Sovereign Africa Ratings

This year's Mining Indaba marks its 30th anniversary, offering South Africa a platform to showcase its mining supply chain capabilities to the global community. The theme is 'Embracing the Power of Positive Disruption' and indeed, the 2024 Mining Indaba will take place amidst several ongoing challenges and constraints.

Economic Perspectives on Key Challenges

Although the Mining Indaba has identified specific discussion points, such as drilling and exploration and industrial electric power, it is critical to highlight the following key issues confronting the South African mining industry.

• Long-term mining output in South Africa is declining. Mining output peaked in 2004 and began to decline in 2008.
• Multiple shocks have occurred since 2008,including global financial crises, the Marikana tragedy, a strike by Platinum Group Metals (PMG), a drop in commodity prices, a COVID lockdown, freight rail crises, bottlenecks in ports and logistics infrastructure, and power outages. These have put significant pressure on mining companies' operational costs. Due to inadequate rail infrastructure, trucking has been used to transport millions of tons of strategic commodities such as coal exports. Trucking is not the best option for exporting bulk mineral commodities due to inherent inefficiencies compared to rail transport. The increased use of trucks also accelerates road infrastructure deterioration, resulting in congestion, accidents, emissions, and pollution. Inefficiencies at SA harbours have also resulted in the diversion of some mineral exports to Maputo Harbour rather than SA ports such as Richards Bay, which imposes a cost premium on other exporters as well as an opportunity cost on the South African economy.
• Recent shocks include the Just Transition agenda, the mining industry's decarbonisation, increased domestic mining policy uncertainty, delays in the issuance of new mining rights, geopolitical factors, and inflation in mining input costs. Illicit mining (unlicensed), cable theft, and infrastructure vandalism all have had a negative impact on mining output and returns.

Analysis of Key Economic Performance Indicators and Challenges

The South African Mining Sector is defined by the key economic performance indicators listed below for the 2023 snapshot.

Source: SAR adaptation based on Mineral Council Data

In 2013, the mining sector contributed 6.7% to GDP, and it is expected to contribute 6.2% by 2023. In terms of job creation, the mining sector employed 448,909 people in 2013 and 477,000 in 2023, representing a mere 0.47% increase over 10 years. It is important to note, however, that the SA Mining Sector contributes R172.5 billion to the budget each year, as shown in the table below. This demonstrates the sector's strategic importance to the South African economy, as attributed to mining taxes. The mining sector's contribution to the fiscus in 2023 increased by R9 billion when compared to 2022.

Source: SAR adaptation based on SA Mineral Council Data

Prospects Beyond the 2024 Mining Indaba

• Implementation timelines for mining cadastre system - the cadastre, which is expected to be operational in 2025, has the potential to transform mining exploration in South Africa.
• Indication of mining companies' production/capex response in challenging operating environments.
• The impact of automation on jobs, skills, and the nature of work in mining.
• Mining and technology play important roles in reducing unemployment.
• Clarity on bans of mining exports has increased as a result of the promotion of local beneficiation of minerals such as manganese and palladium, which are important inputs in renewable energy production. PGMs such as platinum, palladium, ruthenium, and iridium are important catalysts in hydrogen fuel cells, and this technology is expected to drive future demand for mining.
• Minimising the socio-economic and macroeconomic impact of the closure of coal-fired power stations in South Africa as well as the resultant risk in mining towns, which have coal as the main natural resource.
• South Africa's mining sector fiscal regimes (for example, royalty taxes and resource rent rates).
• Timeline for granting new mining rights and licenses.
• Government interventions aimed at improving efficiency in Transnet Rail operations, ports, and logistics, as well as ensuring adequate energy supply; a hint of forthcoming Transnet financial support in the 2024/25 Budget, which will be tabled in February 2024.
• Progress in meeting mining charter empowerment targets.
• The Electricity Action Plan presents practical steps for adding new electricity generation capacity.
• Working with the private sector to address railway and port constraints and bottlenecks.
• Introducing competition in freight rail operations to encourage private-sector investment in the rail system.

Economic Implications and Concluding Remarks

Mining export volumes are limited by Transnet rail failures. As in 2022, bulk commodity exporters (coal, chrome, iron ore, and manganese) were constrained by the failing Transnet rail infrastructure, resulting in significant export tonnages and revenue losses. Overall, mineral export revenue fell by more than 11% year on year in the course of 2023. Low demand and low business confidence continue to constrain South Africa's private sector fixed investment (capex: capital expenditure).

The importance of increased exploration in South Africa cannot be overstated in order to discover mineable deposits of critical minerals. Overall, critical minerals are used and important in three broad thematic applications: (i) battery and vehicle metals, (ii) renewable energy technology (e.g., wind and solar), and (iii) hydrogen economy metals. As a result, the South African mining sector cannot afford any further delays in the issuance of new mining rights and licenses. Such interventions will boost mining output and increase opportunities for further beneficiation, resulting in increased industrialisation and diversification, thereby stimulating economic growth and job creation, and generating much-needed additional tax revenue for the government as well as foreign exchange earnings. This will also help improve South Africa's creditworthiness.