What low-cost, practical steps can South Africa take to get its junior mining and exploration sector back on track?
This is the transcript of the presentation made by Paul Miller to the Junior Indaba 2021 on Tuesday 01 June.
It is quite long, about a 12 minute read.
Good morning ladies and gentlemen,
Thank-you Bernard for the opportunity to provide what I hope will be an alternative or perhaps even a provocative point of view.
First I’d like to make it clear that I am no longer directly involved in any South African mining or prospecting operations - and if I was, I’d be wise to deny it.
What this means is that I can speak freely in this forum.
You should all bear this in mind when you listen to those who are directly involved in the industry - and those who represent them at the Minerals Council - and make up your own mind about how freely they can speak.
In South Africa, this is not a debate between equals - every miner or prospector is utterly beholden to the whims of government officials and politicians.
Every prospector or miner has a regulatory gun held to their heads for every licence they have - and can be punished for saying or doing the wrong thing, at any time.
Politicians and officials have extraordinary discretion in our regulatory regime and with it comes extraordinary power. Many court cases have shown they are not afraid to abuse this power.
So, where I am taking this point to, is to the fundamental issue of trust … and what that means for investment into a highly regulated industry where one party has such disproportionate power.
What I want to cover in the limited time I have is to set out why I think we have a fundamental trust deficit .
I’d then like to quickly show what the consequences of that trust deficit are for investment
And finally I’d like to suggest some low-cost practical steps which can be taken to improve trust and thus investment.
...And get us back on track, so to speak.
I’d first like to touch briefly on the debacle which has been SAMRAD - launched to much fanfare in March 2011 and described by Minister Mantashe in only May this year as a “nightmare”.
So what happened in the 10 years in between?
Well we have repeatedly been told that it is working just fine.
Parliament was told repeatedly by the responsible Department officials it was working perfectly.
The Department denied again and again that it needed replacing.
Meantime mineral rights practitioners were tearing their hair out - I won’t go into the sordid details - except to show that as recently as March this year Minister Mantashe answered a parliamentary question on this subject...
..and I paraphrase, he was asked if members of the public can use SAMRAD to see who has what, were … and his basic answer was “yes, they can, and they have always been able to”.
Of course this is an answer to a Parliamentary Question and thus cannot possibly be untrue.
Although, I have not yet been able to find an industry practitioner who uses SAMRAD and who entirely agrees. Had the nightmare not yet started in March when he was asked the question?
As we are learning in South Africa, things may take time but that the truth will eventually come out.
We had a hint of the true situation in June 2018 when Minister Mantashe was reported as saying that there was a 8-year backlog on mining rights. Sadly it wasn’t widely reported and I think most of us missed it at the time - but it confirms that whatever problems there are, they definitely pre-date Covid.
So as I said in a blog I wrote at the time “After a decade of … denials, obfuscations, and misstatements, the backlog of 5 326 applications (which will take a decade to clear at pre-Covid processing rates) has simply become too large to hide.
Much like a flood bursting through a dam of lies, the truth is now out.”
Then we have a more recent debacle
Minister Mantashe was reported in October 2020 - at the Joburg Indaba I believe - as confirming that there were no BEE ownership targets for exploration.
So what then happened? Well reports starting coming out of the regions that nothing had changed - here are some examples.
From Klerksdorp
From Kimberley
From Polokwane
All these are letters of Acceptance for Prospecting Right Applications, demanding full Section 2(d) - that is BEE ownership - compliance. All dated post October last year.
They have been redacted to protect the innocent from the very real chance of retribution by the Department.
This all looks like the epitome of “Regulatory Uncertainty” - the Minister says X and his department does Y.
So, in April this year, another question was asked in Parliament where a Minister cannot but tell the truth… and now we have the answer.
Again to paraphrase - the Minister was asked if Prospecting Rights required BEE - and he answered by saying that it is up to the Minister to decide if BEE ownership targets must be met, by quoting the section of the Act that provides political discretion on these matters.
So nothing has changed - he must have been misquoted at October 2020’s Joburg Indaba then.
This is not the way to bring regulatory certainty to an industry.
Saying one thing, getting praised for it by the Minerals Council, and then doing another thing.
Finally I like to make the point that the MPRDA and Mining Charter was a grand compromise that left nobody happy, as is the nature of compromises.
I believe that the officials of the department and members of the governing party sold the compromise to investors based, in part, on the fact that the BEE ownership requirement would not change.
This promise - and perhaps it was an implicit promise rather than explicit one - was broken with the third extra-legal Mining Charter.
What we now have is a trajectory that has been set for future Charters to be ever more onerous... - and after all, what investor can possibly know what will be in Charter 4, except that it will be worse for investors than Charter 3?
There is no regulatory certainty here.
So, why should any investor trust their investment to the Department as regulator
This is the Department that has kept a growing application backlog secret for a decade
This is a Department that has been described as “institutionally incompetent” by the North Gauteng High Court - in a finding ultimately upheld by the Constitutional Court
This is a Department that has overseen extensive corruption in Regional Offices
This is a Department whose officials and politicians are privately reported by potential investors, both local and foreign, as treating them with nothing but disdain and contempt
This is a Department where, by all reports there is little distinction between current officials and their Zwane appointed predecessors
So here I would like to reiterate - you can argue till the cows come home - but investors' perceptions are the reality we have to deal with.
So what are the consequences of the trust deficit for investment?
South Africa’s share of African and Global exploration has plummeted by 80% in the last 20 years - which matches almost exactly the life of the MPRDA and Mining Charters 1,2 and 3.
The only available official South African statistics, prepared by StatsSA and published by the South African Reserve Bank shows that Gross Fixed Capital Formation: sub category Mineral Exploration and Evaluation basically fell off a cliff in 2009/2010 and has never recovered.
It has even declined in real terms since the new Minister took over at the Department in 2018.
We all know that South Africa’s performance trajectory in the Fraser Institute Survey is pretty clear -
- year-on-year declines - until by 2020, only Zimbabwe and Tanzania were perceived as less attractive than South Africa on the African continent.
South Africa’s performance in Mining Journal’s World Risk Report is little different - this is a survey that combines subjective perceptions (with a larger sample size than the Fraser survey) with objective metrics, to create a blended index.
Again South Africa is on a downward trajectory, which has not been arrested by the appointment of new leadership at the Department.
Investors’ perceptions are reality and investors, regardless of what they say publicly, don’t trust South Africa as a place to invest in exploration
So what can be done about it?
Well it finally seems that the penny has dropped that something has to be done - there is no point in trying to transform mined out, closed mines after all - and the new development pipeline is looking rather lean for South Africa.
So we have started seeing some reporting on these plans - and the target now appears to be to take South Africa mining from about 8% to 12% of GDP.
Assuming that the rest of the economy keeps growing, then that is growth in excess of 50%.
The target is also to take South Africa’s share of global exploration from less than 1% to 5% - suggesting a 400% increase.
These are dramatic increases that one could reasonably assume require some very radical pro-growth reforms and other dramatic improvements.
Sadly none of the plans seem to suggest anything dramatic or radical.
At best they are appeals to collective responsibility and for all stakeholders to take hands and work together …as if, if we could just all get along, things would dramatically improve.
Beyond these appeals - nothing concrete appears to have actually been done since these targets began to be floated about 8 months ago. The Exploration Strategy was promised by February… nothing
The last time anything was actually delivered was when the disastrous MPRDA amendment bill was pulled and when the bad Mantashe Mining Charter replaced the catastrophic Zwane Mining Charter.
My response to political appeals for stakeholders to take collective responsibility for fixing the industry is not repeatable in this forum, except to say - fat chance.
The Department and its political bosses created this current day trust deficit and they are the only ones most able to fix it.
Beholden incumbent stakeholders might mouth platitudes - remember they have a figurative gun to their heads - while politely heading for the door, waving good-bye as they go.
If the Department has any hope of eliminating the trust deficit it needs to implement “confidence building measures” - these are low cost, practical and unilateral steps that can be taken to build trust and re-establish some level of credibility for the Department.
So I am now going to suggest six
Confidence Building Measure One
Immediately issue an instruction to the database administrator of SAMRAD to extract, into a suitable standard electronic file format;
Details of every existing accepted and granted application, by applicant name and reference number, by commodity, with GIS polygons and granting and expiry dates etc and publish the file on the Departmental website, and then
Routinely publish details of all newly accepted and granted applications on the website
This is all legally public data - so refusal to do this will speak volumes about the credibility of the Department.
The industry and the public can then use their own GIS systems to examine the data and then assist the Department to clean it up ahead of replacing SAMRAD
Confidence Building Measure Two
Announce what the explicit requirements are for BEE ownership on Prospecting Right applications.
Issue a circular to regional offices setting out the position and publish the circular on the Departmental website.
Confidence Building Measure Three
Actually start the process to replace SAMRAD - the Minerals Council says this process has started, but the Department has not.
Disclose to the public the process to be used and the related deadlines
Publish for comment, before issuing the
RFI; then the
RFP
Open the Tender Adjudication Committee to public observers - remember there is a trust deficit - again refusal to do this will speak volumes.
Confidence Building Measure Four
Get the Regional Offices the basic tools-of-trade to do their jobs
Working printers, paper and toner
WFH data
Working computers and reliable network access
Provide regular status updates on filling the 60 vacant senior positions across the department
Identify and disclose the problems and then report progress - be honest and open, with weekly or monthly public reporting.
Confidence Building Measure Five
Acknowledge that State Capture is real and that it has affected trust in government and trust in Department
Announce concrete steps to open up the Department to public scrutiny by making transparency, rather than the current secrecy, the default position in all the Department’s dealings
Consequently, announce that South Africa will become an implementing country of the Extractive Industries Transparency Initiative, alongside countries like the UK, Norway, Germany, Zambia and Mozambique.
Confidence Building Measure Six
Publish a weekly dashboard on the Department website - showing the exact status of the 5 326 application backlog and progress in clearing it per province, per application type...
So in conclusion…
I believe that the default position should be to not pay any attention to anything that Department officials or the Minister says - but rather to wait to see what they actually do.
Remember nothing has actually been done to change the game for Exploration since 2018.
So far they have done nothing to suggest that South African mining and exploration is not going to continue its decline. I’ve made some suggestions as to what could be done to at least begin to change perceptions.
And to all of you, particularly journos, who were so grateful that Minister Mantashe replaced Minister Zwane that you gave up on all your critical faculties. Things may be better, but the bar for improvement was set very, very low, and the current position will never be enough to make a real difference, just because you wish it so.
Fixing the trust deficit is not a collective effort -
International investors checked out long ago and are no longer in the room.
Local miners and prospectors are negotiating with a gun to their heads - they are trapped in an abusive relationship - and will say anything and practically do anything to protect the returns on their existing sunk capital.
It is now up to the department to do the right thing and take the lead.
It is my view that the biggest obstacle to the growth and transformation of South Africa’s mining and exploration industry is the Department itself - in all its splendid dysfunction - and all utterances by politicians and officials suggesting otherwise should only be met with derision, at least until they actually demonstrably do something to fix the situation...