New minerals legislation in sight for South Africa

Since the African National Congress (ANC) came to power more than five years ago, South Africa’s mining industry has been nervous about proposed changes to the country’s mineral policy, including a major change to the system of state-held mineral rights.

Many of the initial proposals were met with angry and nervous protests from the mineral-holders of the day. However, a recent study by Stockholm-based Raw Material Group and the Energy Policy Centre, a Johannesburg-based independent mining and energy policy research organization, has found that most of those uncertainties have disappeared since it became known that the changes will not be as dramatic as originally expected.

The new mineral legislation expected to be promulgated soon will focus on four key areas: black economic empowerment; an overhaul of the mineral rights system; attracting new investors; and improving social conditions for the remaining mineworkers and the vast numbers of people already laid off.

“The most important part of the new minerals policy is the announced change to a system of state-held mineral rights,” the authors note. “The ANC government is clearly in the international political mainstream in setting, as its long-term objective [is] to have ‘all mineral rights vested in the state for the benefit and on behalf of all the people of South Africa.'”

The authors expect that the government will handle the issue with great care. “The most recent policy document and indications from government discussions certainly suggest a more cautious approach than was expected, one that is more pro-industry than the political statements made prior to the first democratic elections in 1994.”

The caution may be prompted in part by low gold prices, which have taken a major toll on the South African economy, resulting in thousands of mineworkers being laid off during the recent industry restructuring. The study even suggests that mining may never again be the backbone of the national economy. “It is an irony of history that when the black majority finally comes to power, to reap the benefits of the toil of generations of black miners and distribute this wealth over a larger part of the population, there is less wealth to be shared.”

The persistent weakness in gold prices has forced a truce of sorts between battling industry leaders and trade unions. Last summer, a joint union-management road show was set into motion to convince central bankers and Western politicians of the disastrous effects for miners and mine-owners alike of central bank gold sales. “Such a joint delegation would have been impossible only a couple of years ago,” the authors point out. “It shows how the relations between industry, unions and government in South Africa are developing and getting more similar to those in other mining companies.”

The study also examines the changing nature of the industry since the unbundling of the traditional South African mining houses. It points to some success stories of black empowerment in the gold sector, including African Rainbow Minerals, now the 29th-largest gold producer in the world. White entrepreneurs have launched small to mid-sized companies to take on projects that the mining houses would not touch.

The report suggests that the South African industry will continue its recent efforts to diversify into other parts of Africa and abroad. Some of the smaller South African companies are also making their debut on the international scene, including Harmony (buying into the Canadian gold mine Bissett) and Metorex (taking a share in the Chibuluma copper operation in Zambia).

“A growing proportion of South African companies’ exploration expenditures is spent outside South Africa, mostly in Africa,” the report states. “Whether by exploration or by acquisitions, therefore, most of the growth of South African companies will take place outside South Africa.”

Foreign investors are cautiously making their presence felt on the South African scene, attracted by the low prices paid for gold reserves in the nation, relative to elsewhere in the world. “Placer Dome, for example, paid only US$16 per oz. for gold in Western Areas, as compared to US$171 per oz. when it acquired Getchell Gold’s Nevada property.”

The study concludes that if the announced policy changes are carried through with caution, foreign investors may make up for the spread of South African mining interests into the world. “Paradoxically, one of the most important safeguards of stability will be the quickly growing new class of black mining entrepreneurs,” the report states. “They will not want to see their emerging empires lost.” Foreign investors must, as a consequence, be sensitive to the economic and political changes in South Africa.