Sibanye’s challenges and South Africa’s gold future: insights from Peter Major

Peter Major, Director of Mining at Modern Corporate Solutions, discusses challenges facing SA’s mining industry.

Published on:

06 Nov 2024, 12:37 pm

Peter Major, Director of Mining at Modern Corporate Solutions, discusses challenges facing South Africa's mining industry. He highlights political volatility in the U.S., Sibanye's financial performance, and South Africa's dwindling gold production due to high costs and regulatory burdens. Major urges regulatory reform to attract investment and sustain the sector.

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By BizNews Reporter ___STEADY_PAYWALL___

In a recent radio interview with BizNews host Alec Hogg, Peter Major, Director of Mining at Modern Corporate Solutions, discussed the volatile state of U.S. politics and its potential impact on the global mining industry. He also delved into Sibanye's recent financial performance, South Africa's dwindling gold production, and the pressures facing the nation's mining sector.

Political Volatility in the U.S. and Its Ripple Effect on Mining

Major expressed his cautious outlook on the possible re-election of Donald Trump, highlighting the instability that comes with a Trump-led White House. This unpredictability, he explained, complicates the ability of major industries, including mining, to make long-term plans. "Everything's unpredictable with Trump," Major said. "You don't know what's going to happen in the next hour." This volatility can be beneficial for fund managers and short-term investors, but for industries like mining, which require stability for long-term planning and investment, it's a significant challenge.

This political uncertainty poses difficulties for global mining giants with extensive U.S. operations. Major cited the case of Sibanye's CEO, Neal Froneman, whose company has considerable exposure to the American market. "Froneman is juggling a lot of balls," he noted. Froneman's decision-making process is likely affected by the shifting U.S. political landscape, given that a volatile administration can have implications for trade policies and foreign investments.

Sibanye's Positive Financial Performance Amid Market Pressures

Sibanye recently reported strong third-quarter results, surprising even industry insiders like Major. The company, primarily involved in platinum group metals (PGMs) and gold, has shown resilience despite fluctuating prices. Major observed that these metals are currently priced near their 20-year average, creating a dilemma for Froneman: whether to invest more heavily in PGMs and gold or to remain cautious amid unpredictable markets.

One of Sibanye's successes, Major noted, has been its ability to secure funding from both the U.S. and European governments. He emphasized the importance of this support, especially as mining companies often struggle to receive government backing. "Anytime a mining company can get money from the government, they deserve all they can get," he said. Mining, Major argued, plays a crucial role in supporting jobs and contributing to the economy but often receives far less government aid than other industries.

South Africa's Diminishing Role in the Global Gold Market

Reflecting on South Africa's historical dominance in gold production, Major lamented how the country, once the world's top gold producer, now contributes less than 3% of global output. Despite holding substantial gold reserves, South Africa's aging infrastructure and rising operational costs have severely impacted its mining industry. "Those mines are rickety, they're deep, and the cost just knocked me off my seat," Major explained, emphasizing the challenges of maintaining production at such high operational costs.

With Sibanye's South African gold assets underperforming, Major estimated that if gold prices decline even slightly, many of the company's mines could close within two years. He attributed these high costs to various pressures: governmental taxes, union demands, and supplier expenses, all of which have steadily eroded the sector's profitability. Major highlighted the unique burdens faced by South African miners, who often contend with "shakedown artists" and complex regulations.

South Africa's Potential for a Mining Revival

When asked about the future of South Africa's gold resources, Major acknowledged that the country still holds substantial untapped reserves. However, he was skeptical about a possible revival in the industry under the current political climate. Major explained that the kind of risk-taking that characterized early South African mining, such as that by pioneers like Ernest Oppenheimer and Cecil Rhodes, is now practically extinct. "Those people are gone," he said, referring to investors who would risk billions in deep mining ventures with uncertain returns.

He argued that South Africa needs a significant overhaul in its approach to mining investment, including reducing restrictive legislation, re-evaluating royalty structures, and fostering a more supportive environment for international investors. Without these changes, Major believes South Africa will struggle to attract the investment necessary to tap into its vast gold reserves.

Global Diversification and Pan African Resources' Australian Venture

In a noteworthy industry development, Pan African Resources recently announced its acquisition of an Australian gold mine, a move that Major interprets as prudent risk management. He pointed out that mining executives, like Pan African's CEO Cobus Loots, are increasingly looking to diversify their holdings to mitigate exposure to South Africa's challenging environment. Loots, Major noted, has specialized in gold mining and dump retreatment, but is choosing to expand beyond South Africa—a reflection of the uncertain regulatory and political landscape.

While the acquisition offers potential upside in a stable region, Major cautioned that buying gold assets at record-high prices is a risky endeavor. "When you're buying gold properties at the highest gold price man's ever seen, you're not going to get anything cheap," he warned. Nevertheless, Major believes that the purchase is a smart move for Pan African Resources, as it allows the company to grow its portfolio in a politically stable country with less risk of policy shifts that could jeopardize operations.

The Path Forward for South African Mining

Major closed the interview with a somber outlook on South Africa's mining sector, pointing out that while the nation has the resources, the political will and investor appetite needed to revive the industry are lacking. He criticized the "populist" stance of many South African leaders, which, he said, contributes to a negative perception of the mining sector. Major argued that, in order to attract investment, the South African government needs to simplify regulations, reduce the legislative burden, and adopt a more business-friendly approach.

However, Major acknowledged that substantial changes are needed at the top levels of government for this transformation to take place. He voiced cautious optimism that, with a shift in political attitudes and the right legislative reforms, South Africa could once again become an attractive destination for mining investment. Until then, though, he expects that local mining companies will continue to look abroad for growth opportunities.

In the end, Major's insights underscore the precarious position of South Africa's mining industry. For companies like Sibanye, continued success may hinge not only on global market conditions but also on a stable political and regulatory environment that encourages investment in the country's aging but still potentially profitable gold sector.

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