SA's mining production slipped in the first half of this year as the country again missed out on higher commodity prices, with infrastructure bottlenecks, regulatory uncertainty, a volatile exchange rate and continuing calls for nationalisation weighing heavily on the sector.

The medium-term budget policy statement released by the Treasury yesterday showed that in the year to end-August, SA's overall mining production fell 4%, dragged down by reduced gold and diamond output.

Primary commodity prices rose 12% in the same period.

"Strikes and safety-related stoppages disrupted production," the Treasury said.

The platinum sector had a strong six months, with output rising 16,3%.

Despite investment in mining and communications registering its fastest growth in the first half of this year, investments in mining take years before there is an increase in production.

The Chamber of Mines, an industry lobby group, and analysts said the reasons were varied and some, like infrastructure constraints in rail and electricity supply, would take years to resolve, curtailing the sector's ability to participate fully in improved global commodity demand and prices.

Early last year, the mining industry together with organised labour and the Department of Mineral Resources met in a body called the Mining Industry Growth, Development and Employment Task Team (Migdett) to thrash out what was holding back SA's

Continued on page 2

mining sector and what should be done to remove those constraints.

Mineral Resources Minister Susan Shabangu said all efforts would be made to improve SA's image as an investment destination for mineral companies, and to ensure it did not miss the next commodities boom.

In the 2001 to 2008 mineral boom, SA's mining sector contracted 1%, in contrast to average global mining growth of 5%. "Value added in SA's mining sector was flat between 2001 and 2008, compared with 12% growth in Chile," the Treasury said. A Citigroup report has estimated SA's in-situ mineral wealth, excluding energy minerals, at $2,5- trillion, the largest in the world.

"It would be easy for SA to miss out the next commodity boom," said Tony Twine, an economist at Econometrix. "Confidence levels in the mining industry are being bashed daily by the ANC Youth League. Even if you get production up, you can't get it out of the country because Transnet is not offering adequate service. And even though the rand weakened in July, there is no guarantee it might not strengthen again, which would dampen the effects of the next boom."

Frans Barker, a senior executive at the chamber, said Migdett had not achieved its objectives this year, with strike action having a negative effect.

The transition in the Department of Mineral Resources to a new director- general after the departure after 13 years of stalwart Sandile Nogxina in June and his replacement coming only next month had also been a factor.

"It meant Migdett might not have operated as effectively as the case might have been otherwise. Now that a director- general has been appointed we hope Migdett will continue. It's not as if it's stopped, but there have been hiccups. We need to have another look at Migdett and the way it operates and the way it is structured to make sure it is effective and that it will deliver what we expect.

"There have been positive comments from various departments regarding investment in rail and electricity as well as power pricing, which indicate the government is as serious about these issues as the mining sector is," Mr Barker said.

The mining sector is one of five in the government's New Growth Path plans.

"Government spending since the advent of democracy had understandably been tilted in favour of social spending at the expense of capital-intensive infra- structure," said Dawie Roodt, an economist at Efficient Research.

"You can't easily cut back on social expenditure because people will slaughter you at the next election. It's a dilemma. We have created a huge dependency on the state and it means we have to cut back on other things. We need infrastructure and we need massive expenditure on it but there just isn't the money," he said.

The Treasury said yesterday capital investment by the state had risen to more than R140bn on roads, rail and electricity from about R67bn in 2005 after declines in spending since the early 1980s.