We cocked it up says Gordhan

March 7, 2011

I have written often and much about the manner in which the ANC government and their stooges have messed up an industry that could’ve supplied jobs and wealth – things we desperately need but are as scarce as hen’s teeth.

Instead of facilitating investment in a risky industry they, the ANC, did everything in their power to chase potential investors as far away from these as possible. I have in the past years quoted the Fraser Institute Ratings year after year to the mirth of many.

Despite my rants and the warning signals given by departing mining investors, the ANC continued with the policies aimed at driving skills away, make mining difficult with over regulation, making labour unaffordable and making sure that ownership remained under threat with BEE policies and government sponsored piracy.

Today, none other than Pravin Gordhan stood up and admitted, by implication that the ANC government cocked it up. He admitted that we missed the resource bus and he warned that we may do so again. He assured us that Susan Shabangu was putting systems and action plans together to try and remedy the mess created by the ANC.

Having said that, Gordhan must realise that it will take more than nice words and apologies and excuses for him, or anybody else in government, to right this ship. The investor community will not forget all the other promises made and not kept by the ANC in general and the Zuma government in particular. They will not blindly believe the ANC whilst the Malema and his followers are sounding more and more like Mugabe every new day. They will watch and wait until they see the differences; until they see clear signs that Zuma and his band of pirates have changed their ways.


South Africa missing the point…and the cage

March 4, 2011

As South African mines minister Susan Shabangu launches a North American roadshow, the Toronto-based Fraser Institute is releasing its 2010-2011 global mining survey, which ranks South Africa 67, of 79 jurisdictions across the world.

Over the past five years, South Africa has fallen precipitously from 37 in the rankings and in many subsets of the survey South ranks very close to countries like Zimbabawe.

 “South Africa remains a good investment destination”, says the Department of Mineral Resources (DMR), disagreeing with 494actual mining investors polled in the survey. The DMR will nevertheless be taking this message on an international road show slated for early March in Canada and United States”.

I wonder which part of the report the ANC, Shabangu and the Department fail to understand. Maybe they just do not understand the business they are trying to regulate and govern.

It costs R 2 billion to start a medium sized mine and it takes 10 years or longer before that investment shows any returns and then the returns are limited to 20 years; a risky business indeed. Wiil you put 50% of your pension money into such a venture? Will you put a cent of your retirement money into such a venture if you were to retire in ten years time?

If South Africa is going to create 8 or 9 mines a year, required to create 140000 jobs in Zuma’s plan, in the next ten years, we are going to need these investors. The industry cannot be sustained or create jobs by taking the mineral rights of operating mines like Sishen and handing it to someone else in South Africa without any fixed  investment taking place.

Examining the results of the Fraser survey it is clear investors are steering clear of the South African mining industry for a number of very valid reasons. The uncertainty caused by the regulatory environment mitigates against the high risk posed by South African mining. The high cost of labour, restrictions on the employment of skills because of affirmative action, the general shortage of critical skills and the cost of strikes erodes returns and creates a business environment where high risk and low return is the norm. Add to that the possibility that your “property” are threatened with nationalisation, appropriation by connected individuals and with Mugabe style invasions a distinct possibility, the apathy of investors are understandable; in fact as a shareholder I would praise their caution.

The truth of the matter is that the biggest mining companies in the world avoid investment in the South African mining industry, not because they are ill informed, on the contrary, it is companies like BHP Billiton, Rio Tinto, Anglo American and Goldfield, most of them with strong South African ties and roots, who are reducing their exposure to South Africa.   

What is significant is that the mighty BHP Billiton ignored South Africa in their $50 billion expansion plan. It is significant that DeBeers are selling their South African properties and are investing millions of dollars in the Snap Lake Mine, a hell hole, in the icy Northern territories of Canada. It is significant that Goldfields prefer to invest in a mine in Finland, a place where people are notoriously expensive, rather than in a relatively easy, cheap and simple Uranium operation in South Africa. It is significant when Xstrata prefers to invest in an Iron ore mine in Mauritania rather than acquiring South Africa’s Lonmin, the third biggest platinum producer in the world.

 It is even more significant when, despite calls for increased mineral beneficiation, the leading producer of ferrochrome in the world, halts the expansion of ferrochrome capacity and reverts to ore exports to China. It is a tragedy when the biggest BEE mining company in South Africa whose connections with the top office of the country are legendary, prefers to export chrome ore rather than expand their benificiation capacity because, whilst the returns from ore exports are smaller it ameliorates the risk of the investment in smelters.

Shabangu and her cronies think the investors are stupid. You do not have to be a rocket scientist to see the folly of investing in South Africa.

It is interesting to note that Zimbabwe have the potential to create a second Rustenburg; they can produce as much platinum as are produced in the Rustenburg area yet it remained largely untouched for two for the same reasons why people are avoiding South Africa. This situation will be exacerbated every another, more restrictive labour law is passed, or another property hijacked, or another call for nationalisation is made, even when Mugabe calls for the attachment of foreign mines because we, in the eyes of the investors are now not much different to Mugabe.

If the Zuma government is to turn the tide they will have to start dancing to a different tune; Umshini Wham is just not cutting the ice.


Business the Zuma Way

February 28, 2011

COSATU and NUM are upset about Zuma hijacking the South African Mining industry but the truth is that there is not a damn thing they can do about it. The DMR works for Zuma and the Guptas and consequently the new rulers, unlike the Rand Barons who only had economic power, also have the political power and the right to kill.

Conducting negotiations over mineral rights is not anymore conducted in boardrooms between the prospective partners. Holders of Mineral Rights, wanting to discuss commercial terms must be prepared to do it in dusty township stadiums with the Guptas, a Zuma family member (Duduzane), Lazarus Zim accompanied by heavily armed police, bodyguards and a senior official of the Department of Mineral Resources.  The heat the holder of such a Mineral Right feels during such negotiations has very little to do with the ferocity of the sun…the heat they feel will be present even on a cold and cloudy day.

The DMR do not take steps when Zuma mines pollute our water resources. Aurora, a mine belonging to a Zuma and a Mandela, has been pumping poisonous acid water into our water resources for over a year with the knowledge of the department and they will continue to do so but in future it will be paid for by the citizen.

Employees are shot and killed at Aurora mines and the DMR turns a blind eye. A woman was killed in a mine accident in December 2009, something that will cause a 48 hour or longer stoppage on any other mine with permission to continue normally only given after an in loco inspection. The mine in question was given permission to continue operations without as much as an in loco inspection by an Inspector of Mines.

Employees of Aurora cannot be legally employed by other mines since they do not have medical exit certificates from their previous employer, Aurora, a legal requirement for reemployment. The DMR tells prospective employers to employ these people with a note on their medical files (circumventing the law) yet the DMR won’t issue this instruction/permission in writing. Should the decision of an employer to employ a person based on this flimsy exemption backfires on the prospective employer,  the DMR will wash its hands and the errant employer will become liable under the law for helping the Zuma rejects.

The DMR are openly promoting the interests of Zuma and his Gupta partners, presenting them, Indians arriving in SA in the 1993, as suitable BEE entities certain to smooth the path to the acquisition of prospecting permits and Mining rights. Government sponsored fronting, or perhaps a Zuma fronting for the Guptas? Ironically Shabangu is the minister who, less than a year ago, took white mine bosses to task accusing them of fronting.

The bias of the DMR has been clearly illustrated in the Sishen affair, where not only Anglo American was short shifted, but also a BEE company connected to Baleke Mbete and Tokyo Sexwale.


The Zuma economic nightmare

February 21, 2011

I have often written, going back a few years, that major global resource companies – scared of the usual suspects, the ANC created regulatory environment, labour blackmail, rhetoric, the total absence of security of tenure, blatant theft of mineral rights and the consequent unacceptably low margins and returns and general insecurity – slowly divesting from South Africa. With few major long term projects able to deliver suitable and sustainable returns to justify the risks to these extremely long term investments it would be rather stupid to expect investments and sooner or later South Africa will, for the sake of jobs and development, will have to beg these people to return un terms worse than ever before, conversely they can invite a different entity, China or India, who will most certainly not invest on terms more attractive than that acceptable to current investors.  

For my views I was often ridiculed and laughed at but these days, more and more “reputable” and “valued” analysts and commentators advocate the same views in conferences and publications that I have espoused for a while now. Despite this there are still many who refuse to believe.

It is interesting to note that BHP Billiton, the second biggest company by market capitalisation in the world, lagging behind only Exxon Mobile, are sitting on a pile of cash they do not know what to do with. The South African CEO of BHP Billiton, Marius Klopper, a “boertjie” not intimidated by the “Kill the Boer” song, announced that this gigantic company who dictates terms even to the likes of the mighty China, will embark on a five year, USD 80 billion plan, to expand the resource behemoth. To put this into perspective; $ 80 billion are more than the market capitalisation of Anglo American, the fourth biggest resource company in the world. The sad but not unexpected part of the story is that not a penny of the $80 billion, are destined for South Africa where the ANC government promised 140 000 new jobs in the mining sector (an equivalent of ten mines a year at a cost of $ 1 billion each) over the next eight years.

Unfortunately BHP Billiton is not the only resource company taking a dim view on investments in South Africa. World no 2, Rio Tinto, and numberone gold miner, Barrick are avoiding the country like the plague. And whereas Goldfields previously stated that they were reviewing their exposure to their South African assets, their CEO, Nick Holland has now made it very clear that Goldfields will focus on stabilising (accountant speak for sweating the assets or running the asset into the grouns) their gold output from South Africa by milking their main asset, South Deep, a mechanised operation which will not absorb the jobs lost as a result of winding down their other operations, Kloof, Driefontein and Beatrix. Holland also announced that the envisaged Uranium mine, based on the retreatment of uranium bearing gold mine tailings, will not go ahead. Instead Goldfields, having slipped from being the world’s second or third biggest gold producer less than two decades ago, to number six or seven currently, will develop prospects in Mali, Peru, Philippines and of all places, Finland. Astonishingly Goldfields have found it is cheaper to mine gold in a very developed and expensive, over exploited, Scandinavian country than in South Africa with its vast amounts of known resources.

The strategy of Goldfields to stabilise sweat their existing assets to the maximum extends further. It is an open secret for those with the necessary insight that Anglo American is following a similar strategy. They have in past years, flogged their most valuable assets, locked up in Anglo Platinum, to partners in joint ventures and, in doing so, substantially reduced their risk and exposure to the pernickety politicians belonging to the broad church. In their established operations they have minimised their capital expenditure to the barest minimum. They, Anglo, avoided the capital expenditure that would’ve been required to establish the Stylsdrift Mine and when they could no longer avoid or delay spending and in so doing they reduced their risk by passing the property on to Royal Bafokeng Holdings. The existing operations of Anglo Platinum requires a major Vertical Shaft system in their Rustenburg operations – virtually a new mine at a cost upwards of a billion dollars US – to maintain output. Anglo Platinum instead deferred this capital expenditure, choosing to access the cheaper ore requiring very little capital outlay at their opencast mine near Potgieterust; this in a market that is currently undersupplied; a clear indication that any growth plans requiring large fixed investment will be avoided or deferred until such time as sufficient security returns and risk is reduced to acceptable levels.

Despite this, the ANC continues to promise thousands jobs in mining with the disingenuous Ibrahim Patel telling the ill-informed and the great unwashed, that the last year saw the creation of 17000 jobs in the mining industry, perhaps Patel and his friends in the broad church are thinking of jobs along the lines of those at the infamous Aurora Mines of the Zuma – Mandela family where workers haven’t been paid for more than a year. Patel conveniently omitted to mention that jobs in mining shrunk from 500 000 in 2007, to 346 000 in 2008, 296 000 in 2009 and to 303 000 in 2010; a net loss of 200 000 in three years. “The global economic crisis”, many will point out to which the answer; “Wake up, resource prices and demand are back at pre-crisis levels and the resource producing countries, except South Africa naturally, are coining it. We are too busy destroying a good thing.”


Rats and sinking ships

February 7, 2011

It is official; BHP Billiton’s announced what I’ve been saying forever. They are divesting their coal prospecting and mineral rights in South Africa, in other words they are getting rid of their future in this country. They did say they will be spending $1.5 billion in streamlining her current mines. That means, in effect they will speed up their mining; get us much of that ore, in which they have already invested billions of dollars, out of the ground as soon as possible whilst the global demand for coal is booming. This strategy is also known as sweating the assets and getting the last drop from the cow.

Those easily fooled by the $1.5 billion investment in the dying cow; rest assured $1.5billion is a drop in the BHP Billiton ocean, you will be interested to learn that even Susan Shabangu has seen through the plan and warned the likes of BHP Billiton not too rape resources in their hast to depart these shores.

In the interest of completeness it may serve us well to take note that 4 years ago BHP saw the writing on the wall and flogged the best, or ,at the worst, the second biggest Chrome and Ferrochrome company in the world, South Africa’s Samancor. They followed that with the sale of all their Diamond interests in South Africa and then during the global crisis they moved South African Aluminium capacity to Brazil.

Unfortunately BHP is not the only one who decided that running is the best thing to do, Rio Tinto has done the same and so has Anglo, they are just not saying it in so many words.


Diamonds aren’t forever – not in SA

January 23, 2011

It was announced that DeBeers, the South African Company that dominated the global Diamond Market for yonks has decided to throw in the towel as far as South Africa is concerned and it was no surprise that they sold their second biggest and one of only two diamond mines remaining in South Africa.

The decision to sell Finsch Mine was an easy one. De Beers, years ago decided to get out of the country. Mining, because of labour (COSATU) and government (ANC) became too expensive and the margins to thin. The risks of tenure and other regulatory uncertainties curtailed exploration and the decision was made to sweat the assets and get out leading to the mass sell-off of mines. The Kimberley mines were the first to go with the BEE-company taking them over, KCM – loosely connected to the Zuma clan – recently suspended from the JSE. The Cullinan mine was taken over by Petra and are barely surviving – albeit at a much smaller scale with considerably fewer people than before – thanks to the find of a typically massive and “lucky” gem; luck that cannot continue for much longer.

Finch Mine does not have the luxury of huge and lucky gems. The mine depends on the mass production of cheap industrial diamonds and small low value gems. Petra no doubt will reduce the size of the mine and scavenge dumps and easily accessible ore of which there is little left. Going deeper will require huge investment, investment DeBeers baulked at for good reasons.

The sad thing is that in 2005/6 Finsch Diamond Mine became one of the most technologically advanced hard rock underground mines in the world; a true pioneer. The technology employed at Finsch was critical in ensuring the viability of sustainable continuing operations.

Because of the South African skills shortage it became increasingly difficult to support the advanced mining technology at Finsch mine and future investments in this technology became just too risky given the deviancy of the Department of Minerals. In the end the selling price of Finsch Mine of $200 million hardly equates to the cost of the Mine Automation Project.

Sadly many of the excellent engineers developed in this process have left South Africa. They work abroad for DeBeers and for the companies involved with DeBeers in the development of the technology.

With Finsch gone, Venetia Mine remains the last Bastion of the erstwhile DeBeers South African Empire, in South Africa – an empire destroyed by transformation. The mine will be retained by DeBeers until the easy resources are exhausted, the assets have been sweated properly upon which it will be flung aside to be used by unscrupulous BEE companies, like KCM, to fleece unsuspecting investors.

Resources are not inexhaustible and for that they must be recovered effectively and investments must be made in finding new resources. In South Africa this cannot be done because of inflated labour costs, ineffective training and education, a government threatening ownership, a ruling party prepared to steal mineral rights for the benefit of a select few in the top party echelons.


Looming Catastrophe?

November 8, 2010

For a long time I have written about the slow and steady demise of the South African Mining Industry, the result; not of Apartheid but ill advised political agendas and an overly powerful labour movement. I have pointed out that our biggest problem was laziness and stupidity proliferated by the ill informed half-wits we find amongst the ANC government, deployed cadres in the Department of Minerals and trade union leaders. This lot got together and formed a pact with one objective and one objective only; to destroy a viable and vibrant industry.

Despite my contention that the people making the rules are destroying our future; despite references to outside agents and empirical proof of the decline many ridiculed my position and branded me an Afro-pessimist and arch racist. I have expressed my view on this blog dedicated to mining issues, in articles published at MyNews24, the Business Day.

Yesterday, a business leader who I respect and who many will agree is probably one of the most respected leaders in our country, certainly more respected than the likes of Jacob Zuma, Mamphela Rhampele, expressed the same sentiments as this Afro-pessimist and arch racist have done at numerous occasions.

I will not quote Rhampele verbatum, her article in the Sunday Times is there for all to read, just follow the link

To reinforce the feeling so expressed, Goldfields announced that, as a result of the uncompetitive nature of the sickly mining industry in South Africa, they will be cutting 6000 jobs in the next few months, all in their South African operations. This hot on the heels of Harmony’s announcement that they will be closing down parts of their South African operations. A nice kick start to the ANC’s lofty ideals and solemn promises to create a million jobs a year for the next seven years.

But yes; it is not nice to say I told you so, but what the heck; here goes “I told you so!”

For too long the three sectors that create most jobs, the mines, the farms and domestic employment have been vilified and used as a playball by politicians and stick to beat people with. As long as this continues we will not see the creation of jobs and we will not have an inflow of capital. South Africa will remain a market for speculators; a place to park your money when the going is bad elsewhere or when you await opportunities elsewhere in Africa.

The sooner the South Africans realise that the road to growth is through hard work and being competitive, the sooner we will experience growth in wealth and jobs. The sooner people realise that growth and exports are not dependant on exchange rate games the better. Exchange rate manipulation will bring short term results but only hard work and innovation will make us competitive and bring sustained and sustainable growth.

Ah…work you say! But that is a strange concept and wishful thinking to boot. Who, in his right mind, will vote for a politician who says you have to work hard and pay for the things you want. A foreign concept indeed. Besides, did our favourite part-time Commie and Minister Of Higher Stupidity, the bluntest of Blades, not tell us that a person, to sustain himself, should be able to do so with three hours of labour a day. The teachers affiliated to SADTU certainly took him to his word and so did many others. The problem is just that they are making babies at a staggering rate; a growth rate the government would like to see for the GDP. Who; I wonder, does Blade expect to work the three hours required to sustain each of those outcomes of the famous South African breeding colony?