Clock ticks for mining towns

• Six years of gold operations left in the Free State, PwC study shows

Some provinces in SA have as little as six years of mining left based on currently declared resources and reserves.

The gold and iron ore mining industries, in particular, could experience a major ramp-down over the next two decades, and in some provinces much earlier. This would be devastating for the economy, which is still very dependent on the mining sector.

A report from PwC — “SA Mine 2023” — released on Tuesday says data issued by the SA Revenue Service for the first six months of 2023 shows exports of mined materials amounted to R575bn, which contributes 58% of total exports from SA.

“The mining sector is a significant contributor to SA’s financial wellbeing through various taxes, foreign currency reserves from mineral sales and employment,” the report says.

According to Andries Rossouw, lead for energy, utilities and resources at PwC, the socioeconomic environment in which mining companies operate is often characterised by high levels of unemployment, low skills and poverty. “The consequences of any challenges to mining could result in a dire situation for the nation’s economy and security, including the ... wellbeing of society.”

The mining industry provides about 478,000 people with formal employment, according to data from Stats SA, and it provides the fiscus with critical income in the form of corporate taxes, mineral royalties and individual tax from employees.

Rossouw said that on average gold mines in SA have about 27 years of life left, but in some provinces, such as the Free State, reserves will be depleted much sooner.

Depletion rates in the coal mining industry indicate that there are about 41 years of mining left, but, said Rossouw, mines could close sooner if demand and prices for coal are forced into an extended downturn as countries switch from coalpowered energy to renewables.

At current reserves, iron ore mining, which is concentrated in the Northern Cape, will be depleted within about 13 years. This could be extended by investment in exploration to develop the resource base, Rossouw said.

FEASIBLE

Based on the most recent 12month depletion rates, there is about 38 years left of platinum group metal mining from operating mines in SA.

“In the report, we look at how many years of resources and reserves are left at local mines [at current production levels]. It is important to keep in mind that it takes money to convert resources, which are geologically confirmed ore bodies underground, into reserves,” said Rossouw. Before resources are converted to reserves, mines must determine whether it is technically and economically feasible to mine that resource.

There is a risk for gold mining that if there is a significant drop in the price of the metal, “we could end up with very short life of mines if it becomes uneconomical”, Rossouw said.

Based on reserves declared, the gold industry is expected to exist in SA for about another 27

years, the report shows, with many of the mines coming to an end in fewer than 20 years.

In the Free State, where there are five gold operations and one project in development, current depletion rates suggest there are only six years of gold mining left in the province.

“One upside is that the ratio of reserves to resources indicates that there is flexibility for operations to convert resources into reserves, which may extend the number of years left of mining if capital investment decisions make sense and can be executed [in a timely way],” the report says. But it urges mining companies and the government to develop strategies that can safeguard dependent communities.

“In most small towns where mining takes place, miners play a significant role in providing social services such as education, clean water and sanitation, and infrastructure,” said Vuyiswa Khutlang, PwC’s south market area mining assurance leader at the launch of the report. This highlights the need to transition communities, she said.

Roughly 24,000 people are employed in the gold mining industry in the Free State, with these operations being concentrated near Welkom.

The wider economic ecosystem and supply chain will have to adapt to an economy that is not sustained solely by participation in the gold mining industry. There are no clear plans yet for the reskilling of workers and possible restructuring of operations for gold producers in the Free State.

But, said Rossouw, many of the older mines do have significant rehabilitation funds set aside, which could be used to invest in sustainable rehabilitation and new opportunities that will create jobs.

To attract the type of exploration spending SA will need to extend the life of mining industries, the country needs to fix problems such as electricity supply, rail and port inefficiencies, and an ineffective regulatory environment that scares off investors.

“A lack of exploration and the lag between investment decisions and new production could hamper long-term sustainability of the industry,” said Khutlang.

The report points out that SA’s “poorly organised cadastral system ”— which has made the identification of mining rights, including applications for new rights quite slow — is a major disincentive for exploration.

Other challenges include the shortage of critical skills and illegal mining, which is jeopardising the safety and viability of some mining operations.