Errol Smart CEO, Orion Minerals NL
JOHANNESBURG - The dominant sentiment about mining in South Africa over the past few years has been overwhelmingly negative.

Confidence in the country’s regulatory framework, according to local and international bankers, analysts, major and junior mining executives, and other industry commentators, has all but vanished. While South Africa is still described as a country with one of the richest mineral endowments in the world, meaningful exploration has not been evident for decades.

Updated and modern exploration techniques using newly developed technology has not yet been applied to any meaningful extent to replace the known reserves which have been largely exhausted.

And the JSE has fewer than 30 active, contributing mining, resource and exploration companies currently listed, a fraction when compared to the eighties. Canada and Australia each have more than 200 junior companies listed on their boards, vying for attention, with many of them exploring for projects on our continent.

Many people have argued that South African mining was ultimately a sunset industry, and it was only a matter of time before the last mines closed their doors/shut down their shafts. That sentiment has now shifted dramatically, as we are seeing a new dawn for commodities, following rapid advances in technology with a voracious appetite for base metals.

More specifically, I believe that this has again turned the spotlight to South Africa, where we are seeing the beginnings of a long-awaited revival of the country’s junior mining and exploration sector. With the right support and alignment of priorities, we can turn our rich mineral endowment into the cornerstone of a growing economy that it deserves to be.

Recent confidence in the junior mining and exploration sector in this country can largely be attributed to four key factors: the potential quantum of mineral deposits still to be discovered; general sentiment towards juniors; trends in supply and demand; and - more recently - South Africa’s changing political climate.

Cyril Ramaphosa’s election to party president at the ANC’s elective conference in December was a pivotal moment in terms of business and investment confidence, evidenced by a strong rally in the rand versus the US dollar.

A Goldman Sachs report prepared in early January in the wake of the ANC conference identified South Africa as the “big emerging market story” of 2018, especially given the possibility of declining interest rates and strengthening rand.

This positive sentiment was further shored up during the World Economic Forum in Davos where Ramaphosa, a former union leader, promised to deliver economic policy change, saying that South Africa did not want to miss out on a commodity boom and if the Mining Charter is “holding us back we must deal with that”.

South Africa has not recently attracted significant foreign direct investment (FDI) due to slow economic growth, policy uncertainty, allegations of corruption and higher labour costs. According to data from UN trade and development agency Unctad, South Africa recorded FDI inflows of $2.3billion (R27.7bn) in 2016 against outflows of $3.4bn. Ten years ago average annual inflows were almost double that, at $4.5bn against outflows of $3.3bn.

In the mining sector, policy uncertainty related to the third iteration of the Mining Charter knocked R51bn off the value of listed mining stocks on the JSE when it was introduced and caused deep unhappiness across the sector, which argued it was unworkable, impractical and poorly drafted, and lacking in proper industry consultation.

Young junior miner Olebogeng. The 28-year-old runs a tailings treatment and mines rehabilitation company, Yeabo Mining, in Rustenburg.


Potential

The political will to provide an investment-friendly regulatory climate will be key to a mining sector that has the potential to attract FDI - and the junior and mid-tier miners stand poised to unlock that potential in South African and on the continent. We are already seeing overseas juniors with dual listings on the JSE, which has a track record of ensuring good governance and also provides access to international financial markets for capital raising.

Speaking at the Geological Society of South Africa’s Exploration Showcase, held in Johannesburg last year, respected resources consultant Dr John Bristow said that while another major find such as the Witwatersrand Basin or the Bushveld Complex was unlikely, the country’s “geological and minerals jewel box” was under-explored and he believes there are at least six to 10 mid-tier deposits to be found.

“We need the leadership to look at where we take this industry, and it’s a resources industry and not just mining. We need to go back to the value curve and we need to go and work on the front of the value curve, which is exploring and finding new ore bodies,” he said.

Our own experience supports these views and we believe that there is an urgent need to explore, develop and revive a vibrant junior culture in South Africa’s resources sector.

Which is why, as Orion Minerals, we are making one of the largest investments in green- and brownfields exploration this country has seen for at least 30 years. Having raised funding of some A$12m (R113.8m) in the last two quarters of 2017 alone, mainly for advancing its South African portfolio, this FDI demonstrates our belief in the country and the sector. We estimate we contributed some R200m to South Africa’s FDI during the 2017 calendar year.

Ours is but one example of a plethora of opportunities where we, and other junior explorers and developers, are choosing to invest. As South Africa under Ramaphosa’s guidance desperately needs to attract the interest of explorers and developers, we will be competing with other jurisdictions, actively making changes to attract the expertise and investors funds.

For example, India is also looking to international mining juniors to fill the void in private investment.

Soon after India’s Mines Ministry propagated private-public-partnership (PPP) model contracts to boost private capital into mineral exploration in mid-2017, India’s government started preparing to invite 30 to 40 mining juniors to submit proposals to float PPP special purpose vehicles for exploration projects.

And even in the first world and one of the leading mining countries in the world, the Australian resources sector saw an A$100m investment by the federal government to encourage greenfields mineral exploration in September last year.

The key benefit to exploring multi-commodity mineral deposits is that these activities will feed the increasing industrial demand created by accelerating technological innovation. This demand is reflected in the ongoing upward trend in the prices of copper, zinc, nickel and cobalt - metals found in abundance at our Northern Cape project.

The electric vehicle (EV) revolution, for example, is expected to have a disruptive effect on world commodity markets.

Commodities trading giant Glencore has said that forecast EV-related metal demand becomes significant from as early as 2020 - estimates are an additional 390000 tons of copper; 85000 tons of nickel and 24000 tons of cobalt will be needed.

The additional forecast metal requirements by 2030 amount to 4.1million tons of copper (equivalent to 18percent of 2016 supply), some 1.1million tons of nickel (56percent of 2016 supply), and 314000 tons of cobalt (equivalent to 314percent of 2016 supply). Meanwhile, global zinc stocks are predicted to fall to critically low levels by the second half of this year, propelling prices to highs of above $4000 a ton according to research by consultants Wood Mackenzie. The metal is mainly used in galvanising steel.

Zinc consumption

The current annual consumption of zinc for car bodies alone is roughly 120000 tons, according to the IZA, and China and India are only now starting to introduce zinc in their car body manufacture to match Western quality standards. In China there are more than 20million car bodies that will need to be replaced with higher quality galvanised, erosion-resistant models over the next decade.

These four factors combined - a political environment-boosting investor confidence in South Africa, a wealth of unexplored minerals, a greater appreciation for the role of the junior explorers in the mining sector, and surging demand for base metals based on EV and EV batteries, among other innovations - give us the greatest confidence in the South African junior mining sector.

We believe junior miners have come of age and, with the right incentives, government and investor backing, can comfortably compete with the majors in terms of finding new mineral deposits and generating wealth, while being significant contributors to job creation.

Errol Smart is the chief executive of Orion Minerals.

The views expressed in this article are not necessarily those of the Independent Group.

- BUSINESS REPORT