Spotlight on the South African Market
Chapter 2 - Social, Political and Regulatory Landscape
- Gold exports are the third largest contributor to South African exports.
- Stage 6 load shedding imposes up to 20% curtailment of energy use for energy intensive industrial users in South Africa.
- Domestic precious metals mining, refining and fabrication is governed by legislation, which is updated from time to time to assist and enable transformation and inclusion, and to promote downstream beneficiation.
The ability of South Africa to extract, sell and export raw materials is a long-standing and key benefit towards the country’s economic prosperity. In 2022, South Africa’s non-energy mineral reserves were estimated at around $3 trillion, making it one of the wealthiest non-oil-producing countries in the world. By way of illustration, South Africa holds an estimated 49% of platinum and palladium, 43% of manganese, 35% of chromium and 5% of gold reserves. South Africa dominated global gold production in the 20th century, with over 75% of the world’s gold reserves in 1970. However, due to resource depletion and high operating costs, the country’s dominance in the global gold sector has declined, from first place in the 1970s to 13th in 2022. That said, the South African gold mining industry is the second biggest employer in the sector. According to the Minerals Council of South Africa, the gold industry accounted for 93,000 direct jobs in 2022 and enabled ten additional indirect jobs for every direct role. In addition, with 91% of gold exported in 2021 with a value of $7.4bn, it is the third largest contributor to South Africa’s export earnings after platinum group metals and iron ore.
While the gold industry is vital to the country’s wealth, it is vulnerable to two key deteriorating factors in South Africa today. Given its characteristically deep-level underground mining, electricity and water supply disruption can be costly. Not only does this come at the expense of production, but it also increases health and safety risks. The current energy crisis in the country is most visible through load shedding, a series of rolling blackouts imposed on Eskom’s residential customers to prevent a total collapse of the grid.
Source: EskomSePush, Eskom, Metals Focus
Gold mining producers are not subject to load-shedding as intensive energy users. However, a load curtailment regime is applied, requiring producers to reduce their energy demand. As a rough guide, stage 1 and 2 load-shedding at the residential level will not impact operations, while stages 3 and 4 would involve a 10% load curtailment, stage 5 a 15% lowering, and stage 6 a 20% drop in energy demand. However, as the situation has deteriorated, the ability to manage curtailment has also become more challenging to manage.
While highly problematic in the near-term, there is a silver lining in the form of renewables. In response to the challenges the industry is facing to secure reliable grid power, several gold mining and refining companies have accelerated their decarbonisation plans, opting for renewable solutions aided by the South African government’s landmark decision in 2021 to increase the licensing threshold for embedded generation projects from 1MW to 100MW. For example, Sibanye- Stillwater is developing a 50MW solar PV project to provide electricity for its Kloof ultra-deep level gold mine and Goldfields 40MW solar plant project at South Deep. Meanwhile, the Rand Refinery has invested in the installation of a 2.5 to 3.0MW solar farm and fuel cell to manage potential grid failures and also reduce carbon emissions. In addition, Metal Concentrators’ new refining facility in the Special Economic Zone at Johannesburg International Airport (Oliver Tambo) can sometimes run entirely independently from the utility provider following their 290kW solar installation.
A second factor which weighs heavily on the ability of the gold sector to contribute positively to the economy is the increase in crime and the deterioration in security. While Minerals Council South Africa has highlighted the disruption, loss and cost to the mining industry, the pervasiveness of crime and the growing lawlessness in South Africa can impact the entire value chain. The extent and level of crime are widespread – from gangs attacking mining shafts to community unrest in an effort to gain employment. Meanwhile, the exploitation of gold’s zero-rated export status precipitated various measures by the authorities, which, while curbing illegal activity, created challenging operating conditions for legitimate operators across the entire value chain. On a separate note, both companies and the public are engaging private security companies to protect people and assets, performing functions that used to be the preserve of the police. It is estimated that the private security sector employs around 500,000 people, surpassing the employment rate of the mining industry as a whole.
Protests recorded in South Africa (SA)
Source: Econometrix, ISSafrica