Mining companies are prepared to increase their investment in projects in SA by 84% if the government tackles the dysfunction plaguing the processing of mining permits and approvals for self-generation projects, as well as constraints facing the railways and ports.
President Cyril Ramaphosa hinted the government could be open to discuss requests from mining companies to allow for the private operation of Transnet Freight Rail’s dedicated heavy-haul coal, manganese and iron ore export lines. He was speaking on the second day of the Investing in African Mining Indaba in Cape Town on Tuesday.
The government “has heard the calls for private companies to operate the dedicated iron ore, coal lines. We hope this will be discussed at this indaba,” Ramaphosa said.
The president announced in 2021 the intention to allow private freight rail companies to operate alongside the state-owned freight logistics group Transnet. In April, Transnet launched the bidding process for 16 rail slots, which will be sold to third-party operators for a period of two years. However, the slots excluded the lucrative heavy-haul lines that run between important coal, manganese and iron ore mining areas and key ports.
This move by Transnet formed part of the structural reform efforts being driven under Operation Vulindlela, which is a joint initiative of the presidency and the Treasury.
These reforms were broadly geared towards facilitating economic growth in SA.
It is “a matter of great concern”, Ramaphosa said, that SA had fallen into the bottom 10 of jurisdictions rated in the Fraser Institute’s Annual Survey of Mining Companies.
SA was once the top gold producer in the world, but the challenges facing mining companies in the country contributed to the exit of large gold miners such as AngloGold Ashanti which now runs gold mines in Ghana — Africa’s biggest gold producing country since it overtook SA in 2018.
The survey, which was published in April, ranked SA in 75th place out of the 84 jurisdictions in the 2021 investment attractiveness index. This was the worst rating SA had been given since 2009.
This underlined the need “to move with greater purpose to remove the various constraints to growth and development in the [mining] industry”.
“[We need to improve our] railways, which have fallen into disrepair, and the ports, which are not performing at a level where we want them to perform,” Ramaphosa said.
Rail and port constraints cost mining companies R35bn in lost income in 2021, according to Minerals Council SA.
The government understands, Ramaphosa said, the urgent need to fix the regulatory and administrative problems “that had crept into” the application process for mining and exploration licences.
Minerals Council SA CEO Roger Baxter said on Monday that companies in the sector have R30bn of capital projects awaiting approval, but there is a backlog of 4,500 outstanding licences at the department of mineral resources & energy.
Baxter told Business Day that it took more than 350 days for mining and exploration licence applications filed in SA to be processed compared with about 40 days in Botswana.
“We must clear the backlog of applications and put in place modern and much more efficient cadastral system,” Ramaphosa remarked.
Global exploration expenditure is estimated to reach $18bn in 2025, but SA’s share has declined from its peak of 5% in the early 2000s to less than 1%. The long-awaited exploration strategy for the mining industry that was published by the department outlines plans to increase SA’s share of global investment in exploration to 5% in the next five years.
Ramaphosa said mining companies have indicated they are prepared to increase their investment in projects in SA by 84% over and above the current capex commitment if the government addresses the dysfunction plaguing processing of permits, approvals of self-generation renewable energy projects, and the country’s railways, ports and electricity supply.
This figure is based on a study by the Minerals Council, which put investment by mining companies (gross fixed capital formation) at about R100bn and the additional amount that would have been invested if it weren’t for red tape at R84bn.
However, Henk Langenhoven, chief economist at the council, told Business Day that this estimate is “probably conservative”.
Fixed investment spending by mining companies in 2021 was R114bn, and the total additional amount that could have been invested was likely to be as high R100bn.
In response to Ramaphosa’s address at the African Mining Indaba, Baxter said the minerals council “took note of the president’s commitments for his government to remove obstacles blocking growth of the mining industry and to support this critical sector of the economy”.
Ramaphosa’s speech did not shy away from the difficulties the industry faces when considering investments to sustain and grow mines, or to explore for new mineral deposits, he said.
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