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New approach to mining needed

13th March 2015

By: Saliem Fakir


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There is a need for a more holistic view of mining than the current compliance mode of governance. By holistic one means working on the full virtuous cycle in which depleting valuable resources are used to generate other types of assets and capital formation.

The current model for mining has limited scope for expanding the full value of mining in the long term. The compliance mode works well for short-term goals. The virtuous cycle encompasses several elements: cognitive, compliance, governance and optimal fiscal regimes and the ability to use the resource base to develop other types of knowledge, innovation and products.


In the past, there was some element of how this virtuous cycle was managed, given that private mining capital could not list offshore nor could one take capital out of the country. Surpluses were invested in new economic activity, including infrastructure. Mining conglomerates had to diversify to ensure good returns.

It was not surprising, then, to find that Anglo American was a name associated with not only mining but also forestry, financial services, and the holding company also invested in a range of research and development (R&D) activities to either develop new mining technologies or find innovative ways to deal with mining pollution and other environmental problems associated with mining. For instance, some of the mining houses were active in researching new technologies to deal with cyanide, arsenic and other toxic contaminants with the new tools genetic engineering offered.


Investment in new mining technology involved a range of players – from engineers, State agencies like Mintek, the Council for Scientific and Industrial Research, engineering firms and academia. Some technologies were world first and cutting edge.

Since just before the dawn of the new democratic order, there has been a thinning of these investment patterns and much of private mining R&D activity in South Africa has been reduced. Most of it has been offshored. This hollowing-out effect of the strong linkages that existed between mining and other components of the industrial, manufacturing and services industries has been progressively eroded in the last 20 years or more. Academic research has shown that the number of patents and licensing agreements has declined over the last three decades.

Why is the cognitive universe under which mining is viewed so important? If you are only focused on digging holes and exporting the raw resource, the long-term goals of the country will not be met with such a limited cognitive horizon. These short-term obsessions are quick profit taking, transacting empowerment deals and the State wanting to limit itself to just earning taxes and foreign exchange.

Mining has a chance to become something much more if we can reach consensus on a new economic paradigm that not only shapes the ownership model (as the empowerment model narrows the band of recipients to a few participants – often well-connected individuals) but also the fiscal regime and net government income that enables surpluses to be invested in new types of activity.

With time, as minerals are depleted, we should generate sufficient diversification in the economy so that jobs displaced in mining can be absorbed in other new and fast-growing sectors. This is easier said than done. Such an arrangement will not come from private capital but has to be managed and orchestrated by the State and could take decades to achieve. This is largely because learning how to do this will not come automatically but through trial and error.

Mining will remain a bedrock of South Africa’s economy for a while. The challenge is not to do mining in a way that is regressive but to do it in a way that offers the possibility of creating something more resilient.

Much has been made of beneficiation. But beneficiation cannot happen in a vacuum and without strong coordination or some assistance. The key ingredients to beneficiation are growth in the right skills base, focused attention from government agencies to driving certain types of beneficiation pathways, and the ability to leverage the domestic market so that it also assists exports of a higher value.

Every country wants the privilege of beneficiation, but not all countries achieve such goals and such a lofty status. Even if we go the beneficiation route full throttle, there is no guarantee that specific bets in certain types of beneficiation pathways will not lead to a dead end or that we could be overtaken by other countries that may be more competitive than we are in producing the higher-value goods just because we have an abundance of the resource in our country. Beneficiation is not just about the conversion of raw material into finished products – it also involves the development of entrepreneurship, markets and investment in new innovations over time.

Beneficiation can be done but it requires dedicated effort from the State and flagship national companies to pursue the coordination and the market development role. These companies can either be private or public or a mix of the two. Making the right choices takes time, as it also requires proper alignment between mining, industry and the education system.

Even the environmental challenge need not be seen as a compliance issue but rather solving environmental problems as an effort in new R&D which can result in path-breaking technologies and innovations. A compliance model for dealing with environmental problems in the mining sector limits the achievement of a much more holistic approach to mining, where you can link digging for ore more closely with economic diversification and the development of new innovations through strategic R&D interventions. Even environmental mitigation is a form of economic diversification.

Unfortunately, none of this is on the cards at the moment, as the compliance and empowerment models continue to dominate the way we think about mining and its contribution to the long-term development and resilience of the South African economy.


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