Mining investment in South Africa in 2015 - where are the deals in 2015?

In the last year, investment in the mining sector came principally from existing greenfield projects and from companies rationalising or restructuring their assets to reduce operating costs, rather  than from new projects.  This is according to Allan Reid, Director and Head of Mining at Cliffe Dekker Hofmeyr business law firm. Reid noted that South Africa has slipped to the 6^th most important mining jurisdiction in Africa, amid growing concerns over low resource prices, high rand costs, unstable and expensive labour, unreliable electricity supply and legislative and regulatory uncertainty.  
 
"Mining requires ongoing and extensive exploration, given the time it takes to bring new mines into production. We have seen a curtailment of investment in exploration during 2014, continuing the trend of 2012 and 2013, as miners attempt to halt the profit margin decline. The decrease in exploration is also due to the dearth of risk capital available to the junior miners who are the principal drivers of exploration. This raises concerns as to the future health of the mining industry," he noted.

"We need to find a balance between all stakeholders, including local communities, employees, shareholders, funders, the regulator and the fiscus, and to cement that balance with a fair, transparent and efficient regulatory framework before we can attract significant foreign investment. We also need to combat corruption at all levels and to significantly speed up the processing of environmental authorisations and permits. For these reasons, we remain pessimistic about the foreign investment climate in mining for 2015," Reid said.

Reid explained that countries in East and West Africa were attracting greater interest for mining investment.

"One of the largest investor in the rest of Africa is South Africa itself. There is significant expenditure on infrastructure to support mining investment in many of the countries in these regions. In addition, there is generally less bureaucracy and less red-tape in many of these African jurisdictions," he explained.
 
 "One area of mining sector investment in South Africa that is set to grow is the anticipated increase in BEE deals. Mining companies are still struggling to meet the 26% BEE ownership deadline, required in terms of the Mining Charter, which passed on 31 December 2014. We advised on the BEE deals of Lonmin plc, Northam Platinum Limited and various other major and junior miners in 2014 and expect more such transactions in the early part of this year," he added.

"This is particularly so given Minister Ramatlhodi's rejection of the 'once empowered, always empowered' principle as well as his threat of implications for those miners who fight with the government which granted them the mining or prospecting rights."