South Africa is one of the world’s and Africa’s most important mining countries in terms of the variety and quantity of minerals produced. It has the world’s largest reserves of chrome, gold, vanadium, manganese and PGM’s. South Africa is the leading producer for nearly all of Africa’s metals and minerals production apart from diamonds (Botswana and the DRC), uranium (Niger), copper and cobalt (Zambia and the DRC) and phosphates (Morocco).
The country’s mineral industry can be broken down into five broad categories – Gold, PGM, Diamonds, Coal and Vanadium. Combined, these produced a sales revenue (2000) of ZAR51.6 billion (approx. US$ 7.4 billion), representing 6.5% of the country’s GDP. PGM sales exceeded those of gold for the first time in 2000 – based on the surge in PGM prices as well as efforts to boost PGM production from South Africa in the light of erratic supplies from Russia. Sales of primary mineral products accounted for nearly 35% of South Africas total export revenue during 2000, with gold’s contribution decreasing further to 12,4 %. As a result of an increase in secondary and tertiary industries as well as a continuing decline in gold production, mining’s contribution to South Africa’s GDP has declined over the past 10 years (in 1991, mining’s contribution to GDP was 8.4%) . However, this may be offset by an increase in the downstream or beneficiated minerals industry, identified by the Government as a growth sector in South Africa.
It is estimated that South Africa holds 80% of the world’s known manganese reserves as well as 72% of the world’s known chromite ore reserves. In 2005 South Africa was found to be the ninth-largest producer of aluminium, the largest producer of alumino-silicates, chrome ore and ferro-chromium. South Africa was also found to be the second-largest producer of manganese ore and the ninth-largest producer of nickel in the same year.
Migrant labour still plays an integral role in the South African mining industry, with labour being sourced from Lesotho, Mozambique, Botswana and Zimbabwe. However, due to low gold prices and the marginal nature of many of South Africa’s gold mines, the resultant restructuring and cost saving exercises has resulted in several thousand workers losing their jobs. Fluctuations in the local currency against the US dollar have buffered these effects to a certain extent. The gold industry remains the largest employer, responsible for more than 50% of total employment, estimated at 420 000 people in 2000.
Structure of the mining industry
The mining industry in South Africa has seen significant restructuring and changes since the early 90’s with the traditional “big six” mining houses – Anglo American / De Beers, Gencor / Billiton, Goldfields, JCI, Anglovaal and Rand Mines – being restructured and extending their global presence. These companies traditionally controlled gold, platinum, chrome, coal and base metal production in South Africa. The advent of a new democratic constitution and rising costs from gold mining activities resulted in several changes in the industry.
The phasing out of the concept of mining houses has opened the door for consulting engineers serving the mining industry to be involved in projects which were previously the preserve of the mine owners themselves. The clear trend now is to outsource much of the engineering function, which means that mining houses no longer have to carry the overhead of permanent engineering staff when they are not engaged in projects. There is also a move within government towards accommodating small mining companies, creating opportunities for junior operations to start up.
As the South African mining industry is still predominantly white controlled, emphasis is being placed on stimulating black empowerment in the industry. As a result, several black or union owned firms are now beginning to play an important role in the industry. This is particularly the case following the impending legislation of the Minerals Bill that favours involvement of previously disadvantaged communities in South Africa’s mineral resources. Not all have been successful so far. Anglo American’s unbundling of JCI was seen as the first step in black empowerment in the South African mining industry. However, this failed to takeoff and as a result, JCI has ended up a shell of its former self, composed of a few gold property holdings and investments.
Mvelaphanda, with Tokyo Sexwale, a prominent black businessman at the helm, has become one of South Africa’s most successful empowerment resource companies. To date it has acquired interests in developing platinum, energy and diamond resources in South Africa.
African Rainbow Minerals, a company formed in 1997 by Patrice Motsepe acquired several shafts from AngloGolds Vaal Reefs. ARM are also jointly developing a platinum mine with Anglo Platinum as well as entering a joint venture with Harmony Gold to exploit several Free State assets acquired from AngloGold.
This process, coupled with the anticipated change in mineral rights legislation in the country, should see South Africa developing its mineral resources to the benefit of all South Africans.
The entry of foreign investment into South Africa has been slow since the country’s first democratic elections in 1994. This has been due to a variety of reasons including the minerals legislation, uncertainty over the economic situation and the high crime rate. However, the situation is changing and many junior exploration companies are now active in developing several small to medium scale operations, mainly in diamonds, gold and platinum.
Canadian Southern Era was an initial success story with the opening of the Klipspringer diamond mine as well as Australian Aquarius Platinum that has opened the new platinum mine, Kroondal. South Africa’s fourth largest foreign investment came from global gold mining company, Placer Dome, which purchased 50% ($235 million) of the Western Areas Gold Mine, which includes the South Deep project, estimated to be one of the world’s largest known exploitable gold ore bodies.
The major mining houses are the principal members of the Chamber of Mines of South Africa. Other Chamber of Mines members included the majority of remaining gold and coal mines and a number of producers of other mineral commodities. The Chamber of Mines was responsible for a variety of advisory and service functions and represents about 85% of the mining interests in South Africa.
The long awaited White Paper on Minerals and Mining Policy was released in 1998. The underlying objective of the White Paper was the proposed change in ownership of mineral rights. Unlike most countries in the world, private individuals own most of South Africa’s mineral rights (typically farmers and large mining companies who have mineral right options). Currently, two thirds of South Africa’s mineral rights are privately owned, with the remainder vested in the State. This law has effectively prevented minerals development occuring in the country via two processes:
The owner of the mineral rights (usually farmers) refuses to allow access to the property, as he owns these rights. Often farms are heavily sub divided, thus making it virtually impossible to locate the rightful owners. Southern Era’s legal battle over the rights to the property on which the diamondiferous Marsfontein pipe is located is a classic example.
In late 2000, the draft Minerals Development Bill was released for public comment. The Bill (based on the White Paper on Minerals and Mining Policy) will usher in a new era of mineral and mining law in South Africa. The core objectives of this Bill are to:
- Recognise that mineral resources are the common heritage of all South Africans and collectively belong to all the peoples of South Africa;
- Ensue that a proactive social plan is implemented by all mining companies;
- Attract foreign direct investment;
- Ensure a vigorous beneficiation drive in the mining industry;
- Contribute to rural development and the support of communities surrounding mining operations;
- Redress the results of past racial discrimination and ensure that historically disadvantaged persons participate meaningfully in the mining industry;
- Guarantees security of tenure to existing prospecting and mining operations;
The Bill Encompasses Broader Issues, including addressing the following:
- Transformation of the Minerals and Mining Industry
- Promotion of equitable access to South Africa’s mineral resources;
- Promotion of investment in exploration and mining with its spin – offs;
- Socio – economic development of South Africa; and
- Environmental sustainability of the mining industry
The Bill’s intentions have been guided by the State’s constitutional obligations, among others, to:
- Promote equality;
- Advance persons or categories of persons, disadvantaged by past racial discriminations; and
- Promote reforms to bring about equitable access to South Africa’s natural resources (mineral resources included).
This will require a balancing of individual interest versus the interest of society in requiring that substantial justice is done in transforming the minerals and mining industry.
Universal Access to Mineral Resources
International law recognises that States have the right to exercise full and permanent sovereignty over their natural resources. The principle of public trusteeship of mineral resources is recognised and accepted in all major mining countries. Therefore:
- South Africa’s constitution recognises that natural resources belong to all South Africans
- It is, therefore, the responsibility of the State to ensure equitable access to these resources
- The State must consequently also ensure that benefits emanating from the exploitation of South Africa’s mineral resources accrue to all citizens.
The Bill also aseeks to address a wider participation through:
- The Bill seeks to redress the past discrimination of historically disadvantaged persons.
- It also specifically encourages and promotes the participation of junior and smaller entrepreneurs in order to create jobs, encourage wider economic participation, and optimise the utilisation of mineral resources.
Concerns over the Security of Tenure:
- Transition Period –all holders of old order rights will be given opportunity to apply for the new prospecting or mining rights. These will replace the old order rights concerned.
- Operating Mines – existing prospecting and mining operations will continue to cooperate unhindered and will be entitled to be granted the new form of prospecting or mining rights.
- Security of Tenure – the draft Bill guarantees security of tenure for prospecting and mining operations. This concept has two aspects, the first one is the State’s guarantee to the investor to honor his/her commitments and the second is the investors undertaking to comply with the law. Therefore, in the new dispensation the investor must ensure his/her own security of tenure by complying with the provisions of the law. The concept is encapsulated in the use it or lose it principle.