Episode Transcript
[00:00:01] Speaker A: Over the past few years, it has been a rocky road for the South African mining industry. But have we finally turned the corner?
Hello, and welcome to Deep Insights, brought to you by Mining Review Africa. My name is Rochelle Guetta. In this episode, senior editor Gerard Peter chats to Yandi Mini, principal at Boston Consulting Group, who explains why there is reason to be optimistic about South Africa's mining sector. He also chats about how we can address the challenges we face. Let's join the discussion.
[00:00:39] Speaker B: Yandy, thank you for joining us on Deep Insights today.
Now, as an expert in the mining sector and an expert commentator as well, how would you describe the current state of the South African mining sector?
[00:00:56] Speaker C: Morning, Jared. Thanks very much for having me. So we spoke not too long ago and I did explain in that conversation that I was certainly excited about the sector as a whole. I think since our last conversation, I would say that things have developed even more in the mining space in South Africa that would encourage even more excitement. I think that there has been, there's been kind of growth from, from a, from a price perspective on some of the defence stocks, like gold, as we're all aware of. But I think that we are starting to see some exciting opportunities for some of the players that were kind of at the bottom of the cycle or near the bottom of the cycle, what we hope was the bottom of the cycle, for example, the PGM players, where we're starting to see some price recovery. So I think my short answer is I'm still very optimistic about the sector. I think there are a number of opportunities. While I recognize that there, I think it is an exciting time in the mining industry as a whole in South Africa.
[00:01:57] Speaker B: Okay. Now, as you mentioned, you know, in our previous conversation that there are challenges. Just for the benefit of our listeners, talk to me about some of the most pertinent challenges and more importantly, how do we overcome these.
[00:02:14] Speaker C: So I think, Geraldine, and if I go back to the previous conversation, I think where we, you know, where there is a lot of focus in terms of things, issues or the challenges that one faces, you know, we can, we can, we can kind of name it, we can kind of think of it in three ways. I think that there's the overall nature of kind of the rapid and fundamental changes that are happening across the world and more on a macro perspective. And there I'd flag things such as regulatory uncertainty, geopolitical risk that are playing a role in how markets are perceived and how markets behave. So that's the one side, I think, then, you know, one of the other Things that we spoke about last time was around energy costs. And that's both from, you know, a supply perspective, supply uncertainty and emissions. We have seemed to have overcome a lot of the supply uncertainty on the South African perspective, which has been encouraging to see. But we have some other infrastructure challenges in South Africa. Water is a big example, which is coming into focus a lot in the South African mining sector. And then I think more broadly there's this kind of the broader environmental impacts that are providing a challenge. So more focus on sustainability across different mining players. And so just to go in order how we think through resolving some of these issues. So I think uncertainty is always a challenging one to have a definitive answer to because obviously we need to.
We can't predict where all the uncertainty comes from. And so one of the things that we advise our clients to do and you know, specifically in the mining sector is to do quite detailed but kind of defined scenario planning. So prioritize the material uncertainties that you have in the business and that you may have in the business and then think through what your strategic choices can be around your assets and around some of the decisions you take in the business. I think that being resilient through the cycle requires you to have some degree of scenario planning if you only have one option in mind. Unfortunately, what happens there is you may be geared to too heavily in the wrong direction. So that's one of the ways that we advise that we deal with the geopolitical uncertainty and the broader uncertainty on a macro perspective, dealing with the second broader challenge around kind of energy costs and uncertainty. I think there are a few different ways to embrace the opportunities. I think that what we are seeing across a lot of mining players now, and you see it when you attend the Indabas and other meetings like that. We're seeing a lot of mining companies investing in renewable energy and investing in their own generation and their own supply and they're dealing with their cost uncertainty in that way. They also are utilizing energy in a very different way as well. So I think that there's some behavioral aspects that can happen, but also just changing some, utilizing certain investments to make sure that energy costs can come down. And then on the environmental side, I'd say that there's a lot of work that's happening around sustainability for the longer term. But let me clip my answer there, Gerard. Maybe if there are some follow up questions that are helpful for me to answer, but I think that that's broadly how we would look at addressing some of those challenges.
[00:05:44] Speaker B: Okay, Gandhi, I want to touch on the infrastructure challenges that have actually rattled the mining sector for a number of years.
Have we turned the corner on this? If we haven't? Talk to me about the importance of public private partnerships in dealing with our infrastructure challenges.
[00:06:05] Speaker C: Yeah, so I really like this question, Gerard, for a number of reasons.
One, I would say that I'm in a position now where can provide a lot more of an optimistic answer than one might have offered maybe earlier in the year where we were still facing rolling blackouts and kind of all looking at our phones to see when the next load shedding notification would be. I'd say that from an energy perspective, I mean certainly what we are seeing is we have more reliable supply in the country at the moment, we have less rolling blackouts. And so we're in a position now where we do see that certainly the focus on energy has, has shifted. However, we're in a situation still where while the suppliers become more reliable, we have, you know, or this looming challenge of a rise in costs. Right. So we've all I think been quite aware of the fact that the tariffs for electricity would go up significantly and so it still remains a challenge from that perspective. So I'd say that we've, we've turned eight corner at least. I think we've got an impending challenge coming up ahead around some of the costs of energy. But I think the work that has been done to diversify sources of energy from a mining perspective, even from a residential perspective, I think has made many of us and also many companies more resilient to some of the upcoming challenges. Then to answer the question around public private partnerships, I think that there is, there is, I don't want to say there is no way that we overcome the challenges without public private partnerships. But I think it's, it's a critical topic that comes up in all of the kind of mining meetings we have. Just the importance of the collaboration between government and the private sector. And just at the recent Joburg Indaba, I think that there were a number of really pertinent examples of how these partnerships are taking shape. So we see with the rail infrastructure for example, that there's a lot of work on that front where those bulk commodity producers that need to send commodities to the port are working very closely with the government, working very closely with Transnet to try and turn the situation around. We see it on the energy side as well, where on the energy side we are seeing a lot of work on forums such as Nikom and others where there's a lot of work happening from a public and private perspective as well. So I'd say, you know, when you, when you look at the work that has been done over the last year, when you hear discussions from mining industry leaders from, from the private sector and you hear others like Mzele Mtenjane from, from more from a public perspective, it's clear that there is a very genuine approach to pub to the partnerships on both sides. So I think that corporates in South Africa recognize the need for these partnerships, while at the same time the government also recognizes the benef of developing these partnerships. So I would say it's critical that the partnerships are in play and we are starting to see some success from some of the partnerships that we've heard. Right. So I think that that is, for me, I would say that we can only unlock the true benefit of the sectors of the mining sector as a whole by ensuring that these partnerships are in place.
[00:09:42] Speaker B: Okay, I want to, I'll go back to the benefits of unlocking potential in the mining sector shortly. But talk to me about, especially considering that the world is moving towards a circular economy, a more greener future, what are the opportunities for the South African mining sector to play a key role in, you know, in this, if you want to call it a new world order.
[00:10:15] Speaker C: And I think on that one, the opportunities are a few fold. Gerard, you know, the way we see it. But I think earlier in the year when we had our conversation, I think a lot of the focus or the emphasis was around, you know, battery electric vehicles and how, you know, South Africa's got, I think it's 19% of the minerals or at least 90% of the minerals required to, to manufacture battery, battery electric vehicles. Even when we've seen a shift down in demand of battery, battery electric vehicles, we see on the other side that hydrogen electric vehicles are growing in popularity and the demand for those is increasing. And we know that that means that the need for PGMs, for example, grows again in the country. So I would say that South Africa has a critical role to play in the transition.
So as much as South Africa is going, going through the transition, South Africa is critical to the transition for other countries as well. So I would say that when we look at the energy transition and the importance of moving towards the energy transition, I would see South Africa as playing two roles and one as a provider of minerals required for the transition. But on the second front, I would say that South African companies recognize the need to change their own emissions. And you know, what we, what we are seeing, at least from an investor perspective, you know, the requirements on ESG are no longer a nice to have. What we'd say there is, you know, investors require that, you know, it's not only about how, it's not only about the profits that businesses make, but how the businesses make those profits. That is becoming increasingly important. So hopefully that answers the question.
[00:12:05] Speaker B: Yeah, but Yandy, can I ask you, is South Africa making a lot of noise about the mineral potential that it has? Because when I look at where developments are happening, particularly around battery metals, it's in Central Africa, it's the drc, there's some in Zambia, there's also a few lithium developments in the likes of Namibia and Zimbabwe, for instance. Are we doing enough to actually say, hey, we've got the potential, come and invest in our mining sector?
[00:12:46] Speaker C: That's a good question, Gerald. And I guess I would maybe answer it in a way to say I think more can be done. I mean, I think that more needs to be done around both marketing and market development for some of these critical minerals. I would say that there are a lot of companies in and of their, in and of themselves that are kind of embarking on, on these roadshows when they're talking to investors and asking for investment, where they are trying to do, to do more in terms of promoting these transition minerals. But yes, I, I think to your question, I certainly think that there's, there's more that can be done.
I think that there are opportunities in marketing in a better way. But I think that the other side of that, Gerard, maybe as a cautionary statement is we need to fix marketing is not just by saying we have the minerals come and invest. I think when investors look, they want to see, okay, what are you doing from a sustainability perspective? What have you done from an infrastructure perspective? Have you put in place the necessary tools to make sure that you can extract the minerals, but you can also get the minerals out, beneficiate if you need to in country, but also make sure that you can, you know, you can get the minerals to the end user ultimately to ensure kind of that value chain is not broken at any part by any infrastructure challenges. So what we definitely need to do is we need to continue working towards resolving our infrastructure challenges so that the country is more investable. I mean, I think that we are moving to a space where we continue to be more and more investable and you know, we've gone through peaks and troughs of investability. But I think that the infrastructure challenges do hinder some investors and we need to fix those to ensure that we can market effectively?
[00:14:48] Speaker B: Yeah, absolutely. Now Yandy, you know, you touched on the topic of beneficiation.
Is the opportunities for sort of cross border partnerships between, you know, for instance, let's say countries in the Savic region working together to create a battery value, a battery metals value chain, for instance.
Are those opportunities a possibility?
[00:15:20] Speaker C: I would say yes, Gerard, for a couple of reasons, I think. One, there is a desire, you know, you know, when you hear it either from the government or you hear it from, you know, mining corporates in South Africa, there is a desire to explore regional opportunities and regional growth and I think that's across the value chain. I think there's a recognition, of course, where there are mineral riches in other countries that are. We're not so well endowed with in South Africa. And I think there's an appetite to explore those opportunities.
I would say that, you know, if we look at our neighboring countries and you mentioned Namibia a bit earlier and of course there's rich lithium deposits in Namibia and they've also got kind of rich deposits in general. And I would say that it would be great, Gerard, if we got into a space where there was more of this collaboration happening, whether it's government to government or private entity to public entity in a different country. I think what we're seeing is if we don't see those partnerships in the near term, then we will be beaten to establishing these partnerships by companies from the East. For example, of course a lot of Chinese investors have gone into namibia, into Zimbabwe, etc. And have already established these partnerships. So I would say that there are opportunities here. But I would also encourage that, you know, policymakers in South Africa and public sort of private entities rather in South Africa as well, explore these opportunities with some more haste. I would say. I think that these opportunities exist and you know, I think that we would hate to be in a situation where the mineral richards are all leaving the shores and there's no opportunity to beneficiate on the continent. So I think there are opportunities and I think that there are some that are exploring opportunities, whether it be in copper or in lithium.
But I think that we can accelerate the work on that front. For sure.
[00:17:36] Speaker B: Absolutely. Yandy. I want to look at Africa and you know, some of the more promising mining regions. You know, you look at the likes of West Africa, there's a lot of things going on in East Africa at the moment as well.
Are there any lessons that we can learn from countries on the continent continent that we can implement in the South African mining sector?
[00:18:03] Speaker C: Yeah, so it's a good question, Jared, and I'm just trying to think of a few examples. I would say that, you know, certainly what we can, what we can look to see is, you know, I think if we look at west, if we look at West Africa, for example, we see the mineral riches in places like, like Ghana and Burkina Faso, for example, you know, Zambia, we've got the, we've got the copper as well, and critical minerals in East Africa.
I guess what we could, you know, if we look through what those countries are doing, I mean, I certainly would say that, you know, in some of the spaces, you know, we can see that, you know, why there's geopolitical risk at play.
I think that there's, you know, the attitudes towards investment and kind of infrastructure development. I think if we look at, you know, maybe if I focus on East Africa for a bit and think through the investments that have been made from an infrastructure perspective on the East Africa side. What we're seeing is, although, you know, you wouldn't typically look at a country country like Kenya, to make this a more pointed example, you wouldn't look at a country like Kenya as a, you know, as a mining powerhouse country. But given their geographic location, given their investments in rail and port infrastructure, you do see a lot of trade activity moving through the ports of Kenya. Now you have, you know, what you'll see even from a financing perspective is you're seeing banks in Kenya for the first time needing to increase the size of their bonds for the ports on the east coast of Africa because suddenly they've got big deposits of copper and other minerals that are going through those ports for the first time. These are minerals and commodities that were otherwise trying to go through Richard's Bay or ports in southern Africa. And so what I would say there, I mean, certainly what we can learn from those countries is that the infrastructure development clearly opens up the opportunities in a big way.
And I would say, for me, I'd say that that's a very clear example of what we can learn to make sure that we do it the right way. I would say that it's not a perfect example. I mean, we've seen from a political perspective, obviously, the way that things have turned out in Kenya as well. Maybe the way those investments worked in the past wasn't necessarily for the benefit of all people.
And so there are some challenges even with trying to accelera how that investment works. But I think we can learn from some of the, you know, we can learn from certainly what went right in Kenya and also what didn't go. Right.
But I would say that is certainly one example if that's helpful.
[00:21:02] Speaker B: Yeah, no, absolutely. Now Yandy, I want to go back to a topic that you touched on earlier and it's also a conversation that we had a few months ago. And you know, when people think about the just energy transition, they often think about the fact that okay, we, we are just going to be implementing renewable energy, et cetera. But the term actually means that you need to be taking everybody along with you on this journey. Let's, you know, what advice do you give to your clients when it comes to ensuring that everybody benefits from a mining operation?
[00:21:41] Speaker C: Yeah, look, and I like this topic a lot. Jared and I expressed it rather in our last conversation. So I think what you're seeing, and there's obviously a legislative requirement in South Africa that mining companies are taking their communities along. There are no mines that are without community around them.
And we are all aware of that. And when we look at things like energy and energy security, I mean energy security impacts those in the communities as well. So it's, you know, you know, and it, and it can't be, it can't just be a surface level gesture from, from a mining company perspective. And so what we try to think through then and how we work with our clients in that space, particularly around the sustainability space, is obviously we need to look at it from, you know, where, where are, where does the company want to be from a global commitments perspective? You know, so if we look at the sustainable development goals, what are the priority sustainable development goals for our respective clients and how does that manifest when we discuss with board members, etc. I'd say from an energy perspective, what we are seeing is while mining companies in South Africa have been doing a lot of work to try and make sure that they have different sources of energy, I would say that most of the mining companies that we work closely with are doing, you know, are making these investments for their communities as well. You know, we see things like solar lighting, we're seeing things like, you know, you know, solar farms close to communities that communities can benefit from as well. And I think the reason for this is, you know, it's not, you know, while it's, while it's doing good for these communities, I think that there's a very clear recognition that if you have a thriving community, you can have a thriving mine. If you are a mining player who goes into a community with, you know, a complete disregard for that community, I mean, communities will barricade the gates and they will not allow you to operate. So, you know, and that's not to say that the investments are made from a defensive position. I'd say that many of. And I'd say most in the mining space, especially those that are tasked with implementing initiatives in communities, have a genuine, you know, a genuine, like, you know, sort of a genuine desire to improve the livelihoods of those communities around them, working with those communities to make sure that they can find work, you know, that is created by the mine or even work that is supporting the mine, you know, outside of the mine gate as well. And you see it as well, with the energy. Right. You do see that, you know, some of these agreements or some of these developments that are taking place, they supply energy then to the rest of the communities that they have. And the same with water and the same with other infrastructure that goes into some of these communities.
[00:24:46] Speaker B: Absolutely. One final question, Yandy, and I want you to gaze into your crystal ball. Now. Let's look at 20, 25. What can we expect to see in the South African mining sector?
[00:25:00] Speaker C: Yeah, wow.
I mean, firstly, I would say that if I had a crystal ball, I'd maybe throw money at some stocks from a hammock on a beach island somewhere. So I certainly don't have one.
And so what I would say. What I would say though, Gerard, is if I think through mining as a whole in South Africa, and I think through just some of the discussions that we've had, the two of us have had, but also different sessions I've been to through this year, what I would like to see and what I think we will start to see a lot more of is I think there will be more opportunities for, I'd say, smaller mining players. You know, I think that the. The term junior miner can. Can be quite controversial to some. I'd say that, you know, smaller mining houses, you know, more work around exploration, I think certainly would be encouraging to see. But I would. I would think that at least with some of our critical minerals that we have in the country, we would likely see some kind of shifting from the bottom of the cycle. I mean, certainly that's what I would. That's what I'm anticipating is that maybe many of the sectors that have been near the bottom have bottomed out and we'll start to see some growth going into next year. And maybe that's more optimism that's driven by a desire rather than by anything that I've seen, But we are starting to see some shoots turning around. I would say then, you know, as we. As we go into next Year, I would think that we will start to. It's been a busy sector this year, Gerard. Maybe, maybe I'll start there by saying there's been a lot of market activity. There's been, you know, there's, you know, every now and then we've got an executive in the country who might be buying a mining house or might be, you know, might be changing the ownership structure of one of the bigger players. So I certainly think it will be. Be an exciting industry to watch next year. And I think as we see things play out with some of the bigger mining houses, as kind of things change from a structural perspective, I do think there will be a lot of opportunities in South Africa and it will be both on kind of the big mining company side as well as the smaller mining company side. I would hope then in terms of commodity prices, we'd start to see commodity prices moving in a slightly different direction, at least for those outside of gold starting to move up again. But I think that, you know, we would, we would likely see a lot more work around sustainability. We'll see a lot more focus on water. I think the focus that we would have seen on energy, I think a lot of it will shift to water and there will be continued focus on, from an infrastructure perspective and really would hope to see, you know, many of the challenges from a rail infrastructure perspective start to be addressed, invest more. And you know, when I, when I talk about the smaller mining, smaller mining companies, I think they're, the big discussion is around the catastrophe system. And so I think that is something that we hope to see being, you know, fully embraced. And, you know, we can start issuing new licenses, having more exploration. Because going back to our question about what we can learn about other African mining companies is I think exploration is certainly a lot easier in some other countries outside of South Africa just given, you know, the legislative requirements and the differences in legislative requirements.
[00:28:38] Speaker B: Absolutely. Yandy, as usual, it's been, it's always great chatting to you.
Thank you for joining us on Deep Insights today.
[00:28:49] Speaker C: Thank you very much, Gerard. Great to speak to you again.
[00:28:52] Speaker A: Thank you for joining us. Remember, you can subscribe to Deep Insight on all podcast platforms. Also, for the latest mining news, analysis and insight, visit miningreview.com until next time. Goodbye.
