A service level agreement for a new cadastral system — a detailed mapping service showing mine boundaries, mineral rights and other information needed by mining investors — was inked in the last few days between the Department of Mineral Resources and Energy (DMRE) and the PGM Consortium, with the latter led by Canada-based Pacific GeoTech Systems.
The existing cadastral system, the South African Mineral Resources Administration System (Samrad), was introduced in 2011 and has been widely criticised as dysfunctional and a major block to attracting exploration investment. It’s about to be ditched in favour of a new, world-class system.
The winning PGM Consortium comprises Pacific GeoTech Systems, SA geological services company Gemini GID and the MITS Institute.
To understand the depth of the problem in exploration, it takes up to 270 days to process a mining licence application in SA, compared to 90 days in Botswana.
That, combined with suffocating regulations, BEE, preferential procurement — all of which add to the costs of mining — and a badly crafted Mineral and Petroleum Resources Development Act (MPRDA), which allows the minister to make law through the 2018 Mining Charter, has driven exploration investment across our borders.
Springboarding SA’s exploration drive
Speaking at the Junior Mining Indaba on Tuesday, Orion Resources CEO Errol Smart said the cadastral agreement could springboard SA’s exploration drive.
“Investors at the end of the day make the decision about where [they] do stuff.
“Our peer group across the borders are outperforming us. They’re getting more money and they are doing more, not because they’ve got better rocks but because they are doing more.
“I’m so excited that we can get moving and get action happening.”
Smart said investors prefer greenfields to brownfields mining projects. However, SA’s opportunity lies in attracting investment into brownfields projects where the grand old mines of the past still have ore bodies that can be worked.
He added that it is encouraging to see noticeable improvements in logistics, law and order, and electricity supply from Eskom.
Deputy director-general at the DMRE Tseliso Maqubela told the Indaba that the department is working to improve its processes.
“We’ve also embarked on a culture change in the organisation. We have a specialist who’s helping us, so when you walk in, you are clients. You are our client, not a nuisance.”
Mosa Mabuza, CEO of the Council for Geoscience, says SA has an opportunity to discover Tier 1 (large, long-life and low-cost) assets that the world is looking for to meet its net zero objectives, and there has never been a more exciting time to be in exploration (in SA).
Meeting the 5 percent global exploration spend target
Mineral Resources and Energy Minister Gwede Mantashe is on record saying he wants SA to regain 5 percent of global exploration spend, a figure last achieved in 2004. That was the year the MPRDA came into effect.
SA currently accounts for less than 1 percent of global exploration spend.
A good first target would be to get back to 1 percent.
The chart above from the South African Reserve Bank March 2024 Quarterly Bulletin shows exploration investment since 1960 in constant 2015 prices.
We reached an all-time low in 2021, with a slight improvement in the last two years.
The chart shows a spike in exploration immediately after the introduction of the MPRDA in 2004, as mines invested in old-order mining rights to avoid losing them.
Most of this was for platinum group metals (PGMs).
There was a transitional period before the 2009 deadline to convert old-order rights to new-order rights coinciding with the commodity supercycle, just prior to the 2009 global financial crisis.
What is evident is that the downward trend in exploration spend was already well underway from 1995, interrupted by the spike in 2006 and immediately thereafter.
The enactment of the MPRDA and the various iterations of the Mining Charter have manifestly failed to attract spending on new-order prospecting rights.
Over 4 500 prospecting licences have been issued since 2004, many of which have now expired unused. Very little in the way of actual investment has resulted from these licences.
There are also well-founded claims that some of these licences have been issued to applicants from outside the mining industry in contravention of Section 17 of the MPRDA, which specifically requires an applicant to have “access to financial resources and has the technical ability to conduct the proposed prospecting operation optimally and accordance with the work programme”.
Paul Miller, CEO of research company AmaranthCX, points out that SA will need to attract about US$636 million (nearly R12 billion) in annual investment to reach its target of 5 percent of global exploration spend. The new cadastral system will certainly help, but that’s only part of the problem.
Here’s the problem
Among the steps needed to reverse the decline in exploration expenditure, Miller says a new cadastral system is vital, but so too is the need for more effective administration by the DMRE to speed up licence applications and vigorously enforce the use-it-or-lose-it principle embedded in mining legislation. Exploration data should be provided to the public at no cost.
Crucially, the MPRDA and the Mining Charter are uncertain and no longer fit for purpose, are backwards-looking, and are aimed at transforming assets that will soon be mined out.
What is also needed is graduated mineral regulation for different sizes of enterprises, with lesser regulation for small and junior miners.
SA imposes high corporate taxes relative to other countries, as well as mineral royalties, complex procurement rules, BEE ownership (up to 51 percent in some commodities, with at least part of this being “free carry” at investors’ expense) and other social obligation costs.
Countries that have successfully attracted mining investment provide tax incentives for junior miners, such as the ‘flow-through’ share model, in which investors, rather than the mining company, receive the tax write-off benefits of exploration expenditure.
The new cadastral system will help, but it’s nowhere near enough to get us to 5 percent of global exploration spend. — Moneyweb
