South Africa’s phenomenal minerals revolution, which has its roots in the last quarter of the nineteenth century, facilitated not only the establishment and growth of the largest and most diversified mining sector in Africa, but also the emergence of a mining-related support and supply industry, the likes of which can hardly be rivalled anywhere else in the world.

The sheer extent of the mineral commodities that have been exploited, coupled with the challenges of accessing and mining deep, thin and metallurgically difficult orebodies, forced South African industry stakeholders to pioneer world-class expertise in mine construction, extraction and mineral processing. Subsequently, these skills are famed the world over, with many local companies firmly situated at the very frontier of global mining technology.

Although the growth and diversification of South Africa’s mining sector underpinned the successful mushrooming of a local mining- related services and supply industry, South Africa’s once mighty and economy-dominating industry is currently in dire straits and struggling for its very survival, owing to subdued commodity prices, increased working costs, constrained infrastructure, high labour costs, coupled with poor levels of productivity, strained labour– management relations, ongoing strike action and an uncertain regulatory environment.

Many mines are facing a precarious future, particularly in the platinum-group metals sector, and some companies are considering selling off assets. Another inevitable consequence of the challenges facing the sector is the difficulty of attracting foreign investment for expansion initiatives and greenfield mining projects.

The significant dearth of new capital expenditure projects being commissioned is having a particularly negative impact on South Africa-based consulting and project engineering companies and equipment, procurement, construction, and maintenance (EPCM) firms.

Consulting engineering and project implementation firm Hatch Goba mining and mineral processing director Lister Sinclair tells Mining Weekly that, since the last quarter of 2012, there has been a noticeable tapering in the commissioning of large capital expenditure projects (those exceeding R10-billion) in the mining sector.

The extent of the tapering has been signifi- cant. Sinclair states that 2013 has been the South Africa-based division’s most challenging year in terms of securing new contracts in well over a decade.

“In fact, while we used to have five core mining clients in this country, the contraction of the industry has been such that, today, we have very few of our traditional clients left,” he says.

South African-headquartered total technology solutions supplier Tenova Mining & Minerals president Walter Küng concurs, elaborating that less than 5% of the company’s revenue is currently generated locally.

“The market in South Africa is completely overtraded. There are many more suppliers than there is demand and the pricing levels in South Africa are, quite honestly, not conducive to survival,” he adds.

Nevertheless, consulting firms are still actively engaged in executing various large capital projects across South Africa’s mining sector, including expansion initiatives and replacement tonnage mines. However, in recent years, engineering and EPCM firms have, like the industry itself, been struggling to execute contracts effectively in the face of increasingly difficult circumstances.

Local construction, mining, development and engineering group Basil Read Mining MD Antonie Fourie tells Mining Weekly that, in recent years, it has become extremely difficult to operate and provide a high-quality, value-for-money service with an ever-increasing cost base, industrial action and Section 54 stoppages.

“We are now much more exposed to unforeseen stoppages and inefficiencies that negatively impact [on] our production. Conditions are significantly different from those anticipated during our original tenders and, although the clients understand it is not necessarily under our control, we are still held responsible and they will put pressure on us to recover lost time and keep to our production targets, despite the labour issues at hand.”

Fourie adds that the South African labour issues and difficult market conditions are slowly eroding profit margins to a point where it is no longer viable to continue operating in the country.

Expansion into Africa

Given the contraction of the mining sector and the challenging operating conditions, South Africa-based companies have been increasingly compelled to look north of the country’s border for new project opportunities.

The consensus of the four major companies interviewed by Mining Weekly is that there has been a robust move into the rest of the continent, particularly into Central and West Africa as well as the Southern African Development Community regions of Africa to take advantage of the substantial growth of the continental mining sector and to mitigate the decline of new projects in South Africa.

Global project delivery and consulting services provider WorleyParsons, Hatch Goba and Tenova Mining & Minerals are all currently involved in, or have recently completed, projects in Mauritania, Cameroon, Burkina Faso, Côte d’Ivoire, Niger, Ghana, Guinea, the Democratic Republic of Congo and Zambia involving iron-ore, bauxite, gold or copper mining.

Further, all four companies, including Basil Read Mining, are currently actively engaged in Namibia-, Botswana-, Zimbabwe-, and Mozambique-based projects across a range of commodities including uranium, coal, diamonds and gold.

Most of these projects are feasibility studies, bank due diligence reports and stay-in-business- type maintenance initiatives, among other smaller-scale contracts.

While this push into the rest of Africa has certainly been robust for most companies, the growth rate of this expansion has not been at an optimum pace, says WorleyParsons RSA CEO Digby Glover.

“The global mining industry is, as a whole, a little gun shy at this stage in terms of capital expen- diture, which does not help companies like us who are accustomed to using that capital to develop mining assets,” he elaborates.

“Thus, because of the current global financial constraints, many of the continental projects we are [currently] engaged in are prefeasibility-type studies and there are not many construction initiatives.”

Glover adds, however, that while WorleyParsons is seeing a short-term reduction in some mining capital spend, the company’s work in deep-shaft underground mining projects, which typically run for more than ten years, is not as susceptible to short-term market fluctuations.

“In fact, in areas outside the South African geography, the opportunity has recently significantly increased in deep-level mining projects,” he says.

Meanwhile, as a result of global financial constraints, competition to secure work for other types of new large-scale projects – whether it be feasibility studies or infrastructure development – is particularly buoyant.

Compounding the highly competitive mining project development scene in Africa is that Chinese- and Indian-financed projects, which form a large percentage of the capital expenditure initiatives currently under way, usually award contracts to Asian engineers and suppliers.

“Except for investment in South Africa, not very much of that investment comes to the typical western firms,” says Glover.

Thus, South African companies are being forced to be considerably proactive in securing new contracts from western mining houses operating in Africa.

Hatch Goba, for instance, is actively researching all the projects currently under way in Africa and, to date, has identified more than 900 projects in the mining and infrastructure sectors.

“We have singled out the low-hanging fruit, and have cold-called and used our international leverage to visit mining company head offices in Australia, Canada, and the UK to secure new contracts on these various projects,” states Sinclair.

“In addition, we facilitated a big marketing drive into sub- Saharan Africa, visiting the clients that we do know.

“The net result of those efforts is that the projects we are currently engaged in, particularly on the infrastructure side, have been negotiated off the back of that research and marketing drive.”

Despite the buoyant competition, the outlook for the African mining sector and the ability to secure future contracts is certainly optimistic.

Glover maintains it is not all doom and gloom for the commodi- ties market and believes it will not take too much in terms of an uptick in global demand to get supply up to prefinancial crisis levels and to facilitate the commissioning of several new mining projects across the continent.

Similarly, Küng insists that Tenova Mining & Minerals is bullish about the prospects of mining in Africa.

“If you look at copper alone, many of the copper mines around the world are in a mature state and the only large, unexploited copper deposits now only exist in Africa,” says Küng.

“Africa will be the showground for future mineral development, particularly in the copper and uranium fields.”

He adds that South Africa-based firms are in the best position to assist African mines and leverage off the future boom of the continent’s mining sector.

Outlook for the SA Mining Sector

While local firms may actively be moving into the rest of Africa, industry stakeholders believe there is still a future for consulting firms and suppliers in South Africa’s mining sector.

“Existing mines need to continue operating and we have the skills to optimise and prolong existing assets. We are certainly willing and do stay-in-business-type capital projects,” states Glover.

He adds that South Africa is still endowed with a “phenomenal array” of mineral resources – a fundamental that is not going to change.

However, there is consensus that, unless South Africa changes the way business is con- ducted and unless government positively transforms the way in which it allows companies to operate in terms of regulations and labour policies, there will be little opportunity for growth and investment in the local mining sector.

“As contracting companies, we need to play a more active role, together with our clients and government, to improve the relationship with labour. Similarly, we need longer-term contracts that will enable us to establish a better [relationship] with our labour force and our communities.

“Finally, we need to be guided by the trade unions in their demands and [we need to] help train and develop unions to understand the business and labour aspects of the mining industry,” concludes Fourie.