South Africa’s most important industry that was left for dead is now coming back to life

South Africa’s mining sector is bouncing back after a decade of relative stagnation and declining output, with the historic underinvestment in mines set to push precious metal prices higher. 

However, this revival is threatened by repeated changes in government policy, creating uncertainty and an increasingly onerous regulatory environment. 

It is also not entirely in South Africa’s hands, with Symmetry chief investment strategist Izak Odendaal explaining that the lack of investment in mining was a global phenomenon. 

The tech boom of the past decade also meant the global mining sector was starved of capital and did not invest enough in exploration and expansion to meet future demand for raw materials, Odendaal explained. 

As a result, mining output globally has not kept pace with the expected future demand for precious metals, rare earths, or industrial minerals. 

This has created a squeeze in commodity markets, with prices being pushed upwards by rising demand and stagnant supply.

Mining supply is notoriously inflexible, with it taking close to 20 years for a mine to go from planning to full production. 

In the immediate term, prices rise sharply as supply slowly catches up, with rising prices encouraging greater investment. 

Historically, this has resulted in a resurgence in South Africa’s mining fortunes, and the same appears to be happening now. 

Canadian miner Ivanhoe Mines, for example, has invested over R11 billion into phase 2 of its Platreef mine in the North-West Province. 

“While not necessarily a “supercycle,” this points to commodity resurgence already visible in precious metals. South Africa is and will be a beneficiary,” Odendaal said. 

The boom has even provided South Africa with an opportunity to improve relations with the United States, as the world’s largest economy becomes increasingly desperate for access to minerals. 

Odendaal noted that earlier in May, the United States and South African governments held preliminary talks last week to discuss minerals cooperation.

This points to significantly increased investment in South Africa’s mining sector, which may see it edge closer to a return of its glory days. The revival is also borne out by data from the sector, albeit to a limited extent.

South African mining production rose by a welcome 2.3% month on month in February, pushing the annual rate of increase up to 9.7% – the highest annual rate of growth since February 2024.

Most of the outperformance was driven by PGMs, which surged 52.3% year on year in February, following a 10.9% increase in January.

South Africa missing out

South Africa’s mining sector is unlikely to return to its glory days, where it dominated the supply of precious metals and was home to mining houses that dominated the globe. 

The country is now producing less gold and coal than it did three decades ago, and employment in the sector has fallen by nearly half a million jobs. 

This is despite there being evidence of a rich natural bounty in the country, with government policy discouraging investment and exploration. 

Odendaal has also pointed to the collapse of South Africa’s junior mining segment in the past two decades as a reason for the lack of exploration in the country. 

Historically, South Africa had a strong junior miner pipeline, with asset managers and banks investing heavily in new exploration projects and companies. 

However, as output flatlined and the JSE shrank, asset managers reallocated capital elsewhere within the investment universe. 

Modern Corporate Solutions mining analyst Peter Major said the reasons for the lack of exploration in the country go beyond the reallocation of capital. 

“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 a top mining destination changed quickly once the ANC came to power, began considering the nationalisation of mines, and implemented onerous transformation requirements.

“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.”

This has resulted in the country not maximising the potential benefit of rising precious metals prices and increased investment in mining infrastructure globally.