Prospecting for Solutions: Challenges facing the South African Mining Industry

Prospecting for Solutions: Challenges
facing the South African Mining Industry
James AH Campbell
Managing Director, Botswana Diamonds plc

3
Prospecting for Solutions: Challenges facing the South African
Mining Industry
◆ Global Mining Trends
◆ Global Exploration Trends
◆ The South African Mining Industry
◆ Mining in South Africa
◆ The Legacy of Mining
◆ Revitalising the Industry
– Challenges & Outlook
– Concluding Remarks
Draft Presentation – Complete Deck
October 2022
Prospecting for Solutions: Challenges facing the SA Mining Industry

Global Mining Trends
4

5
Clean energy technologies drive growth
The next decade will be one of the most exciting and transformative in the mining
industry’s history. The way in which mining companies prepare for the change to a low-
carbon, low-waste, purpose-driven future could make or break their competitive
advantage.
*SDS = Sustainable Development Scenario
Deloitte, 2022

6
Rising demand for critical minerals
Annual demand for critical minerals from clean energy technologies will surpass $400bn by
2050, which is equivalent to the annual revenue of the current coal market.
IEA, 2022

7
New geographies are emerging
Geopolitical power could shift from oil-dominated countries to critical metal-dominated
countries.
KPMG, 2022

8
Continental shifts
The sourcing of critical minerals and diversification away from hostile trading partners has
repositioned a number of countries.
KPMG, 2022

9
Geographic concentration
These resources originate from a small set of countries, refining is concentrated in even
fewer countries, and often there are very few resources that can act as a substitute.
KPMG, 2022

10
◆ Russia is an important producer in aluminium and nickel. Further price increases or
disruptions in supplies of these metals could make the energy transition more costly.
◆ Russia is the world’s second-largest gold producer. The war in Ukraine impacted gold price
due to safe-haven buying of gold-backed exchange-traded funds. Gold price is expected to
fall by 10% in 2023, weighed down by tighter monetary policy in the EU and the US.
Russia and Ukraine: impact of the war
0
10
20
30
40
Palladium
Platinum
Gold
Silver
Percent of global production
Russia precious metals production
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
1 000
1 200
1 400
1 600
1 800
2 000
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Gold
10-year U.S. real interest
rate (RHS)
US$/toz Percent
World Bank, 2022

11
Time for major investments
The global mining industry is experiencing unprecedented change. Miners need to utilise
their strong current financial position to take a leading role in the world’s clean energy
transition and continue to generate significant stakeholder value.
The strategic imperative is to make major
investments in exploration, production,
processing and refining in a responsible
and sustainable fashion.
PwC, 2022

12
Critical mineral deals
Although gold dominated deals in 2021, the deals value for critical minerals has doubled
since 2020. The trend is expected to continue over the next 5-10 years.
PwC, 2022

13
Market cap growth
Over the past year the market caps of the top five listed producers in rare earths, graphite
and lithium have spiked 154%, 101% and 56% respectively.
PwC, 2022

14
Mining market share: Top 5
BHP RIO
GLENCORE
Top 5 Mkt Cap
(USD)
1. BHPB 141.9B
2. Rio
Tinto
113.0B
3.
Glencore
70.9B
4. Vale 69.1B
5. Norilsk
Nickel
47.7B
(halted)
VALE
BHP has been divesting from its oil and
gas operations to focus on its potash
mine development.
Rio has developed a process to convert
waste material into battery-grade lithium.
Glencore has negotiated strategic supply-
chain partnerships over recycled and raw
battery-grade products.
Vale is world’s largest producer of nickel
(battery-grade).
Mining.com, 2022

Global Exploration Trends
15

16
Trends in global exploration budgets
◆ The increase following the 2016 historic eleven-year low was short-lived.
◆ Fast recovery in market conditions and easing lockdowns allowed reactivation of
exploration programs by mid-2020.
◆ Some carry over into 2021, combined with high metals prices and increased
financings has led to a strong budget recovery in 2021.
Strong exploration budgets recovery in 2021
S&P, 2022

17
Trends in exploration budgets by region

18
Trends in major/junior exploration budgets
◆ Junior exploration
budgets have
increased by 62%.
◆ However, majors
continue to account
for half of global
exploration
budgets.
◆ Majors' budgets
increased 27% from
2020 to 2021.
Majors account for half of exploration budgets
S&P, 2022

19
Trends in exploration budgets by stage
◆ Grassroots' share of
allocations hit an all-time
low of 24% in 2020, while
mine-site hit an all-time
high of 41% as the
pandemic made large-scale
programs more difficult.
◆ Despite grassroots'
recovery, its global budget
share is the second lowest
on record at 26%.
◆ Mine-site is at a record
high of 38% and the
majors’ share dominates at
49%.
Mine-site exploration budgets at record high
S&P, 2022

20
Exploration spend by region and commodity
24%
16%
10%
19%
17%
11%
3%
2021 exploration spend by region (US11,2bn)
LatAm
ROW
Africa
Canada
Australia
US
56%
21%
4%
4%
1%
2%
1%
11%
2021 exploration spend by commodity
Gold
Copper
Zinc
Nickel
PGMs
Diamonds
Uranium
Others
◆ Global exploration budgets rebounded by
35% to $11.24 billion in 2021, an eight-year
high.
◆ The number of active explorers increased
10% to 1,948, the fourth consecutive annual
increase.
◆ Except for diamonds, all
commodities boosted
considerable budget increases
in 2021, after the pandemic-
induced plunge of 2020.
S&P, 2022

21
Trends in global exploration spend
◆ Gold increase
accounts for almost
64% of the total
increase across all
commodities in 2021.
◆ Base metals budgets
were hit the hardest
in 2020 but have
mostly recovered in
2021.
◆ Diamond exploration
budgets have
decreased since 2020.
Gold and base metals dominate exploration budgets
S&P, 2021

22
Mining project developments
From pandemic blues to decarbonisation fever
E&MJ, 2021

23
Mining project developments
E&MJ, 2021

The South African Mining Industry
24

25
SA’s share of strategic minerals
DMRE, 2022

SA mining sector contribution
26
◆ The mining sector contributed 7% in real
terms to GDP in 2020. In the same year, the
South African economy contracted by 6.8%,
due to the COVID-19 pandemic.
◆ In 2021 mining production volume
recovered by 11.6% and mining production
value exceeded R1 trillion for the first time
(+30%).
◆ Mining GDP reached R481 billion (+11.8%).
◆ However, sector production has not
recovered since the 2000/2006 peak and is
struggling to maintain 2015 levels.
SA Minerals Council, 2020 & 2022

Prospecting for Solutions: Challenges facing the SA Mining Industry 27
◆ South Africa is the world’s
largest producer of PGMs
(72%).
◆ SA produces 54% of
world’s chrome.
◆ Once the world’s top gold
producer, SA currently
accounts for 4.2% of global
production.
◆ 70% of SA coal is
consumed locally in power
stations; higher grades are
exported.
◆ SA still has >300 years of
PGMs and >200 years of
coal reserves available.
◆ The country has an
estimated <40 years of
available gold resources
remaining.
Contribution by commodity
Coal
PGMs
Iron Ore Gold
Manganese Chrome
Non-Ferrous
Diamonds
SA Minerals Council, 2022

28
South Africa’s mining exports
Source: Wikimedia
◆ In April 2022 SA’s exported bulk
mineral tonnages dropped to
their lowest level since the
COVID-19 lockdown due to rail
and port logistics bottlenecks.
◆ Currently, better commodity
prices are compensating for
underperforming export volumes,
but the cycle may reverse.
South Africa provides 71% of the EU’s needs for platinum and an even higher share of the
platinum group metals iridium, rhodium, and ruthenium (KPMG, 2022).
SA Minerals Council, 2022

Ranking of SA mining sector
29
◆ Once the backbone
of the SA economy,
in 1980 mining was
the second most
influential industry
in SA after
manufacturing.
◆ By 2016, it had
dropped to 6th
place, where it
remains today.
Statistics SA, 2022

SA mining sector trends
◆ In 1980, mining contributed 21% to
the GDP. In 2020, this was down to
8.2%.
◆ In 1987, mining employment peaked
at over 760 000 individuals. In 2020,
mining employed over 450 000
people.
◆ In 2006, the PGMs sector became the
largest mining employer in SA, ahead
of gold. In 2018, PGMs employment
was down to 167 000 people.
◆ During the 2001-2008 commodity
boom, SA mining shrank by 1%/yr,
while the top 20 mining export
countries grew at an average 5%/yr.
◆ The SA mining industry is smaller now
than it was in 1994.
30
Statistics SA; Mining Review, 2022

SA mining stocks performance
31
◆ A handful of mining shares drove JSE
growth over the 2018-2020 period.
◆ Platinum and copper price increases
lifted SA’s mining stock performance
late in 2021.
◆ The HSBC Global Mining Index and
the JSE Mining Index have shown
good correlation in UDS terms over
the past two years.

32
Top mining risks
Commodity prices, permitting
risks and access to resources
and reserves are still key
issues, but it is the risks that
arise from externalities, such
as environmental regulations
and geopolitical factors, that
are really taking up executive
thinking time.
KPMG, 2022

Risk: investors’ perceptions
33
◆ In terms of ‘investment attractiveness’:
◆ South Africa’s overall ranking has dropped from 43rd
to 75th globally; it now ranks 12th out of 15 African
mining jurisdictions
◆ Zimbabwe ranks as the least attractive jurisdiction
in the world for investment
◆ In terms of ‘policy perception’:
◆ South Africa ranks 11th in Africa and 65th globally,
just 14 places above Zimbabwe
◆ Botswana’s decline is due to concerns over
protected areas, labour regulations and taxation
◆ And ‘best practice mineral potential’:
◆ South Africa has gone from being the highest
ranked African country to being 8th from the bottom
◆ Botswana’s is only two places above South Africa
“Africa is the second least attractive region for mining investment when accounting for
both mineral potential and policy.”
Investment Attractiveness Index
Four African jurisdictions were ranked in the global bottom 10: Zimbabwe (84th), DRC (82nd), Mali
(81st), and South Africa (75th), based on their overall investment attractiveness scores.
Fraser Institute, 2022

5,42%
4,12%
4,44%
3,66%
2,62% 2,58%
1,56%
1,64% 1,57%
1,43%
1,82%
1,34%
1,38%
1,10%
1,02% 1,05%
0,93%
0,76%
0%
1%
2%
3%
4%
5%
6%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
SA's share of global exploration budgets
34
Decline of SA’s exploration spend
◆ South Africa’s share of
global exploration
budgets has dropped
to 0,76%.
◆ The DMRE’s strategic
plan has set a target of
5% by 2025 (red line).
◆ South Africa’s ranking in Africa
continues to decline.
◆ SA’s share of African exploration
budgets has dropped to 7,66% in
2020.
DMRE, 2022

Mining in South Africa
35

36
Mining in SA

The mining “Big 5” in South Africa
37
Top 5 Market Cap
(ZAR)
1. Glencore 1414bn
2. BHP Group 960.72bn
3. Anglo American 750bn
4. Anglo Platinum 329bn
5. South32 218bn
Sharedata, 2022

South Africa’s own mining “Big 5”
38
Market capitalization of Top 5 (R bn)
Source: PwC, 2022
Top 5 (2022) Market Cap
(ZAR bn)
1. Anglo Platinum 329.09
2 Impala Platinum 162.13
3. Kumba Iron Ore 122.11
4. Gold Fields 118.09
5. Sibanye Stillwater 108.60
Sharedata, 2022

SA market capitalisation
39
◆ The 40% year-on-year increase from 2020 is
mainly attributable to the increase in market
capitalisation of companies within the
Diversified, Iron Ore and PGM sectors.
◆ The strong financial performance in these
sectors is attributable to higher commodity
prices.
◆ Diversified, Iron Ore and PGMs accounted for
88% of the market capitalisation.
PwC, 2022

SA mining revenues
40
◆ The mining sector was one
of the most resilient
during the pandemic,
delivering record financial
results once restrictions
were lifted.
◆ Revenue increase was
mainly driven by higher
prices for PGMs and iron
ore, with PGMs generating
the largest portion of
revenue.
◆ The trend of increasing
revenue is attributable to
increases in both
production and
commodity prices.
PwC, 2021

SA mining operating expenses
41
◆ Operating expenses
increased by 20% in
2021.
◆ This was driven by
increases in metal
movements and
purchases for
production, as well as
increases in
employment benefits
and contractors (12%)
and royalties (147%).
◆ Employment benefits
and contractors
remains the largest
contributor to
operating expenses.
PwC, 2021

SA mining contribution
42
In 2020 mining…
◆ added R803.3bn to GDP (about
6.7% of South Africa’s GDP);
◆ created and/or sustained an
estimated 1,594,000 direct and
indirect jobs;
◆ added an estimated R185.6bn to
total government revenue,
through collection of direct and
indirect taxes.
In 2021 mining…
◆ added R985.3bn (about 7.6% of
South Africa’s GDP);
◆ created and/or sustained an
estimated 2,300,000 direct and
indirect jobs;
◆ added an estimated R263.7bn to
total government revenue.
Mining revenue (R bn)
The multiplier effect
PwC, 2021

Mining needs exploration
43
A dysfunctional licensing regime in South Africa places the future of mining and its
contribution to the economy at serious risk.
Mining Weekly, 2021

Junior mining contribution in SA
44
◆ In 2019, junior and emerging
miners had estimated
revenues of R54.4 billion and
expenses of R55.5 billion,
despite the ongoing
challenges.
◆ Certain provisions in the
2018 Mining Charter
acknowledge the juniors’
specific requirements for
growth and development.
◆ The exploration sector
(largely junior and emerging
miners), is exempt from the
provisions of the Charter.
The junior and emerging mining sector represents 10% of the industry.

Junior mining in SA
45
◆ The junior mining sector in SA is
funded primarily from offshore.
◆ Exploration and resource
development projects in SA rely on
availability of foreign investment.
◆ South African junior miners aspire
to become larger mining companies.
◆ Only few companies have achieved
that objective.
◆ Dual listing does not equate dual
funding.
*Selected listed companies with market cap < ZAR 5 billion.
Company*
Market Cap
(ZARbn)
Listing
Jupiter Mines 4.60 ASX
Gemfields 4.27 JSE, BSX
Merafe
Resources
2.80 JSE
Orion Mining 1.00 ASX, JSE
MC Mining 0.94 LSE, JSE
Kore Potash 0.75 AIM, ASX, JSE
Eastern Platinum 0.44 TSX, JSE
ResGen 0.39 ASX, JSE (susp)
Buffalo Coal 0.36 TSX, AltX
Botswana
Diamonds
0.15 AIM, BSX
Europa Metals 0.05 ASX, JSE
Africamining, 2022

Junior mining in SA
46
An estimated 80% of mining licences are allocated to juniors and small-scale miners,
however junior miners are estimated to contribute 7% to the mining industry revenue
and to be responsible for 8% of total operational expenditure.
Number of Junior Mining Licences
Industrial Minerals
Diamond
Coal
Semi-Precious Stones
Iron Ore, Manganese
Gold
Chrome
PGMs
Heavy Mineral Sands
Base Metals
Phosphate
Natural Gas
MinCoSA, 2019

47
Juniors’ perceptions of the Mining Charter
◆ A large backlog in issuing of mining and prospecting rights and renewal of licences is
preventing the development of a vibrant junior mining sector.
◆ Some R20bn worth of mining projects are not being developed due to slow approvals
of permits and mining right transfers and the issuing of water licences and
environmental permits.
◆ There is a real opportunity to create up to 500 new jobs for each successful junior
mining venture.
Africamining; MinCoSA, 2021

48
The JSE exodus
Prospecting for Solutions: Challenges facing the SA Mining Industry Businesstech, DM, AmaranthCX, 2022
Number of JSE listed companies (1990-2020)
Number of JSE listings/delistings (1990-2021)
◆ In 1980 JSE held half of the world’s
mining capitalization.
◆ 57% drop in last 30 years.
◆ 10% expected to delist in 2022
◆ 6 new listings to date - only 4 are new
(2 transfers).
◆ Only 40 mining companies listed (12
small cap stocks).
◆ JSE becoming a market for very large liquid
companies.
◆ Institutions managing 90% of SA funds only
invest in top 100.
◆ Few true IPOs being made.
◆ Exploration companies always start small.
◆ No junior mining and exploration companies
able to raise money.
“If all investors are wholesalers, they are not going to buy small quantities” (Paul Miller).

The Legacy of Mining
49

50
The harsh reality…
The 1886 gold rush catapulted South Africa into industrialization. In 1980 mining accounted for 21% of GDP.
The 2012 strikes led to the Marikana massacre. In 2018 a landmark settlement ended a historic class action.

51
…behind the virtual reality
SA is the world’s largest producer of PGMs. It also hosts large chrome and manganese resources.
The SA mining industry has been shrinking, with inputs costs rising faster than selling prices.

52
Occasional reminders
The mud slide caused by the Jagersfontein tailings dam wall collapse
Daily Maverick, 2022

53
The MPRDA: 15 years of uncertainty

54
Shortcomings of the MPRDA
◆ Timeframes for exploration rights incompatible with
timeframes required to advance projects in complex
geological settings
◆ Multitude of lapsed of rights have resulted in
sterilisation of exploration activities that are contrary to
the intended development objectives
◆ Inactive Prospecting Rights due to financial institutions’
inability to fund exploration activities, limited technical
capability and skills to assess, administer and monitor
the Prospecting Works Programmes
◆ Principle of ‘first come first served’ has had unintended
ramifications of promoting mediocrity in implementation
of exploration activities
◆ Policies and legislations that are seemingly incongruent
with the intentions for sustainable prospecting activities
◆ Pace and consensus on the suite of instruments for
achieving transformation remain blurred
Gov’t Gazette No. 46246, 14 April 2022

55
Zama Zamas: illegal mining
◆ Multi billion Rand organised crime
◆ R21 billion in lost tax revenue.
◆ R14 billion in annual gold production, mostly exported to Dubai (then India and China).
◆ 30,000 people ‘employed’, many alleged ‘foreigners’ (perhaps up to 70%).
◆ Fuelled by violence and corruption.
◆ King pins remain untouched.
◆ Essentially, out of control.
Daily Maverick; Maseru Metro, 2022

Revitalising the Industry
56

The State of South African mining
57
◆ The future of South Africa’s mining sector is in flux.
◆ Rising costs, unreliable power supply, inadequate exploration/project pipeline.
◆ SA’s share of global exploration budgets at just 0.76% despite recent boom in commodity
prices.
◆ Section 12J of the Income Tax Act, and similar incentives, have failed to benefit junior
explorers.
◆ Industry decline compounded by prevailing regulatory and policy uncertainty.
◆ Backlog of more than 4,000 mining and prospecting rights, as well as mineral right
transfer application.
◆ Slow progress to replace a failed cadastral system with a modern, transparent
online system.
◆ Opacity in administration of rights applications fails to attract local and foreign investors.
◆ Legacy of Zuma administration largely unaltered by President Ramaphosa’s term.
◆ Investor confidence can return. However, it will have to be rebuilt from a low base.
MinCoSA; Daily Maverick; African Mining, 2022

Challenges & Outlook
58
STRENGTHS
• Diversified mineral resources
• Track record of economic mining
• Global demand for PGMs and bulk
commodities
• Extensive infrastructure network
• Sophisticated financial systems
• Junior companies marginally on the rise
• Rising demand for “clean” commodities
WEAKNESSES
• Legacy of mismanagement and corruption
• Political factions
• Perception of hostile environment
• Opaque licensing processes
• Unclear beneficiation / strategic minerals
policy
• Dependency on coal
• Deteriorating infrastructure
OPPORTUNITIES
• Upward trend in metals prices
• Industry 4.0 mineral resources
• Just transition to clean energy
• Job creation, sustainable transformation
• Value-added exports
• Tax incentives, junior incubators
• Govt’s recommitment to sector growth
• Fast-tracked MPRDA amendment
THREATS
• Unresolved MPRDA, Mining Charter issues
• Alienated investors
• Continued downgrading
• Energy instability
• Mechanisation vs job creation debate
• Industrial action and community unrest
• Risk of downward spiral

Exploration Implementation Plan 2022
59
◆ Geoscience data made publicly available to improve transparency and accessibility.
◆ Increase 1:50 000 mapping by 5% in next five years.
◆ Implement at least 25% of active prospecting rights (with+3 years remaining) in the next five years.
◆ Direct more support to junior exploration companies, including through financial contributions by established
mining companies towards a R200 million IDC “junior exploration fund”.
◆ Support projects with the greatest geological potential until feasibility stage, if positive, targeting junior
exploration companies with at least 51% HDSA ownership in the right.
◆ Attract 5% of $18bn global exploration spend by 2025.
◆ Implement an exploration and mining investment promotion plan.
Pillars of the exploration strategy
“Intended to provide the right enabling framework and to facilitate a successful exploration and a junior
mining industry that unlocks future wealth, economic development, job creation and transformation”.
DMRE; Gov’t Gazette No. 46246, 14 April 2022
Will this work?

Concluding Remarks
From ‘sunset’ to ‘sunrise’ ?
◆ Access to geological information at no cost from state
institutions such as the Council for Geoscience.
◆ A modern, functional, and transparent mineral cadastre
system including access to historical holdings to ensure
transparency of historical and new mineral data.
◆ All data collected by exploration and mining companies is
made available to the DMRE when licences are dropped or
expire.
◆ Enabling mineral policy and regulations, harmonised with
related-legislation.
◆ A well trained and functional DMRE, quick processing and
turn-around of licence applications, and enforcement of the
use or lose principle.
◆ Access to finance and capital flows, including revising JSE
requirements that support rather than hinder Junior
exploration and mining.
◆ Efficient, cost effective and reliable infrastructure.
… and above all, consistency, predictability and stability
60
Minerals Council of SA, 2022; Overberg Geoscientists Group, Nov 2020

Questions?
61

About the Author
◆ James Campbell is Managing Director of Botswana Diamonds plc (a diamond
development company active in Botswana, South Africa and Zimbabwe and listed on
London AIM and the Botswana Stock Exchange). He has spent over thirty-five years in
the diamond industry in a variety of leadership roles both in major and junior companies.
◆ Previous roles include Non-Executive Director of Shefa Gems (where he is still Technical
Advisor); Chief Executive Officer and President of Rockwell Diamonds Inc; Non-Executive
Director of Stellar Diamonds plc; Vice President - New Business for Lucara Diamond Corp,
Managing Director of African Diamonds plc; Executive Deputy Chairman of West African
Diamonds plc and Director of Swala Resources plc and Bugeco sa.
◆ James also worked at De Beers for over twenty years; his roles included General Manager
for Advanced Exploration and Resource Delivery and the Executive Chairman Nicky
Oppenheimer’s first Personal Assistant.
◆ James holds degrees in Mining and Exploration Geology from the Royal School of Mines
(Imperial College, London University) and an MBA with distinction (and top student prize)
from Durham University. He is a Fellow of the Geological Society of South Africa, Institute
of Mining, Metallurgy and Materials, South African Institute of Mining and Metallurgy
and Institute of Directors of South Africa. He is also a Chartered Engineer (UK), Chartered
Scientist (UK) and a Professional Natural Scientist (RSA).
◆ James is also chairman and founding director of Common Purpose South Africa NPC (a
not-for-profit organization that develops leaders who can cross boundaries and is
synonymous with the terms ‘cultural intelligence’ and ‘leadership beyond authority’).
CPSA celebrated its twentieth anniversary in 2020. He was also a director, trustee and
chairman of the Joburg Ballet for almost fifteen years.
62
https://twitter.com/JAHC1
https://www.linkedin.com/in/jamesahcampbell/
https://www.slideshare.net/JamesAHCampbell1
https://www.youtube.com/JamesCampbell_JAHC

63
162 Clontarf Road
Clontarf
Dublin 3
Ph: +27 83 457 3724
Web: www.botswanadiamonds.co.uk
Twitter: @BotswanaDiamond
Email: james@botswanadiamonds.co.uk

Prospecting for Solutions: Challenges facing the South African Mining Industry

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