Opportunity amongst adversity for the mining sector

At a recent lecture by Professor Brian Kantor of Investec at the Graduate School of Business, Cape Town, various statistics were provided that give deep insight as to how important a contribution mining makes to keep the economic wheels turning in our young democracy.

Direct contribution from mining to GDP (2011) was 5.9%. Yet if we include the indirect effects, it is actually a significant 18.7% contribution of total GDP. In addition, Foreign Direct Investment (FDI) in stocks attracts 11.8% of the total contribution through the mining sector, 64.3% of our entire exports are from mining and corporate income tax contributions from this same sector is 17% (Source: SARS, SARB, IDC) . These are numbers that warrant serious attention to highlight just how important this sector is.

Yet, when we look at mining investment plans for 2012 to 2030 (McKinsey and Deloitte), South Africa ranks a weak 7th behind Brazil (leader), Peru, Australia, Argentina, Chile and Colombia, beating only Indonesia and Canada whose projected future investments, too, will outstrip us.

A structured clean-up operation

Whilst there is no quick-fix solution to tackle a far bigger problem that will involve collaboration through politics, the unions, the private sector, leaders, investor sentiment and labour, what is does say is that mines need to free up working capital quickly and wherever possible. The mines need to let go of fear amongst management of finger pointing and discrimination from historical erroneous decisions and rather rapidly start looking at idle, redundant assets that can be monetised as part of a structured clean-up operation.

Mines are desperate for strategies that are focused on boosting balance sheets through carefully developed programmes that can motivate people on the ground to buy into such projects collectively. Such programmes of disposal need to offer transparency, controls, reporting, accountability and ultimately results.

There is much demand for such assets. A recent sale, which took place on 7 March, 2013, conducted by Clear Asset, had confirmed sales of yellow metal from open-cast mine Diesel Power, and drill rigs and roof bolters from Anglo Platinum, totalling R13 million. Just two months ago, the company confirmed auction sales of approximately R35 million. On both occasions, buyers were from as far as Canada, Dubai, Europe and Zimbabwe, with international buyers totalling 46% in the previous sale and a phenomenal 71% in last week's sale. Foreign exchange movements and the current rand value relative to the US dollar or euro is a strong incentive to international buyers. "We had a bidder from Canada on a business trip in South America bidding on our auction in South Africa. What a validation of our system," said Clear Asset's CEO, Warren Schewitz.

Junior miners, prospectors, or those running short-term projects in Africa or abroad, want good quality second-hand assets. Where Clear Asset capitalises on this is through an online auction platform that crosses geographic borders and time zones, whilst offering strong technical reporting for each asset on their website to assist advanced decision making by bidders.

The next auction closes on 25 April.