South African mining woes far from over

South Africa’s mining woes will continue this year as unreliable energy and transport infrastructure and an uncertain and inefficient regulatory environment weigh on the sector.

This is according to research from BMI, which hosted a pre-election webinar earlier in May.

BMI senior metals and mining analyst Olga Savina said unreliable energy and transport infrastructure and an uncertain and inefficient regulatory environment resulted in significant administrative challenges for the mining sector.

These challenges are expected to remain the bane of the country’s mining sector this year, alongside the structural decline of the coal sector, limiting the industry’s short-term outlook.

However, she said a coalition between the ANC and a smaller party, such as the Inkatha Freedom Party, will ensure a high level of policy continuity.

This could be positive for the mining sector, as it would gradually improve South Africa’s power and transport sectors, albeit at a slower pace, with stronger private sector participation. 

Other scenarios, like the ANC scraping a majority, the ANC forming a coalition with the EFF or a win by the opposition coalition, the Multi-Party Charter would be less positive for the sector.

For example, an ANC-EFF coalition could significantly slow reform momentum, resulting in a less predictable regulatory environment. 

A win by the opposition Multi-Party Charter will likely see policy fragmentation due to ideological diversity within the coalition, posing downside risks to investor confidence in the mining sector.

However, an ANC-led coalition with smaller parties will not necessarily save the mining sector.

BMI said policy continuity under the ANC would not alter its downbeat outlook for the domestic mining industry in the short term. 

After a decline in 2023, the South African mining industry is projected to face a further contraction in 2024 as persistent challenges linked to power supply disruption, rail and port bottlenecks, and a weaker outlook for coal prices weigh on the sector. 

Given that the coal industry represents a large portion of the broader mining market in South Africa, it will be challenging to offset the losses resulting from the structural decline of the coal sector in the coming years.

This bleak outlook for South Africa’s mining industry is reinforced by unreliable energy infrastructure. 

Persistent load-shedding has plagued South Africa since 2022, largely attributed to the operational challenges at Eskom. 

Eskom’s load-shedding persists, threatening both mining operations and the safety of mines, casting a shadow over projected mining output. 

In addition to the energy supply issues, Transnet struggles to haul minerals to ports due to cable theft and infrastructure vandalism. 

In 2024, BMI expects a modest recovery in South Africa’s coal production, and lacklustre reform momentum in the mining sector, exacerbated by the growing backlog in mining rights and permits, adds to the grim picture. 

As of December 2023, the South African Department of Mineral Resources and Energy had not processed any of the 2,525 mining licence applications for FY2023/24, signalling a worsening backlog. 

With a previous backlog of 5,326 applications reported in February 2021, the inefficiency deters mining investments in the country due to the apparent incapacity to handle application volumes, potentially stifling exploration efforts. 

“This stagnation, aggravated by the department’s failure to implement an effective online mining cadastre to enhance mining and exploration rights management, weighs on the industry,” BMI said.

However, there is some hope, as the ANC has pledged to uphold a commitment to market-friendly reforms in the energy and transport sectors. 

On the energy front, there are some upside risks stemming from the progression towards a more liberalised energy market, including the unbundling of Eskom into separate units. 

BMI’s power team expects the National Energy Crisis Committee’s strategy to mitigate load-shedding to persist under an ANC-led coalition government. 

Structural reforms and recovery initiatives are also underway to stabilise Transnet’s rail and port services and promote private sector participation. 

“Our Infrastructure team believes that if the reform agenda is successfully realised, it will significantly enhance operational efficiency, thereby alleviating a key growth constraint in the sector,” the organisation said.