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Exploration: The linchpin to attract international investment

Considering South Africa’s rich endowment of mineral resource wealth, exploration is a key opportunity through which the country could attract capital investment into its mining sector.

Undertaking new exploration programmes may lead to the discovery of some of the critical metals needed to help the world decarbonise – metals that may have been overlooked in the past. This would allow South Africa to reap the benefit of the current commodity super-cycle, which is dominated by these future-facing commodities, writes CHANTELLE KOTZE.

During a panel discussion at the virtually-held Joburg Indaba in October, speakers from some of the top international resource investment firms explored the topic of prospects in South Africa’s mining sector.

Mick McMullen, CEO of newly-formed green metals special purpose acquisition company Metals Acquisition, who was a former executive at Stillwater Mining, understands that large investors remain risk averse. Mullen therefore advised that before large investors begin dipping their toes into the waters of these future-facing metals, such as lithium and rare earths, they ensure their balance sheets are bulletproof.

“Fundamentally however, investors want to see firms with exposure to future-facing metals,” he said.

Investment management corporation BlackRock natural resources MD Olivia Markham said that while there is merit in creating options in some of the future-facing metals, which would in turn necessitate going into some of the riskier jurisdictions and taking earlier stage options, it is an imperative that investments being made result in dividends to shareholders.

“Once we have seen some successful assets in high-risk jurisdictions, then maybe some of the majors will follow,” she said.

Fiona Perrott-Humphrey, a London-based senior adviser within the mining team at independent financial advisory firm Rothschild & Co, who acted as chair of the panel discussion, questioned how South Africa, a country that only hosted a few future-facing metals like other countries, could remain on the right side of short-and medium-term developments.

Brett Beatty, partner and head of Australia at mining specific investment fund Resource Capital Funds, highlighted exploration as the main driver by which South Africa could attract investment.

“South Africa has great geology and infrastructure and generating a pipeline of new projects will attract capital investment,” he said.

He further noted that South Africa would however be required to demonstrate to the investment community that it is a reliable partner capable of attracting capital.

This sentiment was shared by McMullen, who reiterated the importance of having a stable mining environment in which to operate as a prerequisite to attracting capital investment. In the short term, Mullen said one of the ways for South African mining companies to gain exposure to future-facing metals would be through outward investment, as confirmed by Sibanye-Stillwater and its recent battery metals acquisitions overseas.

“It will take a fair bit of time to generate projects in South Africa and for the political system to mature sufficiently to provide a stable system capable of attracting large amounts of capital,” he says.

On the topic of energy in South Africa, McMullen said there was also no reason why South Africa could not get behind the green energy revolution, including green hydrogen.

“A rethink of the energy system in South Africa could potentially unlock a huge amount of inward investment,” adds McMullen, noting that South Africa needed a green energy proponent, such as Andrew Forrest of Australian iron ore company Fortescue Metals Group, to push this along.