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Investing in the economy

Mining and Mineral Beneficiation

Overview

The mining industry is gradually returning to the pre-recession performance last seen in 2008, with local and Chinese-induced demand proving the main catalyst for recovery. However, infrastructure bottlenecks like the lack of rail and port capacity required to ship volumes to export markets continue to impact negatively on opportunities for growth. In addition, a lack of energy capacity, safety stoppages, labour issues and escalating production costs pose serious threats to the profitability of the industry, even prompting the mothballing of some mining projects.

While government considers mining to be a key driver of growth in its medium- and long-term job creation targets, the industry needs to play its part in economic empowerment and social transformation. The slow pace in transformation is best illustrated in renewed calls for resource nationalism. As a partner in mining and mineral beneficiation development, the IDC subscribes to the mining charter. With the highest mineral wealth in the world, worth an estimated US$2.5 trillion, South Africa struggles to pass on the potential benefit of this sector to all South Africans.

Strategy

The SBU is focusing on funding companies that seek to beneficiate minerals in line with government’s priorities. Funding of the Kalagadi Manganese sinter mine, Exxaro, African Queen and other projects, demonstrates our commitment to growing and supporting companies with meaningful BEE participation. It is important to note that equity investments in this sector apply to medium- and long-term projects. These take time to execute and generate dividends, straining our balance sheet in the short term, but potentially yielding outstanding long-term returns.

More informtion
Sectoral Trends first quarter 2012 www.idc.co.za/IR2012

Performance

The SBU approved 11 transactions amounting to R3.5 billion in the period under review. Our investment in Umnotho We Sizwe Resources will allow the BEE junior miner to complete the construction of its chrome mine and ramp up production. Sudor Coal will also soon start its expansion project to increase coal production to supply Eskom power stations in Mpumalanga.

The overall fair value of equity investments in the portfolio showed an increase of R473 million. The increase is largely due to investments in the coal sector while the precious metals sector (platinum and diamonds) took off some of the shine. Columbus Stainless Steel saw a R67 million impairment reversal on the back of improving trading conditions in the stainless steel sector. The Kalagadi Manganese sinter mine, in which the IDC holds 10% equity, is being implemented and is expected to come on stream within the next financial year.

Some clients continue to battle headwinds due to current depressed market conditions. This led to an increased impairment figure of R54 million for the period under review. Our investments in the platinum, diamond and uranium sectors were the biggest contributors to this figure.

In 2012, IDC, the Bakgatla Ba Kgafela community and Pallinghurst Resources announced a multibillion-Rand platinum mining venture called the African Queen. The venture will merge mines in the North West co-owned by the Bakgatla Ba Kgafela and Pallinghurst. Pallinghurst owns 42% of the venture, the Bakgatla 27%, IDC 16%, and the rest of the stake is split among a spread of shareholders. The IDC’s shareholding is equivalent to R3.24 billion in new ordinary shares. On full implementation, the project will create more than 9 000 jobs.

Future focus

The SBU will continue to play a meaningful role in supporting growth of the minerals and beneficiation sector, particularly in the steel and steel-related industries; providing financial and technical support to junior mining companies, particularly in early-stage development; and exploring opportunities and projects across the rest of Africa, especially those that have demonstrable evidence of linkages with South Africa.