Presentation to FFF Conference -Junior Mining in South Africa -

Transcription

1 Presentation to FFF Conference -Junior Mining in South Africa - 27 June 2014 L Landu Sustainable Development Researcher MINERAL ECONOMICS AND STRATEGY UNIT (MESU)

2 Presentation Outline Introduction & Background Objective & Methodology Definition Junior Mining industry in SA Key Opportunities & Risks Preliminary Database Future Outlook and Conclusions

3 Introduction and Background For many decades LM dominion in SA More than 90% mining companies are LM in SA Most R&D including regulations have focused on LM and much lesser to JM in SA context JM relatively small, but important sector Provides market intelligence and analysis of SAJM sector MPRDA enactment in 2002 compelled LM to sell assets to HDSA prompted JM creation in SA Main reasons: low investment, low contribution to national economy, no definition, etc. No clear demarcation between LM, SSMB, JM, etc.

4 Objective and Methodology Objective: the study seeks to provide an understanding of the junior mining industry in SA context and develop a preliminary database of junior mining companies in SA. This was achieved through the following methodology: Literature Review Primary interviews, meetings and workshop attendance Maps indicating location of junior mining sites in the country Analysis of opportunities, risks and threats

5 Definitions Distribution of Mining Operations (Seeger, M, 2007)

6 Definitions (Cont d) The Casey s International Speculator Report (2013): JMC is asmall-cap, high-profit company sitting on discoveries that could significantly increase its profits and of course the value of its stock. Seeger (2007) JMC as asmall, entrepreneurial mining company that is focused on the identification of exploration targets, undertakes exploration, develops feasibility studies and in some cases develops mines in-house. The mid-tier producers JMC that would have transitioned into production on properties that they have discovered and acuired. JMC in the process of graduating into amajor mining company, with various mining operations and mining projects.

7 Definitions (Cont d) Large scale Mining Cover bigger sizes/concession area (2x) to JM South America ± 5000 hectares 85% global production 2.5 million employees Revenue ±$4.3 billion in 2012 Heavy euipment, high-tech, large output, etc. Junior Mining Much smaller concession area South America ± 1000 hectares Focus on exploration, little or no revenue from production, Active in high risk zones with high investment risk of exploration, Critical in the initial stages of mining value chain Small scale mining: 15% global production Turnover of less than R7.5 million Employs less than 50 people Manual labour using ordinary instruments to mine

8 Definitions (Cont d) Classification of mining and uarrying operations Category Micro Very small Small Medium No of employees <5 <20 <50 <200 Assets (property excluded) <R100,000 <R1.8m <R4.5m <R18m Annual revenue <R150,000 <R3.0m <R7.5m <R30m Estimated number of ASM miners in Southern Africa Country Number of miners South Africa Zambia Malawi Mozambiue Zimbabwe Tanzania DRC Definition: artisanal mining refers to small-scale mining involving the extraction of minerals with ordinary tools on a survival level.

9 Definitions (Cont d) Percentage of the population depending on ASM

10 Definitions (Cont d) ASM rudimentary approach ASM rudimentary approach ASM Low-tech ASM rudimentary tools JMC High-tech approach ASM rudimentary tools

11 Junior Mining in South Africa History Since 1990s was to build and strengthen exploration dominated by big mining houses Companies from Canada, Australia started JMC and also developed an exploration sector 13/30 on BIC only listed on JSE, Platinum JMC dominated by Australian and Canadian SA investment banks are slowly joining the idea, IDC and other institutions are injecting significant capitals into JMC. Support structures include SAMDA, Bakubung initiatives giving birth to NAMF. SA JMC is made up of the following: Emerging, small to medium sized mining companies Capitalisation of between $20 million to $1 billion in 2012 Most of them are product of BEE Have weak corporate and management profile Investment banks reluctant to fund mining projects Despite ambitious projects pipeline to graduate into mid-tier mining size South America ± 5000 hectares Revenue ±$4.3 billion in 2012 Heavy euipment, high-tech, large output, etc. Location Most of JMC in SA are coal mines located in Highveld coalfield/witbank followed by gold JMC.

12 Legal Framework Junior Mining in South Africa (Cont d) MPRDA is the principal piece of legislation governing activities of SA JMC Other supporting piece of legislation: NEMA, OHS, BCE, etc. MPRDA created opportunities by making exploration and mining permits available to all people of SA Market Dynamics A complex interplay of global and domestic factors affect JMC in SA Assets are not diversified but located in asingle commodity (e.g. gold, platinum, coal, etc.) Difficulties in penetrating are the same including infrastructure, resource (water and energy), legislation compliance, etc. Follows growth of national and global economy Mining assets are principally located in SA

13 Junior Mining in South Africa (Cont d) Drivers of growth JMC drivers of growth Impact Continuing industrialisation and urbanisation of China and High High High India Increasing global and regional demand for commodities Medium High High Increasing commodity prices Medium Medium High Transformation of South Africa s Mining Industry Medium Medium Medium Significant deposits of platinum, coal and diamonds Medium Medium Medium JMC challenges Challenges Impact Unavailability of funding High High High Transportation and logistics constraints High High Medium Compliance with environmental, health and safety Medium Medium Medium laws Resource and technologicalbarriers to entry Medium Medium Medium Unstable global commodity markets Medium Medium Medium

14 Junior Mining in South Africa (Cont d) Location of some junior mines in South Africa Mine Name Commodity Mined Latitude Vele Coal Limpopo Umlabu Coal Mpumalanga Fairview Gold Mpumalanga Barberton Gold Mpumalanga Bankfontein Coal Mpumalanga Welgedacht Coal KwaZulu Natal Burnstone Gold Mpumalanga Middleburg Town Coal Mpumalanga Savemore Coal Mpumalanga Graspan Coal Mpumalanga Bokoni Platinum Platinum Northwest Crocodile River Platinum Platinum NorthWest Buffelsfontein Gold Northwest Most of JMC are coal mines located in Highveld coalfield in Mpumalanga followed by platinum and gold

15 Junior Mining in South Africa (Cont d) Characteristics of SA Coal JMC Coal producers Production Capacity (Millions of coal per annum) Share (%) Type Tier Large scale Tier Merging, small to medium sized junior SA Junior coal sector is ±30 small to medium sized coal producers with annual production of between 1and 10 million ton of coal per annum. Majority are privately owned companies, not listed on the JSE Coal of Africa, SA coal mining holding and continental coal are the only listed junior coal producers. Have flexible management structure In 2012, junior coal producers made approximately 22 million of coal Bulk of coal is consumed by Eskom to generate power

16 Key Opportunities and Risks Long-term opportunities SA mineral endowments, largest exporter of strategic mineral commodity Substantial mineral reserves JCPs have the potential to become key suppliers of strategic minerals to Asia Continuing industrialisation in Asia demand is high Although LCPs export greater portion of minerals to international markets, JCPs can complement the export activities. Mineral supply opportunities to domestic markets (e.g. Eskom expansion projects) Sasol synthetic fuels expansion projects Lower costs of mineral extraction and processing compared to Australia and Canada, NIP, etc. Short-term opportunities Junior minerals, e.g. industrial minerals

17 Key Opportunities and Risks (Cont d) Risks in Junior Mining Sector Economic Risks Technical Risks Human Risks Mining company forced to use The geology does not materialise Host government does not honour agreement: government services even if not according to the studies: competitive. Insufficient capital Environmental risk: Threat to health and safetyof employees: underestimation of costs Underestimation of operating costs: Euipment failure: Land claims Decreasing control in project Cost and availability of electricity and Lack of project performancefromthe state: management: water Incorrect market-forecast: Wrongselection of mining method: Importationrestrictions: Change in tax regime: Poor yields Political instability: Cannot obtain finance: Infrastructurefailure: Delay in obtaining leases, permits and mining rights. Delay in production start-up: Geological data and record Unstable, unionised labour force: losses/unavailability Cost and availability of Mining company cannot adapt to cultural diversity: electricity and water Decreasing commodity prices Lack of consensus between joint venture partners:

18 Full name Status Type Preliminary Database The basic data for individual junior mine were organised in the following categories: mine id, production, commodity,reserves, controllingcompany,type, status, location,etc. Prod C 2010 (Mt) Prod C 2011 (Mt) Prod C 2012 (Mt) Controlling company (short name) (end-2012) Coal rank Resources (Mt) Reserves (Mt) Black Wattle Coal Mine Operating OP,UG Bisichi Mining Bituminous 7.00 Operating, Ferreira Coal Mine exp/constr OP Contl Coal Koornfontein Coal Mine Operating UG Glencore Interna Bituminous Magdalena Coal Mine Operating OP,UG Forbes Coal Bituminous Middleburg Coal Mine Operating OP BHP Billiton Mooiplaats Coal Mine Suspended UG CoAL Anthracite, Bituminous Optimum Coal Mine Operating, exp/constr OP Glencore Interna Bituminous Shanduka Coal Mines Operating Shanduka Group, Glencore Interna Somkhele Coal Mine Operating, exp/constr OP Petmin Anthracite Spitzkop Coal Mine Operating OP,UG Imbawula Bituminous Tselentis Coal Mine Operating OP Imbawula Bituminous Umcebo Coal Mines Operating Glencore Interna Vele Coal Mine Operating, exp/constr OP,UG CoAL Bituminous Vlakvarkfontein Coal Mine Operating Contl Coal Woestalleen Coal Mine Operating OP CoAL Bituminous

19 Future Outlook and Conclusions v Based on commodity demand and supply in international market. v Continuing industrialisation and urbanisation of China, India and rising global demand of energy, increasing consumable incomes are long-term drivers of growth. v Forecast to grow in line with the mineral supply opportunities in the global market v Policy makers expected to address regulatory factors (security,permitting, SLP, etc.). v Anticipated recovery of the global economy between 2014 and 2015 is expected to boost demand fro mineral commodities. v Favourable conditions in global market will result in JMCs consolidating their contribution to the country s economy. v Key agent of employment generation, foreign currency and transformation of the MI.

20 Thank You