SA perilously ignores the search for new minerals - BizNews
David Christianson*
The Australian Stock Exchange (ASX) has 578 listed mining companies, well over 500 of them juniors. Canada’s Toronto Stock Exchange (TSX) has over 200 junior miners. At the other end of the scale, the Johannesburg Stock Exchange(JSE) has 43 listed mining companies of which perhaps 24 qualify as juniors.
The current mining charter process appears to be proceeding in complete ignorance of both the different needs of junior miners and the unique importance of the sector. For juniors are not just mining companies that haven’t yet become big. They have a very specific niche and function and are the essential players in exploration and development.
It is overwhelmingly junior miners who find new resources. They accounted for over 70 percent of all gold discoveries made between 1950 and 2016, according to MinEx Consulting. Beyond that, it is mostly juniors who drill and scope discoveries to work out how profitable they will be and how best to mine them. Only after this work is done is it time for the big boys – who are probably better at finding economies of scale and squeezing out production efficiencies – to buy in.
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Mining exploration can offer extraordinary returns, but it also involves high risks and this is best done with other people’s money. Junior explorers tend to rely almost exclusively on listed equity to finance their operations. In Australia, IPOs by junior miners raised $5.25 billion last year, fractionally ahead of the TSX’s $5.23 billion. By contrast, the two listings in South Africa in 2017 (Orion Minerals and Alphamin) raised a little more than one percent of the numbers generated by our Commonwealth peers (about $60 million).
A healthy mining industry requires a vibrant junior sector and indeed what former World Bank director Michael Klein calls a ‘proper ecology’ of company sizes and types. There are roles for everyone from multinationals, at one end of the scale, to artisanal operations at the other. Many new discoveries are significantly dependent on junior miners following the lead of artisanal operators and then preparing the way for the eventual entry of the multinationals. MinEx’s Richard Schodde points out that between 30 and 40 percent of significant gold discoveries in Africa between 1975 and 2014 were made by following this template.
There are all too many reasons for the woeful state of South Africa’s junior mining sector. The sheer inefficiency of the licensing regime is one of them. Earlier this year, diamond giant De Beers received 16 exploration licences (out of the 60 it had applied for) after an unexplained wait of two years. That delay put even De Beers under pressure. Junior miners, by definition nimble but also vulnerable, cannot afford that length of uncertainty. In any case, the 2 000 or so mining permits available in South Africa are not being circulated, partly because they are almost all held by big companies and partly because government1 red tape and inefficiency simply kills this potential market.
Overwhelmingly the problems are related to regulatory uncertainty and in South Africa that means the Mining Charter. It is not a surprise that the junior mining sector is not represented in the process as they are hardly a presence in South African mining. Charter negotiations, it has been said, are ‘between two bull elephants’ who are, in the process, ‘trampling promising green shoots’ represented by junior miners. Bernard Swanepoel of the Small Business Initiative described junior miners as the ‘dung beetles’ in this ecology. Eliminate them and you’re left with nothing but vast piles of elephant excrement.
The Charter is all about imposing bureaucratic requirements in ownership, procurement and social responsibility. Achieving agreement between the government and the1 Chamber of Mines on these issues will not help the junior sector, but will further diminish it.
David Christianson is a Policy Fellow at the Institute of Race Relations.