The lack of spending on mining exploration in SA, due in part to the lack of mining policy certainty and long delays in granting exploration licences, is posing a threat to the future of this industry and the contribution it makes to the economy.
As a result of insufficient spending on exploration, SA is not adding new sources to secure future minerals production, said Roger Baxter, CEO of the Minerals Council SA, who was speaking at the Junior Mining Indaba in Johannesburg.
“The new project pipeline in SA is very limited because so little is being spent on exploration. Most of the exploration and new project development that is taking place is being done around existing mining areas by major companies,” said Baxter.
Investors will not come to SA simply because of the country’s rich endowment of mineral resources. They will come only if they can find viable deposits on a cost-competitive basis, he said. His comments echoed the sentiments of one mining company, Orion Minerals, whose CEO said the problem was not only the time it took for applications to be processed, but also the quality of the responses that the company eventually received from the mineral resources & energy department.
SA’s share of global exploration spending has dropped to below 1% from a peak of 5% in 2003, and it has remained stubbornly below 1% for more than a decade.
To put this in perspective, Baxter said, between 2000 and 2018, Canada attracted $2bn in exploration spending annually, with Australia not far behind with $1.8bn. During the same period, SA managed to attract only $198m of spending a year.
The department’s “dysfunctional and outdated” SA Mineral Resources Administration System has resulted in a backlog of thousands of unprocessed applications.
The Minerals Council previously said there was a backlog of about 4,500 outstanding mining and prospecting licences at the department.
“The long delays in granting of exploration rights — in some cases up to five years — severely disadvantage junior mining companies who need to raise capital for exploration,” Baxter said.
The department has this year been able to speed processing of the backlog, he said, and it had managed to process about 1,000 applications in a short time, but there were still about 3,500 authorisations outstanding.
Errors
Errol Smart, CEO of JSE-listed copper developer Orion Minerals, said the lack of investment was not because there was no interest to explore in SA, but rather because of the difficulty of obtaining approvals.
Orion had been experiencing problems with the quality of responses by the department to applications.
It had received acceptance letters from the department with spelling mistakes and other errors, such as missing important information that was included in the original application.
“Just last week we received acceptance letters with spelling mistakes and key minerals left out,” said Smart.
While the department had now been able to respond to about 1,000 applications “in record time”, 80% of the “rapid responses” had to go back to the department because there were major errors in them.
These applications then no longer form part of the reported backlog, even though they have to be filed anew.
Another concern is the period companies are given to explore. A prospecting right in SA is valid for five years and after the expiry of the five years, the company may request renewal of the right for three years.
“The period should be 20 years — [if there is no] certainty that you can explore long enough to turn [a mineral find] into a meaningful mining project, then you would rather just not start,” said Smart.
According to Baxter, SA also lacks a globally competitive, predictable and stable policy and regulatory framework that encourages investment in exploration.
The department recently published two documents, the exploration strategy and the exploration implementation plan. Baxter said the industry did not deliver any input for the exploration strategy and this document “did not resonate with the actual plan”.
There are also some concerns with the exploration implementation plan. For example, a major concern is the level of ministerial discretion that the document allows for.
Subjective
The principle of “first come first served” in the granting of prospecting rights — provided the applicant meets all qualifying criteria — appears to have been replaced with “a system of meritocracy based on ministerial discretion.
“This means that rights will be granted on the basis of subjective criteria by the [department] as opposed to legal requirement,” Baxter said.
“This introduces uncertainty, and it will have a negative affect on investment into exploration.”
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