Mining Collaboration

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A group of stakeholders from the mining industry recently met at a high-level forum to iron out problems hindering investment in South Africa's mining industry. The main focus of the group was to assess institutional restrictions that have prevented the sector from attracting more foreign direct investment (FDI).



The meeting was attended by representatives from the Chamber of Mines, National Union of Mineworkers (NUM), the department of minerals and energy and the ministerial advisory board.



Lazarus Zim, the president of the Chamber of Mines, estimated that South Africa was losing out on between $700m and $1.4bn a year in mining investments as a result of regulatory constraints.



According to Roger Baxter, the chief economist for the Chamber of Mines, the loss of $700m a year was a definite amount and the $1.4bn figure a reflection of potential opportunity loss.



"One of the core issues is how do we promote investment in the South African mining sector, which is important in the economy in terms of exports and its contribution to the GDP, " Zim announced to the group.



Zim acknowledged last week that the industry was experiencing an "investment drought" despite booming commodity prices in the international market.



At issue are the delays in processing license applications by the department of minerals and energy under the new Mineral and Petroleum Resources Development Act, Zim said. Companies applying for new-order rights, which would allow them to operate to full capacity, were without the required licenses necessary to carry out new projects.



The Minerals and Petroleum Resources Development Act of 2004, which contain current South African mining laws and regulations, stipulates that mining firms must meet empowerment, social and environmental conditions before receiving the mandatory licenses required of them to operate. In the case of exploration firms, similar criteria are imposed before a prospecting license can be granted.



NUM also raised issues of mine safety, which has played a factor in outside investors' perceptions of the mining industry in South Africa.



Mining Charter, another industry power player, has indicated that empowerment red tape and capitalisation of environmental trust funds were most concerning and a major causal factor behind significant delays.



In comparing the mining industries of South Africa to Australia, which successfully exploited the current commodities boom, a report found that pre-tax profits in Australia's mining industry grew by 95%, in 2005, while South Africa's profits augmented by a meagre 12%. Furthermore, capital investment in Australia's mining industry had risen by more than 34%, while South Africa is confronted with a continued decline in investments for the last two years.



Zim reported that the department of minerals and energy has expressed its concerns over the decline in investment and has expressed a willingness to work with the industry on remedying the current situation.



The department released a statement indicating that it would be prepared to amend the country's mining laws once they discovered which laws and regulations were impeding investment in the sector.



Sandile Nogxina, minerals and energy director-general stated in an interview, "If the regulatory environment constrains investment, then we will see what we can do to recommend possible amendments to parliament...however, the effectiveness of the law can only be established in its implementation."



Zim said that there would be more reason for concern if the issue was a "one-sided issue", but noted that the Chamber, the department of minerals and energy and the, Buyelwa Sonjica, the minerals and energy minister, were indeed engaged in a bid to try and find solutions.



Meanwhile, Baxter said, from the sidelines of the meeting, that investment appeared to be picking up as regulatory and infrastructure constraints were removed.

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