Industry Trend Analysis - Quick View: New Mining Head Signals Improving Outlook For Mining Sector - APR 2018

The Latest: On February 26, Mosebenzi Zwane was replaced by Gwede Manteshe as head of South Africa's Department of Mineral Resources, as part of a broader cabinet reshuffle announced last week by new President Cyril Ramaphosa. This move follows the South African Chamber of Mines' decision earlier in February to postpone a legal challenge on a new mining charter introduced by ex-head Zwane in June 2017, in order to allow negotiations over its final content.

Implications: The appointment of Gwede Manteshe was welcomed by major stakeholders across the industry, from the industry-representative Chamber of Mines to the National Union of Mineworkers, which Manteshe used to head. This development will send a positive signal to investors by allowing the Chamber of Mines and the government to initiate negotiations over the new mining charter, which had stalled during the tenure of Mosebenzi Zwane. As a result, we now envision upside risks to our relatively subdued mining industry growth forecasts in South Africa over the coming years due to improved investor sentiment, pending an agreement over the new charter.

What's next: Manteshe announced plans to finalise negotiations over the new mining charter within the next three months, suggesting he is confident of a negotiated outcome that is favourable to all parties is possible. As it stands, miners operating in South Africa view the mining charter very unfavourably, due to high local requirements and royalties. We expect negotiations will lead to a more accommodating mining charter, through a reconsideration of controversial and legally questioned elements such as the requirement that a 30% black ownership participation rate must be maintained throughout the life of operating mines, even if black shareholders sell their position. However, we do not expect a complete revamping of the charter since any discussions around this will have to include key stakeholders such as community groups, which will remain supportive of higher or more favourable local content requirements. Furthermore, any attempts by the Ramaphosa administration to implement reforms in the mining sector, as within the broader economy, will continue to face significant headwinds from an ANC party that remains deeply divided on policy issues.

Subdued Growth Outlook Ahead
South Africa - Mining Industry Value (USDbn) & Growth (% y-o-y)
e/f = BMI estimate/forecast. Source: UN, BMI

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