Illegal mining must be combated as a national priority, says PwC

The scourge of illegal mining has escalated to the extent that it ought to be treated as a national priority, according to the latest PwC review of the local mining sector.

The actions of so-called zama zamas are deepening the country’s perceived operating risk and that of its African peers, perpetuating the valuation gap between African mining companies and their competitors, according to the report which covers the 12 months to end-June.

PwC SA Mine project leader Vuyiswa Khutlang said the losses to the industry as a result of smuggling and theft may be much higher than the R60bn estimated by mineral & petroleum resources minister Gwede Mantashe earlier this year.

“R60bn is in the lower end of the range,” Khutlang said. “Companies are also spending a lot on security, not to mention production losses, lost revenue and the social and environmental impact.”

Mining companies including Sibanye-Stillwater and Pan African Resources have called for harsher punishment as record gold prices in recent months have fuelled an increase in gold theft.

“I suspect there are lots of reasons why the focus on illegal mining has become so big,” said Andries Rossouw, the report’s author and PwC’s Africa energy, utilities and resources leader.

Gold prices and social pressures

Rossouw told Business Day that socioeconomic challenges in the country, coupled with soaring gold prices, have contributed to an increase in illegal mining. At the same time, the human and social costs of illegal mining have stoked media attention, and both outcomes have led to demands for a response from the government.

“It just became more visible to everyone that we seriously have a problem,” he said.

A turning point in terms of public scrutiny came in 2021, when a scathing report by the auditor-general estimated that 6,000 mines remain abandoned or derelict across the country.

Mine closures inevitably lead to deep job losses and without proper security and rehabilitation abandoned mines have become targets as former employees resort to illegal mining to keep food on the table. Criminal syndicates are also exploiting the situation.

In January law enforcement officers temporarily blocked food and essential medical supplies in a brutal attempt to flush out illegal miners underground at the Stilfontein mine in the North West, ultimately resulting in the deaths of 72 people.

Rossouw said the growing awareness about the number of abandoned mines in SA and the government’s failure to properly address illegal mining “definitely has a detrimental impact on operational risk”.

“That does create bad perceptions — and perhaps a bad reality — and therefore it can impact international investors.”

PwC said the solution is to improve collaboration between the public and private sector.

“The issue now involves billions of rands and requires co-ordinated, cross-border action that addresses economic and social dimensions,” Rossouw said.

“We believe that in the long run, through collaborative efforts between the government and mining companies, this situation will be addressed. But it operates in a wider ecosystem that unfortunately at the moment has got huge challenges.”

The continuing perception of Africa’s operating risks in the mining industry being higher than elsewhere is clearly evidenced by the equity valuations of African-based gold miners lagging their peers despite the gold price surging to record highs this year.

“Even some of the continent's top producers continue to trade at a discount to their global counterparts and to the metal itself. The disconnect is clear,” said PwC.

Still, the soaring gold price has helped some major African miners to narrow their valuation with North American peers such as Barrick Gold and Newmont this year.

AngloGold Ashanti’s shares have more than tripled in value since December, and Gold Fields is up almost threefold so far this year.

“The challenge is translating strong commodity prices and macroeconomic shifts into enduring equity value at home,” said PwC. “With stable policy, resilient energy and pragmatic beneficiation, Africa can close the value gap and convert today’s gold price windfall into long-term global competitiveness.”

websterj@businesslive.co.za