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JOHANNESBURG (miningweekly.com) – South Africa’s policy environment is failing its mining industry, which is suffering an inability to attract investment. In terms of the weighted average cost of capital (WACC), South Africa is trailing many other mining jurisdictions owing to its unstable political economy.
WACC, which is the most fundamental calculation of investment risk, is premised on stable political economy, which is a function of stable policy and clean leadership. Currently, WACC competitiveness in the context of the Southern African Development Community (SADC) sees South Africa below the Democratic Republic of Congo as a mining investment destination.
“Governments need to appreciate that the political economy is absolutely crucial to investments, and people do have a choice. They are able to go to Latin America and they are able to go to North America, and it’s astounding that with the cost structures in Canada, the US and Australia, that they are more competitive as an investment venue than we are, where our cost structures are supposedly lower.
It’s all related to stability of political economy,” Southern African Institute of Mining and Metallurgy mineral economics division chairperson Professor Michael Solomon told Creamer Media’s Mining Weekly Online on the sidelines of the SADC Africa Mining conference, which took place at Electra Mining Africa, on Thursday.
In his presentation on managing mining investment risk within the SADC, Solomon’s presentation illustrated graphically just how unstable political economy weighs on WACC and ultimately the net present value of any investment.
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