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Infrastructure a challenge for SA mining

Access to infrastructure will remain a significant challenge for the mining sector next year even though the government has committed resources to capital investment programmes aimed at the transformation of the economy.

Research by firms, including Ernst & Young and Coface, has found that growth in production by mining firms is often limited by inadequate infrastructure, including water, power, rail and port facilities.

File picture: Reuters. Credit: REUTERS

“Export customers won’t wait, and where infrastructure constraints exist, this creates a significant risk of loss in potential market share as competitors step in to fill the gap,” the Ernst & Young report read.

Due to infrastructure challenges the mining industry missed out on the last commodities boom that was driven mainly by rapid industrialisation of the Chinese economy.

The electricity crisis, which led to widespread blackouts, as well as a shortage of rail and port infrastructure, have been blamed for the contraction in mining. South Africa is in danger of losing out on the current commodity price boom because of regulatory uncertainty, high input costs, slow demand from the euro zone and calls for the nationalisation of mines.

In his State of the Nation address in February, President Jacob Zuma announced a R300 billion infrastructure plan over seven years, which was expected to create more than 588 000 jobs.

The plan aims to improve rail, port and pipeline infrastructure and is expected to result in an increase in freight volumes, especially for iron ore, coal and manganese.

More specifically state-owned logistics firm Transnet has a five-year R110bn capital investment plan to support growth mainly in the mining sector. The plan includes an increase in iron ore export volumes by 11 percent to 51.6 million tons. It also plans to allocate capacity to emerging mining companies.

Neale Baartjes, a director of mineral economics and resources at consulting firm EcoPartners, was concerned that while inputs for mining production were constrained there was a monopoly on logistics.

“In South Africa we have a railway monopoly. This creates a disparity in what we pay for rail,” he said.

Electricity capacity is also an issue. Last week Eskom announced that through a power buyback programme Xstrata-Merafe chrome venture had agreed to shut five furnaces from January to the end of March next year.

Last month, Hernic Ferrochrome agreed to idle two furnaces at its De Kroon operation from December to March, reducing production to 40 percent of capacity as it entered a new buyback programme.

“Electricity is constrained. If you want to set up a new mining project then there will be challenges like at Xstrata-Merafe,” Ebrahim Takolia, an analyst with Deloitte Consulting, said on Friday. Takolia also said that new mining projects faced water scarcity challenges, particularly in North West.

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