Lack of exploration, mine closures and job losses in rural areas inevitable if MCIII is applied to junior miners
Mining Charter III (MCIII) heaps more pain on South Africa’s alluvial diamond producers who already face enormous cost burdens and high risks. This previously productive and successful small or junior diamond mining industry consists of just 180 remaining entrepreneurial mining operators employing around 5000 people at an annual salary bill of R550million. It is the primary employer in remote rural areas in which alluvial diamond mining is conducted, and where existing unemployment levels are estimated to be as high as 80%.
The alluvial diamond mining industry has experienced steady decline since 2004 when the Mineral and Petroleum Resources Development Act (MPRDA) was implemented. At the time of the implementation of the MRDPA, there were 2000 diamond miners employing some 25 000 people. Today that figure has plummeted to 180 small mining operators and a massacre of employment numbers to around 5 000. Since 2013, there has also been a 61% decrease in prospecting right applications in the Northern Cape where the bulk of alluvial diamond mining takes place – largely the ambit of entrepreneurs, local private operators and farmers. Like many other mining sectors, the diamond mining sector is also seeing rapid growth of illegal operations. Much of this on the back of ill-considered policy.
MCIII – which currently makes no distinction between the inherent structural and funding differences between Junior miners versus large publicly listed mining companies – will precipitate further drastic decline of South Africa’s entrepreneurial miners and job losses in vulnerable rural communities. It’s key failing is that MCIII fails to acknowledge that South Africa’s mining sector is not a homogenous grouping of only large mining conglomerates but made up of players of all sizes from small, privately funded operators and mid-sized operations (collectively referred to as Junior miners) to large multinational and publicly-owned operations.
Under the coordination of the South African Diamond Producers Organisation (SADPO), the alluvial diamond mining industry has attempted to highlight the diversity of the Junior sector and the challenges of the ‘one size fits’ all approach to minerals policy by regulators, to no avail. A special dispensation for small and Junior diamond miners in terms of the provisions of MCIII is critical to continued investment in the alluvial diamond industry and the long-term sustainability of South Africa’s minerals sector.
The SADPO has outlined the key challenges in complying with MCIII:
MCIII overlooks the cost constraints and economic plight of Junior diamond operators, in an environment where all producers are price-takers and cannot cover the additional burden of costly BEE deals, more onerous compliance requirements, unrealistic procurement obligations, enterprise development and employment equity by simply raising selling prices. The requirements of MCIII and the recently tabled Implementation Guidelines (Dec 2018), aside from being impractical from a situational perspective, will further increase operating costs of mining operations, unsustainably so for Junior operations. The inevitable outcome will be the shutdown of operations and retrenchments in rural areas where there simply are no other prospects of decent employment.
The downstream impact will also be significant – diamond traders, cutting and polishing industries, jewellery manufacturing and retail sales into global markets will be severely impacted. The collapse of entrepreneurial businesses that have been shut out of the large mining industry will be disastrous. Upstream suppliers of good and services stand to lose some R2.1billion in turnover derived from alluvial diamond mining activities.
Worldwide, including in many countries in Africa such as Botswana and Namibia, Junior exploration and mining businesses are the backbone of a healthy minerals industry. History shows that most discoveries of new deposits are made by prospectors and Junior explorers and miners, as they are typically less risk-averse and more focused on exploration and early stage development as a means of survival, compared to risk averse Senior companies.
Mineral discoveries that are ‘small’ or ‘mid-tier’ are exploited by Junior miners, whereas bigger deposits requiring large capital expenditure are typically built and mined through joint ventures between junior and senior companies or sold to Senior companies. This synergy between Junior and Senior companies is well documented worldwide and benefits the entire minerals sector. A further reality is that ore bodies are finite thus we need synergy between junior explorers who make discoveries to replace old and depleted assets mined by the Senior mining operators, thereby ensuring the long term sustainability of the minerals sector. This synergy is lacking in the current South African mining industry.
While alluvial diamonds are the highest risk commodity to mine globally, the industry also has the lowest cost-entry relative to other minerals for small and Junior miners. It currently produces around 300 000 carats per year valued at R4.2billion, with foreign exchange earnings from production estimated at R3.2billion. The alluvial diamond industry stands ready to be a driver of transformation and an incubator of black-owned and operated entrepreneurial mining businesses – but only if MCIII policy makers recognise the fatal pitfalls of applying a ‘one-size fits all’ approach designed for a handful of large publicly-owned companies, to an industry dominated by small, privately-funded, entrepreneurial mining businesses.
There is an urgent need for consultation between Government and the Junior mining industry to agree on amendments to MCIII that will enhance and promote transformation and empowerment in the industry, and at the same time ensure that the Junior sector is able to survive and continue to play the vital role in SA’s broader minerals industry.
(By Gert van Niekerk, Chairman of the South African Diamond Producer’s Organisation (SADPO))