How would you describe the current state of the South African mining industry?
South Africa is very dependent on commodities which contribute approximately 7- 8% to the GDP. With the current high commodity price levels, the mining industry is performing exceptionally well and is generating cash, paying many taxes, and supporting the country from an export point of view. In the last few quarters, South Africa has had a surplus in the balance of payments, which showcases the country’s strong export mining industry in the commodity space.
Before the pandemic, we were already in a recession, and the South African economy is currently battling. In 2020, we hit a record decrease in our GDP as well as record unemployment levels. However, there are some signs of recovery in 2021. The reality is that we will probably only be back up to pre-Covid levels post 2023.
What trends are you witnessing in the green mining space and the move towards decarbonization?
The mining industry became more efficient in electricity use since 2008, when Eskom initially implemented load shedding. Renewable energy opportunities have opened up massive doors. The President recently permitted independent private power generation of up to 100 MW, which we hope will be a good opportunity for South Africa to kickstart energy transformation.
We are optimistic regarding hydrogen’s future contribution and expect billions to be invested in hydrogen locally and in Southern Africa as a whole. Given the region’s endowment with renewable energy sources (solar, wind and hydropower), which are required to produce green hydrogen, it makes it a possible game-changer for energy deployment.
What is the investment sentiment in South Africa regarding funding for exploration?
Our investors generally do not have an exploration investment culture. We believe that this can change if the country were to use a tax flow-through scheme like Canada has, which the Minerals Council, with support from the industry, is working on. Many people are starting to invest in Africa as there is a real need to find new green economy type commodities. Even in a mature mining destination like South Africa, greenfields exploration has been limited since the 1980s. At that stage, these green metals were not yet of interest and exploration technology was not at today’s level. With the advancement in technologies, much more exploration can be done. The Council of Geoscience in South Africa is starting to open up information that would facilitate getting data to potential explorers much quicker. The Department of Mineral Resources and Energy has realized that the Samrad system needs to be replaced, and a proposal will be coming out imminently for the backlog of applications around exploration and mining rights to be addressed. The challenge that we face is that if you are interested in a specific piece of land, it is hard to know if someone else already has exploration rights on it.
Which metals are currently in the spotlight in South Africa?
PGMs have over taken coal as South Africa’s main revenue generator for the first time since 2010 and continue to grow significantly. The increase of the platinum price has been relatively stable over the last two years, and the real revenue drivers for PGM producers have been rhodium, which hit a record price of approximately US$30,000/oz, and palladium. Iridium also did very well and is used as a catalyst in the manufacturing of hydrogen. The price of iridium has increased from US$1,500/oz two years ago to approximately US$6,000/oz today. Other Bushveld igneous complex metals such as chrome and vanadium also have interesting prospects.
The Northern Cape is showing impressive mining growth with the focus on iron ore, manganese, zinc and copper.
Although we are in an energy transition and are shifting away from coal, the demand for coal is likely to remain relatively flat over the next 5 - 10 years. As there is less funding for new coal ventures and supply will be under pressure, prices are expected to remain relatively strong in the near term.