Is South Africa 'Mined Out'?

Diamonds aren't forever. Just ask John J. Teeling, executive chairman of Dublin-based exploration company African Diamonds. During a panel discussion on mining and natural resources at the recent Wharton Global Alumni Forum in Cape Town, South Africa, Teeling told the audience that despite its storied past as a leader in gold and diamond production, South Africa "is mined out."

Teeling, whose company is currently co-developing a large discovery in Botswana with South African diamond giant De Beers, said that of the 12 mining operations he has started since 1983, seven are in Africa -- including in Mozambique, Zimbabwe and Sierra Leone -- but none are in South Africa. "We go where the opportunities are, geologically," he said. "If there's no geology, you cannot have a mine." South Africa, which began mining diamonds in 1867 and gold in 1887, has seen its resources depleted over time, while rising stars like neighboring Botswana have moved into the mining spotlight. Globally, the competition is rising as well: After being the leader in gold production for more than a century, South Africa lost its seat to China in 2007. "The future large discoveries in Africa are not going to be found in South Africa," Teeling said.

Other panelists disagreed with Teeling's assessment of South Africa's future mining prospects, citing new technology that can extend the life of older mines. Indeed, the consensus was strong that mining will continue to play a major economic role throughout Africa, as emerging markets like China and India fuel a long-term commodity "super cycle" and African nations learn to contend with the so-called "resource curse," or the inability to extract value from their abundant natural resources.

Like any industry that has endured for more than a century, mining in South Africa has had its share of problems. Teeling alluded to the historic difficulty of obtaining permits -- "it took years to get them" -- and recent changes regarding the terms of mining titles, which are now under government control. (In the previous regime, titles were under mixed public and private ownership.) And earlier this year, the industry was forced to a standstill by rolling blackouts caused by a national electrical system overburdened by the massive demand from post-Apartheid urban development. (Eskom, the state-owned power supplier, has said it will take at least five to seven years to correct the problem by building new coal and nuclear power plants.)

Despite these hurdles, mining remains the top industry in South Africa. Wharton marketing professor David Reibstein, who moderated the panel, noted that mining is the country's biggest employer: a half-million people are employed directly by mines and another 400,000 indirectly through associated services like shipping. South African mines produce nearly 90% of the world's platinum, 80% of manganese, 73% of chrome and -- despite its recent slip in position -- 43% of the world's gold. Mining overall contributed 7% to South Africa's GDP in 2006. When adjusted for associated services and additional industry output, such as electricity production, the total rises to 18.4%.

Getting More from Old Mines

David Noko, managing director of De Beers Consolidated Mines, based in Johannesburg, said he disagrees that South Africa's best mining days are behind it. An engineer by training, Noko sees technology as the key to extracting the remnants from seemingly tapped-out mines. When he joined De Beers in 2002, he found the company to be "entrenched" in traditions and older systems. "There was an opportunity for change." He became convinced that technological advances used to discover minerals in unproductive mines could be harnessed to grow revenue "equivalent to opening a new mine." For De Beers, the approach has been successful. Noko cited the company's mines in Kimberley, in South Africa's Northern Cape, which had been previously shut down and are now a major resource for the company's diamonds.