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"...5% of global exploration spend in three to five years..." Gwede Mantashe, February 2019.

Updated: Nov 7, 2021

By: Paul Miller

On February 13, 2019 Minister Gwede Mantashe was reported as saying in Parliament that “...we intend to secure a minimum of 5% of the global exploration budget within the next three to five years". This would have been by latest February 2024.

He has walked this target forward a few times since then by repeating it in November 2020 at the Junior Indaba conference. This would now be 5% by late 2025.

In October 2021 he said it again at the Joburg Indaba conference. This would now be 5% by late 2026.

So what has been done?

The 2018 Mining Charter made no mention of BEE ownership requirements for prospecting rights and the Minister was reported as saying that BEE ownership was no longer required "just for looking" - however it appears to have taken many months for this message to filter through to the department's under staffed regional offices that actually handle applications for prospecting rights, so little benefit was felt.

In was subsequently revealed that the Department of Mineral Resources and Energy is in administrative disarray, with in excess of 5 000 applications for mining and prospecting rights and renewals and cessions of rights backlogged. This backlog, which must have built up over many years and had been deliberately concealed from the public, will take at least a decade to clear at pre-pandemic processing rates. It will take even longer if new applications continue to be made.

Regional offices of the department have been reported as regularly being without basic office supplies like paper and printer toner. These are an absolute requirement for internal departmental processes as these processes are all still paper based - while the now 11-year old SAMRAD administrative system remains as dysfunctional as ever.

A solution to the failed SAMRAD system was promised in June this year and a tender for a 100% custom developed end-to-end enterprise system was subsequently issued. The tender document suggested a huge, complex, high risk and expensive undertaking that would be daunting for the best managed organisations, never mind a department once described by the North Gauteng High Court as having "a high degree of institutional incompetence".

The tender was specifically written to pre-exclude international technology companies with off-the-shelf software solutions and related experience in minerals regulation and mining cadastral system implementations, on preferential procurement grounds. And since such systems are essentially a one-per-jurisdiction endeavour, the only companies with actual experience in such systems implementations are those international companies which have been pre-excluded from competing for the work.

It was at the same October 2020 Junior Indaba conference that a new Exploration Strategy was promised within three months by the departmental Director-General. The Exploration Strategy, jointly developed by the Minerals Council SA, the Council for Geoscience (CGS) and departmental officials has yet to see the light of day, a full year later. Not as much as a draft for comment.

There also appears to no formal process within National Treasury to formulate any kind of tax incentive to encourage minerals exploration investment in South Africa, despite decades of lobbying. Some sort of tax incentive for exploration exists in all countries that have flourishing exploration sectors and the vibrant public markets necessary to support them.

So how is it going?

S&P Capital IQ and its antecedents have for decades published a global survey of countries' collective exploration budgets, and they released the high level results of their survey a few weeks ago. It is this survey that is the source of comparable country exploration budgets used to support taking South Africa from about 1% of global exploration budgets to 5%.

The Minister is now about half way to his 5-year target, if measured from when he first announced it in February 2019, and the 2021 S&P survey is now in. And it is not entirely surprising that South Africa's share of global exploration budgets has not improved.

South Africa's 2021 share is down 18% to 0,76% from 0,93% in 2020, despite more buoyant metals and mining market conditions.

The absolute US$ number for South Africa is up 11% from US$77.4m in 2020 to US$85.9m in 2021, however the global exploration budget has surged 35% from US$8.3bn in 2020 to US$11.3bn in 2021, despite the effects of the pandemic.

When looked at over a longer period it is hard not to notice that the apogee for SA exploration budgets coincided with the advent of the MPRDA and first Mining Charter in 2002 - 2004, and it has been inexorably down from there.

South Africa's share of African Exploration Budgets is the lowest since the time series began in 2000.

This relentless decline suggests mere administrative improvements are not going to cut it, as desperately necessary as they are, and that a root and branch change in policy is required.

The only rational conclusion that can be reached is that the exploration investment unfriendly Mineral and Petroleum Resources Development Act and its accompanying Charters need to be replaced with an internationally competitive, World Bank standard mineral rights regime, accompanied by internationally competitive tax incentives structured to encourage both exploration and the development of public capital markets. Only then do we have any chance of reaching the Minister's target.

Surely the Minister and his officials cannot be so wilfully ignorant as to not now know that the MPRDA and the various Charters simply do not work for exploration investment and that their 5% target is just the stuff of fantasy without real policy reform and very real administrative improvements?

Perhaps that is why the Council for Geoscience is now being talked up as the solution to South Africa's underinvestment in exploration, since real policy reform is hard. The CGS has an annual budget of R526m of which only R196m is directly spent on actual projects. South Africa needs to invest about R8.5bn to reach to 5% target, so government scientists are never going to be able to do what the private sector chooses not to. There simply is not the money available, never mind the entrepreneurial spirit and low risk aversion that explorers need to be successful.

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