An Overview of Producer Services in the Mining Industry in South Africa

The mining industry has been at the heart of South Africa's economy for over 100 years. This working paper explores an aspect of the mining industry that has received little attention - the producer services used in production. It finds that producer services are a key part of the mining industry, especially in the exploration and commissioning stages. It also finds that the organisation of the industry has largely been shaped by changes in the optimal manner in which to organise the producer services. The emergence of the Chamber of Mines was in response to economies of scale in technology and labour services. Likewise, the Group structure of production reflected a rational response to the complexity of mining the unique underground deposits in South Africa. This complexity required good technical and engineering services to make the mines profitable and lower the risks to investors. The paper notes that the recent trade liberalisation episode in South Africa has seen mining companies refocus on core competencies and move abroad to secure more deposits. In the move abroad they are taking their producer services with them - both internal and external - as this provides the competitive edge enabling them to discover and profitably mine deposits in other countries.