Posted: ’04-FEB-07 09:00′ GMT – – Archive

I am currently in Cape Town – for the big Indaba mining and mining investment meeting – and cannot help but feel good about the relatively multicultural society which has sprung up here. For many years South Africa was the epitome of colonial development and the country, as we know it now, became the African powerhouse it is today on the twin pillars of agriculture and mining.

On the colonial side, the Afrikaners of Dutch descent were first and foremost farmers, while the British who came along later, and ultimately won bloody control following the two Boer Wars, were at the heart of the country’s industrialisation lured there by firstly diamonds and gold and subsequently by other mineral riches. The indigenous African people were mostly farming and cattle raising communities – either fixed or migrant – later swelled by an influx of workers needed to work on the mines and the industrial community which developed around the mining sector.

The colonial system moved to self-rule and then the apartheid era of white domination where the indigenous black was considered a second class citizen who was thus unable to develop beyond the worker strata of society – a morally unjust situation which could not continue in the modern world.

As someone who worked for a time in the South African gold and platinum mining sector during the apartheid era I personally felt that the country would inevitably have to change and that the chances of this occurring without serious bloodshed were small, and I returned to the UK where I worked for Mining Journal for many years – including involvement with International Investment Conferences in devising and setting up the first Indaba event 12 years ago.

On the change without bloodshed scenario I was very wrong – thanks primarily to two remarkable men – F.W. De Klerk – a died-in-the-wool Afrikaner who ultimately persuaded his pro-apartheid colleagues that change was inevitable and the only way of securing this honourably was by a peaceful transition – and the even more remarkable Nelson Mandela who despite nearly 30 years of incarceration as a political prisoner, seemingly bore no malice towards the white community which had imprisoned him and presided over a relatively peaceful transition to democratic rule – dominated by the black majority.

The subsequent path has not been easy. There is still considerable poverty, although perhaps not on the scale and misery seen elsewhere in other parts of Africa, and violent crime is a very serious problem. A positive discrimination policy to advance black involvement in all aspects of business is difficult for the largely better-educated white population to accommodate leading to a movement of many away from the country. The Black empowerment legislation has perhaps held back some developments, but overall the policy is working with the emergence of a strong black middle class playing an ever increasing role in this magnificent country’s economy.

Politically there are still many potential pitfalls ahead. The country’s current President, Thabo Mbeki, is very much a pragmatist recognising the role of the white South African in maintaining, and continuing to develop a strong economy. But, unless some of the problems of high unemployment, and the resultant poverty within the lowest strata of society can be overcome, there is always the danger of a more populist, and less pragmatic, successor coming to power in future elections, who could undo many of the policies which have enabled the country to continue to develop more or less successfully since the transition from white to black rule.

South Africa is a magnificent country – with a terrific range of climatic conditions, fabulous tourist attractions, a well-developed economy and enormous mineral riches. What more could a country want to survive in the modern world.

As to mineral riches, South Africa is perhaps known most for its gold and diamond mining sectors, more recently supported by platinum group metals, coal, iron ore and most other metals and minerals known to man.

For the whole of the 20th Century, and so far in the 21st, South Africa has been the world’s leading gold producer, but its dominance in this sector has been on the decline since the 1970s as domestic production has decreased and production has increased elsewhere. The No.1 producer position may not continue for much longer, although gold mining will continue to play an important part in the country’s economy.

The fall-off in dominance in the diamond mining sector was even more dramatic as reserves were exhausted in the country’s big open pit mining operations and dominance in the sector moved, or is moving to, countries like Botswana, Namibia, Angola and the DRC in Africa and obviously also to Russia and emerging diamond producers like Canada.

Big coal reserves, and leadership in the development of coal to liquids technology, to an extent forced on the country by economic sanctions imposed in the apartheid era, and the lack of significant oil reserves, has meant that as gold production and earnings have declined, an increase in coal output for domestic consumption and export has replaced much of the earnings shortfall, while huge potential growth in platinum group metal output will also have a dramatic effect on minerals earnings.

South Africa dominates in the world platinum market with its enormous reserves in the Bushveld complex where a good number of new mining operations and expansion projects are due to come on stream within the next five years. There is something of a platinum boom in full flood at the moment, with some excellent returns being achieved in investment in a flood of platinum juniors, as well as with the majors, Angloplats, Impala and Lonmin. The future for growth in platinum mining here is strong provided good metal price levels are maintained and the increase in production ahead can be absorbed by the market.

The local major stock exchange, the JSE, has seen big growth in stock values over the past year. Companies need local South African listings to work with some of the Black empowerment groups, relationship with which is necessary to progress many new projects to the production stage. With local economic growth continuing strongly the capital raising possibilities on the JSE are continuing to improve so dual listings on the JSE and on one of the US exchanges, or in London, Toronto or Australia are becoming more and more popular for resource companies investing in South African mining prospects.

South Deep Gold Mining Project

So, South African mining development is in a major growth stage, but apart so far from the huge, and extremely costly, South Deep gold mining project, most major investment seems to be moving towards other metals and minerals. Uranium mining potential is good and the country has huge reserves of coal, iron ore and manganese, which are ripe for development but, as noted above, it is platinum that is currently providing perhaps the greatest focus on mineral exploration and development – particularly with respect to investor appeal as much of the work in this area tends to be dominated by smaller, more entrepreneurial companies which have far greater growth prospects – but also of course provide a far more risky investment option.

But of course the Indaba event is not just about South African mining, it is about mining right across the African continent, which has enormous potential, but which is also beset by political uncertainties to perhaps a greater extent than almost any other continent in the world. At the meeting we will, no doubt, learn of exploration and mining successes (no-one ever seems to talk about failures at these events) throughout the Continent. Companies working in almost every country in Africa are represented here.

Mining is a risky business, but seldom more so than where unstable politics are involved. It also effects the US gold supply and your gold IRA account. The more unstable the country the greater the risk – and possibly the greater the potential rewards – factors which need to borne in mind by the investor in African mining projects in particular. If you can find a good potential resource in a relatively stable country, then the risk element reduces substantially and perhaps that’s what the more cautious investor keen on resource stocks should be looking for – and there are some parts of Africa which are relatively stable politically – of which South Africa, at least currently, is one.

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