SOUTH AFRICA: SA MINING LOOKS TO THE LONG TERM DESPITE ITS WANING STANDING ON THE INVESTMENT ATTRACTIVENESS INDEX
In the latest Fraser Institute’s Annual Survey of Mining Companies 2021, which ranks countries’ attractiveness in terms of policy, mineral potential and other metrics (e.g. permit times; infrastructure available; energy cost and other considerations), South Africa is ranked as one of the world’s 10 least attractive mining destinations.
This is a deeply disappointing reflection of the state of mining in the country.
It is, however, encouraging to note that Government and the industry are working on various measures to address issues affecting the industry. For example, efforts to improve infrastructure (particularly energy supply and rail infrastructure) and ongoing initiatives to ensure regulatory certainty.
It goes without saying that it is in the interests of the economy for the mining sector to be able to carry on contributing to the fiscus. As we have seen from recent tax collection figures, mining’s contribution is significant and has been credited with cushioning some of the blows of the coronavirus pandemic. As an example, in the South African 2022 Budget Review,  Treasury stated amongst other things:
- ‘Despite an uneven economic recovery, tax collections over the past 12 months have outperformed expectations due to the strength of mining sector revenue and an upturn in earnings following the 2020 recession’; and
- ‘Despite energy and transport constraints, mining production has reached pre‐pandemic levels and expanded by 14.6 percent in the first three quarters of 2021 compared with the same period in 2020. The sector was largely supported by higher commodity prices and strong demand in the global economy’.
In addition, the Minerals Council South Africa reported that in 2020, the mining sector contributed ZAR 372.9 billion to the South African GDP, and ZAR 27.2 billion in taxes to South Africa. Any way you look at it, this is no small contribution.
Add to this the value the mining sector brings through direct and indirect employment  and skills development, and its ability to attract international investment, and there is no doubt that mining will be expected to continue playing a critical role in the economy for the foreseeable future.
However, if the policy and regulatory challenges are not addressed immediately, the long-term future of the industry may be in jeopardy.
Clearing infrastructure bottlenecks
In terms of infrastructure, much attention has been focused on energy supply constraints. A positive and welcome development in this arena is the increase in the threshold for electricity that can be generated without a generation licence contained in Schedule 2 to the Electricity Regulation Act, 2004. 
By increasing the threshold to 100MW, Government has facilitated significant new investment in independent power generation at a meaningful scale. Once developed, this should increase certainty of supply and take some pressure off South Africa’s national electricity infrastructure.
In this regard, the Minerals Council South Africa reports that its member companies have a pipeline of 3.9GW of potential renewable energy projects worth more than ZAR 60 billion. These would, when implemented, substantially contribute to bridging the large electricity supply deficit, diversify the supply, reduce the sector’s carbon footprint, and stabilise costs.
The sector has also been grappling with insufficient rail capacity and bottlenecks at ports. Measures to address this, as announced in President Cyril Ramaphosa’s State of the Nation Address 2022, include the introduction of private sector participants into the Durban and Ngqura container terminals and private parties into operators on the container railway line between Durban and Johannesburg.
This is a step in the right direction, but falls short of rail and port needs for companies that export bulk minerals.
Water supply to mines is also in danger of becoming bogged down as a result of deteriorating public water infrastructure. The mining sector has been innovative in dealing with these challenges. Companies are increasingly collaborating with one another in finding ways to overcome their common infrastructure constraints and have been working with Government on private sector participation initiatives to deliver public infrastructure.
Regulatory relief still awaited ‘on the ground’
Changes in the regulatory environment potentially offer some relief to mining companies, at least in theory.
One of the most important recent developments was the Gauteng High Court’s September 2021 judgment on the legality of Mining Charter 3, which the Court found to be a policy document and not enforceable legislation or subordinate legislation.
The Court also set aside a number of provisions of Mining Charter 3. The decision is a welcomed relief to many mining companies and in particular foreign investors, in that it provides certainty that Mining Charter 3 is policy, and not law.
While this decision brings some degree of certainty to the sector, uncertainty unfortunately prevails on the ground. One of the main issues in this regard is that the Department of Mineral Resources and Energy’s regional offices apply inconsistent empowerment requirements for the most part.
Another thorn in one’s foot is the slow and uncertain turnaround time for regulatory approval applications, which remains a practical challenge and somewhat of a deterrent particularly to foreign direct investment.
A more efficient and effective regulatory framework and administrative environment is still required, and we are hopeful that a statutory framework to which these regulators comply is put in place.
Also moving to front and centre are environmental, social and governance (ESG) imperatives, which are critical for long-term sustainability in mining. Companies will be expected to take practical steps to strengthen their ESG capabilities, especially around stakeholder engagement and the effectiveness of their governance structures and transparency of processes.
In the South African mining sector, ESG has taken a particular focus on climate change, automation and socially distanced remote working, and benefits for mine host communities and the broader population in and around the relevant mine areas.
The importance of effective, proactive engagement with employees, local communities and other stakeholders cannot be overstated. Mining companies also need to be aware of the growing range of issues that will require stakeholder engagement, including social infrastructure requirements, digital technology and other skills development, environmental impact and health and safety considerations.
Of late, there have been a number of Court challenges launched by environmental lobby groups as well as disgruntled communities, and so, the importance of this effective, proactive engagement on an ongoing and iterative basis cannot be overemphasised.
Mining companies have their work cut out for them as stakeholders step up the pressure and emerging and persisting challenges jostle for attention. The key is to keep an eye on the long term: cycles may come and go, but sustainability lasts.
 Accessible at http://www.treasury.gov.za/documents/national%20budget/2022/review/FullBR.pdf, and dated
23 February 2022.
 As an example, Minerals Council South Africa reported that in 2020, the mining sector employed 451 427 people.
 With effect from 12 August 2021, the South African Department of Mineral Resources and Energy raised the registration threshold for self-generation facilities from 1MW to 100MW. This has been widely heralded as unlocking significant opportunities for the private sector and should assist in introducing additional generation capacity into the stressed South African grid, as well as to provide much needed energy “freedom” to, for example, the South African mining sector.