The value of South Africa’s mineral production recorded another record high of R1.18 trillion in 2022. This is the second consecutive year that the value of mining production exceeds a trillion rand.
The record level was thanks to high commodity prices that gave the ailing domestic economy a much-needed boost. The higher tax revenue generated from this -albeit lower than 2021- will probably increase government’s expected surplus and give the finance minister, Enoch Godongwana, much more wiggle room as the National Treasury figures out how to balance the scales ahead of the 2022/23 budget speech in a couple of weeks.
In a statement, outgoing Mineral Council SA (MCSA) CEO Roger Baxter said: “Taxes paid to government have helped save the country’s fiscus from dangerous debt metrics exacerbated by the Covid-19 lockdown and economic contraction. Mining company tax in 2022 was R74 billion (R81 billion in 2021) and royalties increased to R14 billion from nearly R12 billion. Mining’s contribution to GDP grew by 4% to almost R494 billion, keeping its percentage contribution to GDP at 7.53% (7.56% in 2021).”
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Mining production itself has been in a downward trajectory after registering a double-digit recovery in 2021 post a devastating contraction in 2020 because of the Covid-19 pandemic. Last year saw production in the sector contract as the country went through the worst-ever rolling blackouts that reduced earnings and curtailed economic growth. The sector contributed 2.1% to GDP growth in the third quarter of 2022 and is expected to have fallen by 6% in 2022.
However, export values improved by 70% year-on-year after growing to R878 billion in 2022 from R856 billion in the year before.
Logistics
Added to the mining industry's problems is Transnet's capacity issues as it struggles to deliver tonnages against targets. The MCSA estimates this inadequate capacity came at an opportunity cost of R50 billion, up from last year’s R35 billion. Prices of coal, platinum group metals (PGMs) and iron ore are some metals that reached record-high prices as demand for these commodities shot up on the back of Russia’s invasion of Ukraine that saw sanctions imposed against Russia’s gas and heightened demand for energy from elsewhere.
Baxter said: “If the rail network was operating at nameplate capacity, with a few minor enhancements, South Africa would realise R151 billion more in bulk mineral sales.”
He added:
Speaking at the start of the mining indaba taking place at the Cape Town International Convention Centre, Mineral Resources and Energy (DMRE) Minister Gwede Mantashe said the country was fully benefiting from the current commodity boom because of the problems at Transnet - logistical bottlenecks on the roads and railways continue to contribute.
“It is urgent for the country to normalise logistics. Mining houses keeping stockpiles because those stockpiles can't be moved to the ports. Those are issues that we must confront and challenge. Investors must acknowledge that we have these challenges and we want to overcome them.”
On the seeming tension between Transnet and the MCSA, Mantashe said: “There’s no need for me to intervene if there’s an impasse. We can enter, we can call each other names, the solution is on working together and getting solutions.”
In a scathing letter to the Transnet board last year, the MCSA demanded the removal of CEO Portia Derby and head of Transnet freight rail (TFR) Sizakele Mzimela.
Investment
Mantashe said investors should “defy negativity” and put their money in the country’s mining industry, while the MCSA found that higher commodity prices have not resulted in higher investment in mining because of structural domestic constraints.
MCSA economist Henk Langenhoven said:
Mantashe has disputed this and said some of the new investors may not be listed but they are invested. He cited examples of young investors in coal that have open cast mining and this he says had been disregarded.
Investors have increasingly expressed frustration about a myriad of issues, including illegal mining and the general lack of the rule of law, as well as the lack of a cadastre system, which the industry has been calling for. The current Samrad online portal, which the department uses, has been blamed for delays in the issuance of exploration rights and lack of transparency.
Tseliso Maqubela, deputy director-general: minerals and petroleum regulation at DMRE, said a procurement process was under way and was being handled by the state's information technology agency (SITA).
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“We’ve handed all the documents as the department to SITA, and I believe that in a very short space of time, they will go out of the market. We’ve given them what we believe is the correct timeline because we’ve committed to a timeline that is quite short and we expect them to meet it.
“The difference between the procurement that’s been undertaken now and the one before is that we want a bespoke system, we want a system that has worked in other jurisdictions, not something that is going to be built here from the ground up. We expect seta to go out to the market before the end of this month and we would want that whole procurement process to be concluded no later than the end of April 2023,” he said.
On the current backlog in exploration permit applications, Maqubela said his department was close to reducing the backlog by over 50% this year, adding it would be eliminated by 2024.