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Reimagining mining in South Africa

Much is made of the power of innovation to transform or revive an economic sector like mining but doing this requires a level of experimentation – and hence added risk. A big question is who exactly will bankroll this risky process of testing and applying new ideas to a cash-strapped industry.
Reimagining mining in South Africa Reimagining mining in South Africa Reimagining mining in South Africa Reimagining mining in South Africa Reimagining mining in South Africa

Joe Keenan: Real challenge for South African mining looking for a solution is "how to leverage the financial muscle that will find and apply the technologies to boost the local mining sector"

Joe Keenan*

Some part of South Africa's mining sector may be in the twilight years, but the country remains reliant on the minerals sector for thousands of jobs and substantial foreign exchange. The historic mainstay of this sector - the deep-level gold mines - was developed on the strength of large corporate balance sheets. The dominant mining houses of the day funded their own exploration and, on the whole, risked their own money to fund hefty capital expenditure programmes for new mines and expansions.

As this system of giant corporations gave way to slimmer, more focused outfits in recent decades, the financial foundation of each was also severely shrunk. With it went much of the capacity to innovate on a company or mine level. Today, the sector's margins rarely allow for the luxury of taking on an added level of cost in terms of research and development, or risk in terms of applying new ideas. The danger is always that the experimentation may or may not have the desired bottom-line effect.

While mines are usually the economy's ‘price-takers', an ambitious alternative could be to create future markets for the sector

As a result, much of the discussion about productivity innovation remains theoretical. The real challenge that seeks a solution is how to leverage the financial muscle that will find and apply the technologies to boost the local mining sector.

Deep pockets

Foreign direct investment (FDI) is usually the first prize in this contest. It can bring players with deep pockets to look long-term at the prospects for a deposit or even a region. Importantly, it brings the scale of resources to consider greenfield mining projects. This opens the door for new concepts, designs, technology and equipment to be applied ‘from the ground up'. Starting a new mine in this way means that it is not limited by the out-of-date designs and infrastructure on many of our older mines.

But FDI is lured by attractive opportunities within a conducive environment. Investors want certainty about political intent, tenure, regulations and the general cost of doing business. On a number of these points, South Africa is not the most favoured destination for the big miners.

Proving innovation

Perhaps a more useful solution is to look at reducing the risk of experimentation, by letting someone else try it first. Here, the experience of global players - or at least companies that operate in a few different countries - have much to offer. If those companies have a corporate presence in South Africa, so much the better.

These are the places where we can learn from innovation that has been proved elsewhere. If a miner can leverage its successful experimentation in one country to apply it in another, technical risk can be substantially reduced. This then becomes an ideal way to transferring best practice to within our borders.

Creating a market

Reimagining mining in South Africa may also involve taking innovative steps in the upstream supply chain. While mines are usually the economy's ‘price-takers', an ambitious alternative could be to create future markets for the sector. With the country's established manufacturing sector, there may be scope to consider building or supporting an internal off-take channel. If fuel cells were to become important energy sources for the future, for instance, would it not make sense for platinum miners to vertically integrate this segment?

There is an aspect of technological experimentation in mining that should not be overlooked, and one that has been underway for some time. This is the everyday research and development that mining suppliers - appropriately called ‘technology partners' on occasion - conduct on behalf of their customers. The risk for this work usually resides almost entirely with the supplier, relieving the mines themselves of considerable burden. It is a constructive trend that is redefining the way that mines relate to their supply chains.

South Africa's mineral resources still have much value to offer its economy and its people. The mining sector's current state suggests much could be improved with the right sort of reimagining and experimentation.

But for as long as South Africa struggles to improve its investment status and attract more FDI, it must find other more practical ways to innovate.

*Joe Keenan is managing director of BME, part of the Omnia Group. A Harvard Business School graduate, Keenan has worked for more than 20 years in the global explosive industry, in the US, Australia and Latin America.

 

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