15 March 2013
After two tough years for mining in South Africa, the country’s junior miners are optimistic about the next 12 months, more so even than their Canadian, Australian and British counterparts, according to the inaugural Grant Thornton International Mining Report.
At the same time, the report cautioned that South Africa’s junior miners would need certainty about the future if they were to convert risks into growth for the country’s mining industry.
Grant Thornton’s report, released on Thursday, surveyed junior miners in four countries where mining is a priority, namely South Africa, Australia, Canada and the UK (specifically for the large amount of mining companies listed on AIM, a sub-market of the London Stock Exchange).
(Website Investopedia defines a junior mining company as an exploration company that looks for new deposits of gold, silver, uranium or other precious minerals, targeting properties believed to have significant potential for large mineral deposits. “Junior exploration companies are a major source of future mine supply,” the website notes.)
Uncertainty ‘affects ability to raise finance’
South African junior miners surveyed by Grant Thornton said that uncertainty arising from nationalisation debates in past few years had limited growth and expansion opportunities for the junior mining sector countrywide.
“Uncertainty arising from the nationalisation debate harmed the industry’s ability to raise finance, and any instability going forward will have the same negative impact,” Steven Kilfoil, mining advisory and corporate finance director at Grant Thornton Johannesburg, said in a statement on Thursday.
“Thankfully the nationalisation issue has now been settled, and this stability will assist miners to access funding.”
Kilfoil said the report showed that South African mining executives were “beginning to see light at the end of the tunnel following a period of mine violence, strikes, uncertainty surrounding the mineral regulatory regime and ambiguity around government’s plans on nationalisation.”
SA junior miners plan to spend, hire more
The report revealed that South African junior miners will spend more on capital equipment and, despite knowing that labour and energy costs will increase significantly, they also expect to be profitable, with half (49%) of the respondents in South Africa also anticipating increased revenues this year compared to 36% in Australia, 31% in Canada and 21% in the UK.
In terms of future investments, nearly half (49%) of South Africa’s junior miners expect to increase their investment in plant and machinery over the next 12 months, compared to a global average of 42%, while two-thirds of South African respondents (62%) were looking forward to higher commodity prices compared to 54% globally.
The survey also indicated that 44% of South African junior miners plan to employ more people, with a positive outlook also expected for the year ahead in terms of salary increases across the junior mining sector – 44% of SA respondents said they would increase salaries by more than inflation, while 46% said they would offer pay rises in line with inflation.
South African market ‘robust’
Kilfoil said he had recently attended the Prospectors and Developers Association of Canada annual conference in Toronto, where he said the mood on the floor was generally pessimistic.
“Canada has approximately 1 200 listed junior miners of which only about 800 are expected to survive the next 12 months,” he said. “A third of them will disappear or be absorbed by major players.
“[Canada] therefore has a number of economically unviable listed resource companies that were able to raise initial funding and start drilling. Now, however, they cannot access any further funds.”
One way to raise finance is to go to market, and thankfully the South African market was more robust, Kilfoil said, with Johannesburg Stock Exchange (JSE) requirements being far stricter than those of other major mining countries.
“While this has to some extent stifled exploration, it has also been very positive, as investors are better protected and our exchange ensures that assets that come to market are good assets.
“I have always been a huge proponent of exploration. It’s vital – but it needs to be done carefully,” Kilfoil said. “We don’t want to end up with a situation similar to that of Canada, where there is a proliferation of smaller companies that have raised money for exploration but are now cash-strapped.”
Policy, red tape concerns
South Africa also needed to ensure that investors were afforded the predictability they needed for resource exploration and development projects, Kilfoil said.
The nationalisation concerns which were raised in Grant Thornton’s research were with specific reference to the challenges which junior mining organisations were facing in accessing finance.
Half (49%) of the SA respondents in the report indicated that they would need finance for their businesses within the next two years; 26% of these said they would need funds within the next six months.
South African junior miners surveyed also raised the issue of over-regulation. “Too much red tape causes needless project delays, discourages investment in the sector and dampens enthusiasm for exploration,” Kilfoil said.
Another negative highlighted by the survey was the issue of bribery and corruption, with 40% of South African miners citing this as a significant concern – nearly double the global figure of 23%.
Interestingly, however, access to a skilled workforce was not much of a concern to South African junior miners, and it was with the rest of the world.
This was in contrast to the findings of the recent Grant Thornton International Business Report, which showed that 58% of South African businesses in general had difficulties in recruiting skilled workers.
“This talks to the fact that our mining industry is mature and strong, with a significant group of people that really knows the business – and understand how to mine,” Kilfoil said.