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Junior mining outlook: Have we turned the tide?

The heyday of the mining sector is behind us. The sector’s contribution as a proportion of South African GDP peaked at 21% in 1980, and then began a gradual slide as mineral prices, and depleting gold reserves had an effect.

The argument can be made that 56,5 million people today have shelter, food and access to transport and other household needs because of the investment that companies have made in South Africa.


Bert Lopes National Head of Advisory and Managing Partner BDO South Africa

This speaks to the historical contribution that the sector made, from the days when it led to the founding of Johannesburg on the strength of a booming gold sector, through the decades when mining underpinned much of our country’s economy.

The number of individuals employed reached a high of 760 000 people in 1987.

Today the numbers are around 490 000, and the sector brought in only 8% of GDP in 2016.

This opens up great opportunities in the Junior Mining sector, which has historically been headed up by large houses; which have now dwindled over the years.

The sector remains a significant contributor to the South African economy.

It is our sixth biggest sector and contributes R8 for every R100 produced by the national economy. The sector employs one in every 40 working individuals (or 2,5% of the entire workforce).

Making a conservative assumption that each miner supports a family of four (the real figure may be significantly greater), around two million people have their fortunes tied to the success of the sector.

The conventional wisdom is that miners are poorly paid. Evidence, however, tells a different story. Mining wage levels are well above those of most other sectors, and miners are in fact among the best paid of South Africa’s industrial workers.

A 2016 Statistics South Africa study estimated average wage levels in the mining sector around R21 000 a month, making miners the best paid out of all industries, besides the generously remunerated “electricity and water” sector.

What makes mining investment so attractive is that much of the investment made by mining companies is in infrastructure that must be developed over long periods.

Mining investors cannot easily take the financial commitment they make to a country and move it to another location.

As with Junior Mining, the exploration for new minerals and metals is a risky endeavor that requires committed shareholders and investors.

It is precisely for this reason that long-term policy certainty is essential to attract such investment.

South Africa’s current-account deficit may have the effect of contributing to currency weakness and increasing levels of inflation.

The contribution to tax revenues from mining can therefore not be overlooked.

Mining investors paid 7,8% of all corporate tax assessed for 2017. This contribution goes to support the education, income, health care and social development needs of South Africans across all communities.

The discussions around the Mining Charter appear to be reaching finality, which is to be applauded.

The latest version of the charter has been issued, and the mineral producers are studying it.

It appears to be a rational compromise between what producers have lobbied for and the roundly rejected version of last year.

The question then becomes whether the latest version of the charter will make it easier, and more attractive to invest in the sector, and perhaps lead to an increased interest in the business of Junior Mining.

Even the revised charter contains elements that will have short-term consequences for investors.

Minimum black ownership stays at 26% for the duration of existing mine rights, though new mining right holders will need 30%.

Workers and community groups, must still be granted “carried interests” in mines of 5% each.

These are significant considerations for investors eyeing the South African sector.

However, the importance of sharing South Africa’s wealth amongst all citizens is widely acknowledged. We are in the process of agreeing on a policy that does this while ensuring the viability and sustainability of the sector.

Once this agreement has been reached, certainty will begin returning to the sector.

Aside from the charter’s rules, it is certainty itself that makes the sector attractive to mining investors.

Mining companies, workers, the community and shareholders must reach finality, nail down a charter that everybody can live with and move forward.

Mining still has much to contribute to our country. It must be allowed to do that.