South Africa has slipped on an authoritative global index that assesses mining jurisdictions based on their attractiveness as investment destinations.
As Australian resources giant BHP Billiton battles for control of Anglo American minus its South Africa-based assets, and Anglo announced a review of its own portfolio that could see it end up without the bulk of the South African assets, the Fraser Institute’s survey of mining companies found that while South Africa’s policy score had increased by 11, the country was now ranked 64th among 86 mining jurisdictions it assessed.
The survey of mining and exploration companies assesses how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment. It was circulated electronically to about 2,045 people — mostly senior mining executives, investors and policymakers — between August 16 2023 and January 9 2024.
South Africa’s drop to 64th is 11 positions lower than in 2022, though only 62 mining jurisdictions were assessed in that year. The country’s overall score on the Fraser Institute’s Attractiveness Index shrunk from 59.72 in 2020 to 41.84 in 2023.The Fraser Institute ranked Utah in the US as the top mining jurisdiction for investment, followed by Nevada, also in the US, and the Canadian province of Saskatchewan.
According to the index, investors in South Africa’s mining sector are increasingly concerned about uncertainty regarding environmental regulations, protected areas and labour legislation.
Comments from mining company bosses highlighted concerns about the delay in the implementation of a modern cadastre — a publicly available online map and repository of a country’s mineral resources and mining and prospecting rights and permits that is managed by government agencies.
Policymakers across the globe should understand that mineral deposits alone are not enough to attract investment
— Elmira Aliakbari, director of the Fraser Institute’s Centre for Natural Resource Studies
One of the respondents, a president of an exploration company valued at $50m (about R908m), said the lack of transparency in permits was a deterrent to investment in South Africa. Another executive said that “local community engagement and preferential procurement requirements lack clarity due to the absence of a definitive cadastral system delineating the extent, location and area of influence of various communities”.
The latest ranking comes as South Africa’s mining industry has come under increasing pressure from a host of factors. Mining companies have for several years complained that constraints on the country’s railways and at its ports have contributed significantly to lower earnings.More recently, pressure on commodity prices, specifically platinum group metal prices has affected the performance of previous star performers such as Sibanye-Stillwater and Anglo American Platinum.
That has prompted several of local mining companies to announce plans to reduce production and cut jobs.
At the same time, observers have described BHP’s interest in Anglo minus its South Africa-based assets as a vote of no confidence in the local mining sector. That’s despite top executives at BHP, including CEO Mike Henry, undertaking a charm offensive in Johannesburg two weeks ago to reassure the government, investors and other stakeholders that their decision was based on a preference for more investment in copper as an energy transition metal, and not an indictment of South Africa.
The country’s long-awaited cadastral system was finally introduced in January after years of the industry pleading with the government to update its official register.In January, the mineral resources & energy department announced PMG Consortium as the recommended bidder for the system, but it is yet to get off the ground.
The survey found that Niger in West Africa was the least-attractive mining jurisdiction, followed by China, the Solomon Islands and Argentina.Four of the 10 least-attractive mining destinations — Niger, Mozambique, Zimbabwe and the Democratic Republic of Congo — are in Africa. The other countries are Argentina, China, India, Philippines, Mongolia and Colombia.
Botswana, which boasts some of the biggest diamond mines, including De Beers’s Jwaneng Mine, remained the highest-ranked jurisdiction in Africa, coming in at 15th.Still the southern African nation, often hailed for its investor-friendly policies, slipped to an overall score of 76.87 in 2023 from 82.75 in 2022 — the first time it has ranked outside the top 10. However, it still scored high on the policy perception index at 92.17, down slightly from 97.79 in 2022.South Africa recorded an improvement in the policy perception index from a low of 29.65 in 2022 to 49.59 in 2023. Utah scored 100 on this measure.
The report said Botswana’s lower score this year reflected increasing concerns about skilled labour, infrastructure, its geological database and uncertainty concerning protected areas.
“This year, Botswana dropped several places in the investment attractiveness index and ranks 15th out of 86 after ranking among the top 10 jurisdictions last year.”
Morocco was the second-most attractive jurisdiction in Africa for both overall investment and policy.
“Africa’s median score on the investment attractiveness index decreased by a little over nine points this year. With a median score of 44.88, Africa is the third-least attractive region for mining investment when accounting for both mineral potential and policy,” according to miners surveyed.
Elmira Aliakbari, director of the Fraser Institute’s Centre for Natural Resource Studies and co-author of the report, said a sound regulatory regime coupled with competitive taxes make a jurisdiction attractive to investors. “Policymakers across the globe should understand that mineral deposits alone are not enough to attract investment,” he said.
Another co-author, Julio Mejia, said that while South Africa had lost 12 points in the best practice mineral potential index, the increase of 11 points in the policy perception Index reflected a decreased attractiveness in the country’s geological endowment, but an increase in policies that attract investment.
“For instance, when comparing with 2022 results, 23% of respondents for South Africa expressed a decreased concern over the countries’ geological database, 17% over the state of community development agreements, and the availability of labour with skills for the industry. These were the areas where South Africa experienced the most important improvement with respect to 2022,” he said.
“However, there were some areas where investors expressed an increased concern. In particular, when comparing with 2022, 18% more respondents expressed concerns over South Africa’s uncertainty regarding environmental regulations, 12% more respondents were concerned with the uncertainty regarding what areas will be protected and 11% more expressed concerns over labour regulations in the country,” Mejia added.
Speaking at a Minerals Council South Africa webinar on exploration on Friday, Errol Smart, CEO of Orion Minerals and chair of the council’s Junior Exploration and Mining Leadership Forum, said South Africa needs minerals and mining as one of the biggest drivers of the economy.
Smart said that while there are people who sit on mining rights because of a lack of funding, access to the land and the use of water are also problematic.
“It is good to get prospecting rights, but in most of South Africa the prospecting rights are under private ownership, not even community ownership, but private ownership. The farmers can hold the miner off the property, so you cannot get access [to a property] for exploration. It takes four or five years to get a prospecting right, and mining rights [takes] even longer.”
Smart said that over the past seven years Orion has been involved in 30 successful rights applications, which took too long to finalise and were marred by bureaucratic bungles.“In those 30 mining rights we have been granted over the years, I don’t think even five of them were granted without some kind of bureaucratic and administrative mess. The company name is spelt wrong, the farm is spelt wrong, and minerals are left off the grant. It is a bureaucratic challenge to get anything done in your prospecting and mining rights application process,” he said.
Rene Hochreiter, a consulting mining analyst at NOAH Capital Markets and Sieberana Research, said there had been no improvement in South Africa’s mining attractiveness since a year ago. “Without a cadastral system, the South African mining industry will continue to stagnate,” he added.
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