• BDO’s Energy 2020 Vision: The Near Future of Mining in South Africa

BDO’s Energy 2020 Vision: The Near Future of Mining in South Africa

25 January 2018

Rethinking Life of Mine Models

Prediction 1


Increased governmental regulations will lead to increased unpredictability of life of mine plans by 2020.

Life of mine (LOM) models will get a makeover by 2020.

Regulatory risk has been a feature of mining for many years, and LOM models have developed country risk factors that affect the discount rates applied in the valuation models used for such purposes. This process of assessing country risk has been undertaken on a country-by-country basis and is largely driven by an assessment of the degree of political stability in a country.

We have witnessed increasing degrees of government regulation in areas that were previously assumed to be fairly stable. For example, new regulations relating to state ownership, royalties, and mining tenure in Tanzania have purported to supersede all the stability agreements that were entered into over the last 20 years. These were specifically designed to attract new investment in the mining sector in Tanzania.

Our prediction is that LOM modelling techniques will have to be refined to account for this factor via a more sophisticated approach to the historical data available and the general factors underlying this.

Breaking Boundaries for Deep Level Mining

Prediction 2


By 2020, deep level mining challenges will accelerate the drive to develop cost-effective alternatives to traditional mining process.

The health and safety issues associated with deep level mining, paired with increased labour costs, will remain in the spotlight—but under a difference lens.

Much has been written about mining being disrupted by digital transformation and new processes, but in this area, the degree of change, the cost of research, and the implementation of new technology is greater. We believe that the easy wins have been achieved and are in the process of being implemented in areas such as the metallurgical and the stores systems. Replacing age old drill and blast processes is in a different league and requires new solutions.

We predict the drive to develop cost-effective alternatives to traditional mining processes to continue, requiring that developments (although constrained by the cost of this research) as well as the risk of implementing new technology to accelerate. Long-term views on the cost/benefit analysis is key to justify introduction on a larger scale, however, the sustainability of mining operations will demand changes and increased technology. We expect that innovation and investment in this area will increase, but investors will not commit large sums until the various prototypes have established themselves as cost-effective solutions.

Community Engagement Models in the Spotlight

Prediction 3


By 2020, communities around mining sites will have a greater impact on company operations than national legislation.

Forget national legislation. By 2020, it will be the communities around mining operations that have the greatest say in a company’s right to mine.

With the increased political risk factors, governments are increasingly intervening in mining regulations to make the valuation of mining projects more unpredictable, including rehabilitation expectations. A further trend we have noticed is that community engagement models are playing an increasingly important role in establishing a company’s ‘social license to mine’. All listed mining companies have sustainability reports that measure various factors relating to the mining companies’ operations, their impact on local communities, and their efforts to mitigate such impacts. We predict that these trends will continue and that even if the mining company has complied with the national legislation affecting their operations, that the communities around the mining areas will increasingly demand a say in a variety of areas. Some of the important areas will be the environmental impact and whether the area will be sustainable from an agricultural point of view in the future.

Community engagement models will become a bigger area of focus in feasibility and pre-feasibility studies and will have to be more carefully managed in the future.

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