Engineering & Mining Journal

MAR 2019

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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2019 INDABA REPORT 24 E&MJ • MARCH 2019 www.e-mj.com taken seriously as a resource destination. "It's not really one action or one speech that will change investor perceptions of South Africa," George Cheveley a port- folio manager at Investec Asset Manage- ment, said. Instead, investors need confidence that the rules under which they operate do not arbitrarily change. That happened un- der Zuma's watch. "It's not so much about what the rules and regulations are, it's that they stay the same," Cheveley said. Industry veteran Mark Cutifani, CEO of Anglo America, concurred. "We can do much better with the assets we have, that represent a significant potential for the country today," he said. Even in a perfect policy environment, mining was a tough business, Cutifani said. South Africa's gold producers for instance are now pushing five kilometers below the surface, which greatly increases the cost of extraction. "We have to improve costs at least 10% a year, because that's the annual in- crease in cost," Cutifani said. "Minerals are becoming harder to reach." He was, however, encouraged at recent policy shifts, including a decision to view explo- ration separately from mining itself. Junior exploration companies have up to now had to comply with the same rules that operating companies adhere to. This included the requirements for black shareholders with which large companies need to comply. Since juniors tend to be small entrepreneurs engaged in what is already a high-risk endeavor, added red tape has only hurt the sector. South Afri- ca now gets less than 1% of global explo- ration spend, the Indaba heard. "The question is how do we encourage progress in exploration, the riskiest part of mining?" Cutifani said. "Exploration is critical for mining's success." Gold Bug Demand for gold has been sluggish since the end of the last supercycle in 2014, but some now believe this is about to change. Tom Kendall, head of precious metal sales at ICBC Standard Bank, told the Indaba that for the first time in years institutional investors were return- ing to bullion. "There's been very little institutional interest in gold since 2014 when demand reached its peak," he said. "We've now seen a bit of a shift as ex- change traded funds and other large in- vestors are creeping back in." He predicted that the U.S. was head- ed for another low interest rate cycle, and the Federal Reserve would unlikely meet targets of rates hikes. "Low interest rates are very good for gold." The previous cycle had begun when the world financial markets crashed in 2008. The Fed began a cycle of inter- est rate cutting and managing a stimu- lus package that lowered interest rates. "Until then, gold was unloved and in a multiyear bear market, until the stimulus measures began. We are seeing the begin- nings of the same pattern emerge now." New Blood One of the fresher faces on the mining scene at Indaba was the Saudi Arabia company Ma'aden. Although far less known that its counterparts listed in Lon- don, Toronto and Perth, the Riyad-based firm is already one of the largest mining houses with a market capitalization of US$16 billion. For most of the past 10 years, Ma'aden has confined itself to the Arabian Peninsula, but is now looking to go global, its CEO Darren Davis told the Indaba. The company has more than US$25 billion in assets, including baux- ite, phosphate and alumina. "We've built a major economic engine in just 10 years," Davis said. "We are now looking outside of Saudi, especially at phosphate. We are already the world's third-largest fertilizer producer and plan on becoming No. 2." The company, he said, was already accustomed to operating in remote loca- tions and would leverage its experience in doing so elsewhere. However, Davis would not commit to which regions specifically the company was exploring. He added that Saudi Arabia had an open exploration license process and en- couraged juniors to consider the country. Davis noted that although the country had attracted a fair amount of controversy of late, it was an evolving nation finding its way in the world. "There are many so- cio-political changes under way. And min- ing is going to be a focus over the next 20, 30 years." For South African mining, Indaba 2019 was a watershed moment, repre- senting possibly the last opportunity to save the industry. While it is still early days yet, it seems the event may just mark the moment in time when all con- cerned finally pulled together. The Indaba is re-establishing itself as a networking opportunity for the industry, as South Africa emerges from years of lost opportunities. Tom Kendall, head of precious metal sales at ICBC Standard Bank, says the 5-year gold slump is over.

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