SA resource value around $2.5trn: We need to walk the talk
Alec Hogg, who is currently attending the Mining Indaba in Cape Town met up with Abel Malinga, the man who runs the Mining Portfolio at the Industrial Development Corporation of South Africa.
https://www.youtube.com/watch?v=DgjvS5YT4gQ&feature=youtu.be
This is an interesting place for you to be.
Definitely, especially during this time of the Mining Indaba. Looking at the mining industry in South Africa, we have noticed that there is a pronounced lack of activity in the mining sector, which concerns us.
I've been talking to a couple of Canadians up north in the Limpopo Province, where they're becoming very active on the platinum sector. Those developments look quite interesting.
That's what we are trying to encourage, ensuring that some of the resources we have in the platinum sector need to be developed so that we can increase the economic activity in that region as it is desperately in need of foreign direct investment.
Why is it that we're seeing foreigners coming to South Africa? Many of whom, list their companies on the Toronto Stock Exchange or the London Stock Exchange. Yet, the South African companies are maybe, not as enthusiastic. Do you have any thoughts on that?
It really has to do with the capital we're able to raise in the local market. As you know, there are approximately five commercial banks. If you had to develop an underground platinum mine, you'd roughly need about R6bn. If you look at the risk appetite for the commercial banks – locally – it's probably about R500m each, so you'd definitely always need foreign direct investment to be able to fully develop an underground platinum mine.
Abel, the northern limb of the Bushveld complex is where we have Ivanhoe and PGM Group, both doing some very big developments there. Is the IDC involved in any way?
We've had a preliminary discussion with Ivanhoe but we are watching that space very closely. We would like to become involved. As you know, they have quite a number of investors, including investors from Asia as well as Canada. There is a space for a local player, such as the IDC. If you look at that project's stage of development, it's still at a development phase, which is space in which we play, to help the investors to take the project to implementation.
You talk about Asia. Just last week, we saw that a Chinese group – Heaven Sent – did the deal with Village, primarily for the Lesego Platinum mine into the future. Wesizwe is owned by Chinese investors. Are you seeing more demand coming from that part of the world?
Look, quite a number of projects are being developed, which has some Chinese investors as one of the anchor investors in those particular projects. It's not only China. We also see some Japanese investors, especially in the project we mentioned. There is one major Japanese investor in that mega PGM project. If you look at most of the project in development in the PGM space, there's quite a lot of Chinese involvement in those investments. It's mainly because the Chinese are taking a long-term view. Instead of mining the Stock Exchange, they want to be involved in the mine themselves – not necessarily speculating.
You make an interesting point. This morning, our Mining Minister Ramatlhodi, had an address here at the Mining Indaba. The feedback has been very interesting, from people in the non-Government sector. As a state-owned enterprise…from your perspective, what did you think?
It's quite interesting. I just want to take one step back. In 2010, I read a report by Citibank's Metals & Mining team, which indicated that if they were to define South Africa in terms of the resource we have in the country, we could be defined as the richest. If we were to include the energy minerals, South Africa is the richest country in the world. Then they put the value of our resource to about $2.5trn. As we have quite a number of resources, we were ranked #1. The opportunities are here. We just need to ensure that we get our house in order and ensure that the messages we relay to international investors, are consistent because we have the laws, which are much more investor-friendly. Communication is the issue. I was rather encouraged at what the Minister said this morning. We are looking forward to working with the Department in ensuring that we assist foreign investors to invest in South Africa.
The private sector had smiles on their faces, but they still had frowns about things like power. Are we making progress there?
We will be able to make progress there. We will have to play our own role (as IDC) in ensuring that we will have the coal to fire up the new power stations being built. In addition, we want to ensure that in future, we won't have this problem. We've started a unit, which we'll focus on industrial infrastructure as of the 1st of April. This will be a catalyst in ensuring that we coordinate the activities of some of the role players in the industrial infrastructure space, such that the critical infrastructure that is required for economic development is in place.
We're not saying we're going to fund every industrial infrastructure, but there are entities that are much more suited to fund infrastructure. The challenge is the coordination and coming up with a business plan that would make sense to investors, who are playing a critical role in developing industrial infrastructure. The IDC will act as the catalyst to bring all the role players in that space to ensure that if rail or rolling stock is required, they are put in place. If water's required in a particular region in order to unleash the economic potential of that region – that happens. In order to coordinate all the role players and come up with a business plan that will make sense for investors to invest in infrastructure is very daunting. I think we, as IDC, can play that role – not necessarily funding those projects, but ensuring that there is a business plan, which can be presented to investors.
It's maybe helping the Presidential Infrastructure Committee kick into gear in a big way, as well. From the people you've spoken to hear at the Mining Indaba…clearly, you would be engaging with local and foreign investors. The mood seems to perhaps, be more realistic than last year where there was lots of excitement and things happened that derailed many of those projects. Do you think that this time, we've hit the bottom?
I think we need to look at the challenges that we are facing as a country, for what they are and try to come up with a solution that will help us to inspire confidence in people who are looking from the outside at what's happening in South Africa. As South Africans, we need to be more upbeat in ensuring that we come up with solutions to the problems we're facing, which even foreign investors will be able to believe in. In addition, we need to walk the talk. That would be more critical for foreign investors to have faith in us, in ensuring that we would be able to solve the problems we're facing.
Abel Malinga is Head of Mining at the IDC.