these Southern African reserves of PGMs that open the debate on the creation of a metals exchange and whether its existence would motivate an increase in productivity, which in turn could revitalise the sector’s employment potential. Apart from its possible reduction of the unemployment rate, a metal exchange would be most beneficial in lessening the impact of volatilities within the global commodity cycle.

There are underlying trends in the metals market that will also drive investor interest in a metals exchange, not least of which is the Chinese demand for most, if not all, metal derivatives. Technological advances in the industry mean that profits have more potential to be realised than through traditional mining techniques. Similarly, new environmental regulation and processes have attracted new investors interested in cleaner mining practices. And then there’s BRICS, whose combined mining assets exceed $1 trillion.

The JSE already has in place a sound trading infrastructure that would be conducive to supporting a metals exchange. We believe there is value to be had for the SA economy if the price of the commodity can be discovered on our domestic platforms, while value-added beneficiation can be achieved locally too. For this reason, the government’s support for local manufacturing of electric vehicles, batteries and catalytic convertors is an encouraging development.

Industry speculators suggest that if government is able to address most, if not all, concerns relating to the mining industry, investment in the sector could double in four years, creating an additional 200 000 direct and indirect jobs – the impact of which will return mining to its halcyon days as the main driver of economic development and growth of the country.

Donna Nemer
Director: Capital Markets