Important South African industry collapsed from best in the world to among the worst

South Africa’s mining industry has gone from being the envy of the world just thirty years ago to being routinely ranked among the worst jurisdictions to operate in. 

This decline was not quick, with it being a steady erosion of what made the country attractive to miners in the first place. 

No new exploration for minerals has taken place in South Africa over the past twenty years, indicating that even if things changed it would be decades before the industry recovers. 

The decline has been driven largely by policy and regulatory uncertainty, with South Africa’s ANC-led government failing to continue with regulations that were conducive to exploration and expansion. 

Instead it has focused on transforming the sector and imposing increasingly onerous regulations on miners, preventing the continued operation of some mines and the opening of new shafts. 

This is feedback from mining analyst at Modern Corporate Solutions Peter Major, who outlined the decline of the industry afet attending the latest Joburg Mining Indaba. 

Speaking to BizNews, Major explained that South Africa is going down the path of many other African countries who focused on transformation and nationalisation of the mining industry post-independence. 

Major particularly pointed to the collapse of Zambia’s mining industry, which is the path he believes South Africa is on. 

“It is a replication of what happened in Zambia. A fantastic industry that was homegrown and built up over 70 years was plundered, neglected, destroyed, and mismanaged,” Major said. 

“Sitting at the Joburg Mining Indaba, you are probably hearing the same screams, moans, and cries that you heard in Zambia.” 

Major explained that when Zambia’s mines were nationalised in the late 1960s and early 1970s, it was among the top ten copper producers in the world. The country also made its own steel, mined significant quantities of manganese. 

After nationalisation, copper production fell from 700,000 tonnes per year to under 200,000 tonnes over the next thirty years. 

“Think of how many people lost their jobs and how many industries fell apart that were dependent on that,” Major said. 

The same process is unfolding in South Africa, Major warned, with mining output being stagnant for the past two decades. 

“We have fallen from 650 tonnes of gold produced a year, which we sustained for decades, down to 90 tonnes per year,” Major said. 

While the country has mined out a significant share of its total gold reserves, there is still plenty left in the ground. With record gold prices, extracting this additional gold is economically viable.

“We still have half the world’s gold reserves in this country. Anybody should be asking, ‘Who managed this? Who oversaw this? Who implemented this disaster?’.”

South Africa is also producing less coal now than it was three decades ago. A similar story has played out regarding iron ore. 

“We were a leviathan in 1980. Nobody could beat us. Anglo American was the largest investor in the United States, the Americans were terrified of us,” Major said. 

“You are seeing what happened in Zambia and in Zimbabwe now happening in South Africa. It has not turned around, it is still going down.” 

Suffocated by regulation

South Africa’s mining industry has been stifled by regulatory uncertainty, persistent threats of nationalisation, and a collapse in basic service delivery. 

Major has previously explained this decline, with South Africa now regularly ranked among the ten worst jurisdictions to operate in globally. 

The financial system that supported junior miners historically has also largely disappeared as exploration ceased and investor confidence in South Africa plummeted. 

“The simplest explanation is that you had an established mining law and protocol system on how to develop and run mines and who owned them” Major said. 

“That has been built up over 150 years and was working pretty well. It made us the number one mining country on the planet.”

South Africa’s status as top mining destination changed very quickly once the ANC came to power and began considering the nationalisation of mines and implemented onerous transformation requirements. 

The historic backbone of South Africa’s economy, mining output has steadily dropped over the past two decades, declining by 0.4% annually since the 1990s. 

“When the new administration took over, it decided to try to totally revamp mining law in South Africa and copy what other African nations did,” Major said. 

“It said, ‘We will nationalise these mines and take them back. They are no longer private property but are the state’s property.’” 

“You can imagine. You put billions into projects for 100 years and are now threatened with state ownership. New investment just stopped. Exploration and expansion just stopped. Why put money in something the state owns?” 

“They were also changing legislation non-stop. You first had to have a BEE partner that owned 25%, and that quickly increased to 30%. And then, they said 70% of the money you spend had to go to BEE suppliers.” 

“As if nationalising property was not enough, they put on all these horrendous conditions that drove capital away,” Major said.

As a result, South Africa now has 6,152 abandoned mines for which the state is theoretically responsible, but it does not have the resources or skills to manage them. 

“The ANC did not realise the consequences of their actions. They are now abandoned mines that could have been generating billions of dollars for the local economy if things were just left the way they were.”