We cocked it up says Gordhan

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

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.

The Zuma economic nightmare

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

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.

Looming Catastrophe?

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?

Malema’s Mines; The end of the Road?

As a result of a “Beneficiation Policy” existing pre-1994 South Africa moved from being a primary Chrome Ore exporter in the 70’s to the world’s biggest Ferrochrome producer in the 80’s with output of ferrochrome reaching a peak in 2004, never realising the full revenue potential of the resource boon that ended towards middle 2008. Pre-1994, as a result of the vision, the availability of ferrochrome, the knowledge, skills and the other required resources, a fledgling Stainless Steel developed – a development that came to a grinding halt post-1994.

 Logically, a country having the best and largest chrome ore resource in the world, the ability to generate electricity, plenty full iron ore and steel, knowledge and skills and millions of unemployed people, should be the prime producer and supplier of the bulk of the world’s stainless steel – requirements – an essential building block for the rampant growing economies of the world; the so called BRIC companies the ANC government is so infatuated with. Instead, like other mineral resources, South Africa’s output of stainless steel and ferrochrome has stagnated with the only area of growth being the export of raw, low value chrome ore to China who, being more competitive, negates the excessive shipping cost, produces ferrochrome and stainless steel. The country that should be producing the stainless steel ends up an importer of its beneficiated chrome ore and ferrochrome. The jobs needed by South Africans having gone to China, entrenching the negative trade balance existing between the countries.

 The reasons for this sad state of affairs are seated in the difference in approach between South Africa on the one hand and China and India on the other hand. In South Africa, government policy – or rather the lack of clear policy; the threat to tenure by government and the ANC; the power of labour, supported by the Industrial Relations Act and the consequent uncompetitive cost of relatively lowly skilled employees and the migration of professional and management skills, due to affirmative action and the general over- or perhaps misdirected- regulation of mining, are choking the mining industry to a slow death. In China and India labour cost is governed by the market and trade unions have limited power. Education levels are high and there are incentives to enter into mining ventures whilst technological development is a priority.

 In his address to the Mining for Change Conference, Joel Netshitenze, ANC strategist and member of the National Planning commission inferred that, after sixteen years in power, the ANC government has no Strategic National Plan for Mining and was still in the process of formulating a beneficiation policy. It is no wonder then that the advancement of chrome beneficiation has come to a grinding halt, with investors – not sure of anything connected with South Africa any longer – fleeing, having decided the SA mining industry is a place to be avoided.

With the recent cases of mineral rights being hi-jacked by politically connected people and the rumours of turmoil in the Department of Mineral Resources weighing heavy on their collective minds, investors and mine owners attending the aforementioned conference have to listen to the ANCYL president calling them thieves and robbers, promising to nationalise mines, disowning them in the process, whilst the Minister (Susan Shabangu) who, very dramatically, promised that nationalisation will never happen only over her dead body, are nowhere to be seen, having passed up her spot at the conference to a lesser person, no doubt.

 It is ironic that the industry that are able to create more jobs than most in a relatively short time is effectively murdered by the misguided ANC government. Misguided policies and ideology has left a once great and thriving industry struggling for survival.

The raiding of resources by connected politicians in the name of transformation has destroyed jobs and left most of the followers of the ANC poorer and disillusioned. The disappointment and disillusionment has created the environment for the Nationalisation Campaign of Julius Malema and the ANCYL.

 Members of the ANC are aware of the ease with which their leaders, without lifting a finger, become filthy rich by taking over title to the magnificent resources of this country – a fact clearly proven by Imperial Crown Trading who, by making a few photo copies and filing in some forms made R 900 million in the matter of six months. To these members the suggestions of their young hero makes sense. His promises, in their minds create opportunities not to be missed. The acceptance given to Malema, by parliamentarians, when he presented his ideas a few months ago, bears witness of the popularity of his ideas. Be warned.

Jacob Zuma’s Leaking Begging Bowl

Tom Albanese, CEO of Rio Tinto, said that said the company was “underinvested” in Africa. This hot on the heels of the announcement recently that Rio Tinto sold a large part of their stake in Palabora Mining and a large proportion of their prospecting and mineral rights. 

Rio Tinto does not stand alone. In the past week Xstrata announced a huge expansion project in Mauritania. A company holding some of the best ferrochrome assets in the world right here in South Africa find Mauritania less risky than South Africa? Surely something is wrong?  

The Xstrata decision is better understood when we read that Mark Bristow, South African CEO of Randgold Resources, prefers to invest in a DRC project rather than a South African project. If that is not enough, Harmony Gold announced that a project to sink a new shaft has been canned. 

Why this nonsensical decisions? I’ll tell you why;

In SA your mineral rights could be stolen by the family and close connections of the President – Sishen, ICT (Zuma, Gupta) 

In SA the labour is expensive and uncompetitive, their laziness being insttutionalised by government and legislation 

In SA management are vilified and threatened.

In SA, what is not stolen by the connected has to handed over to connected politicians in BEE deals 

In SA there are no skills, the skilled manager’s work abroad for the big mining houses 

It is because of this that we have fly-by-nights such as Khulubuse Zuma and Kodwa Mandela starting up companies like Aurora Mining; companies designed to destroy value whilst filling the pockets of their principals with money from “investors” with dark agendas. 

It is no wonder then that people with “Ubuntu integrity” like Lazarus Zim – Chairman of Kumba and closely connected with the crowd who effectively stole the Sishen Mineral Rights from Kumba – the failed Tokyo Sexwale and Mzi Khumalo replaced people like Marius Kloppers (BHP), Mick Davis (Xstrata) and Jan Du Plessis (Rio Tinto) as the great South African Magnates. In the modern and transforming South African, mining magnate is understood to be someone like the crooked swindler and ANC darling, Brett Kebble. How much further shall we fall.

No wonder then that whilst the rest of Africa has to fight of Chinese investors, eager to get their grubby little hands on their mineral resources, Jacob Zuma has to make speeches in Beijing in a tone of voice one would normally associate with that coming from a beggar, urging the Chinese to invest in our resources. 

Perhaps Zuma will still learn that mining requires huge investment and investors, no matter how rich, will not invest in business that could be stolen or driven into bankruptcy by a workforce that does not know the meaning of the term, work ethic

The Great Resource Scam

We recently witnessed, without to much fanfare and hardly a whisper of gnashing teeth, one of the biggest robberies off, in Malema’s words; “the mineral resources lying below the South African soil”, belonging to the people – in a truly socialist sense – of South Africa. The resources robbed was not diamonds, or indeed platinum and gold; it was lowly iron ore – the feedstock of the ferocious Chinese and Indian industries. The robbers, ironically, was not evil white colonialists neither were the vile Apartheid era oppressors; they were not even mighty imperialist raiders from Europe and North America – no; in this case the robbers were local people; heroes conspiring with new age Moguls to relieve the people of their hard fought wealth.

In this intriguing tale of robbery and deceit a whole chunk of iron ore reserves were stolen from an unsuspecting Kumba iron ore by master of deceit Jagdish Parekh – agent of the Gupta brothers, big friends of; you guessed it; Jacob Zuma and partners. Parekh and his cohorts in Imperial Crown Trading – Kgalema Mothlanthe, Duduzane Zuma and others – invariably with the help of loyal cadres in the Department Minerals – illicitly used stolen Kumba documents to apply for the mineral rights which was conveniently allowed to lapse by another company run by modern day moguls; Accelor Mital. The chairman of the company – victim of the scam; Kumba Iron – was none other than Lazarus Zim, co-owner; with the Guptas; of a company called Afripalm.

For those not grasping it all yet; besides the shenanigans of the politicians and their appendices – Mothlanthe, Zuma and others – which is anyway expected and par for the course, we have a situation where the honourable Mr. Zim seems to be closely connected to the band of raiders – RCT and stand to gain handsomely from this latest scheme to enrich and reward the select few with the spoils of the struggle. Whilst Zim plots with the raiders, he remains the chairman – receiving a handsome fee for his efforts – of the company, KUMBA Iron, which will be irreparably harmed by the actions of its chairman and friends. Now, unless I’m mistaken, to be the chairperson of a public company requires a high level of integrity and the chairperson of such companies are expected to have the best interest of the company at heart.

This case presents a clear conflict of interest and to call Zim a man of integrity would be stretching the truth. Instead of taking the honourable route and resign as chairman, Zim, after being pushed, agreed to recuse himself from KUMBA board discussions involving the ICT issue – a very convenient arrangement. He can use that time and over a cup of coffee, can discuss ICT strategy with the Guptas, young Zuma and Parekh.

My gripe today however is not with Zim; after all his actions are not extraordinary. Truth be told, I would’ve been extremely surprised; even shocked had he acted in a different manner. My gripe is with the board of Kumba who, petrified of being called racist or anti-transformation, accept the untenable situation; the only sign of resistance; an odd cowardly remark dropped in passing by board members hoping to placate their nagging consciences.

Board members fearing the racist label are the same people running around claiming, after the fact, their innocence and rabid opposition to apartheid. Today these captains of industry are as silent as their predecessors in the apartheid years; a silence then, that only broke when they saw the writing on the wall. Once again these brave men of integrity are carefully watching for the writing to appear; the sign for them to allow their integrity to once again burst into the open.

My message to these captains of industry; moral pillars of big business; stock up on bully beef and candles, fill up the water cans; there is a long wait ahead – I hope you will find your integrity and values at the end of your vigil.

The ANC, Australia and the Super miners

 

Some may wonder why South Africa missed the boat, so to speak, during the last resource boon. Why did most resource rich countries, notably some of our African peers and in particular Australia, outperform South Africa by miles?

The answer lies in the policies of the ruling party, and not having learned a thing, the brilliant Fred Gona, chairperson of the Parliamentary Portfolio Committee on Mineral Resources, having flipped the Chamber of Mines the proverbial bird by not reading their objections to the course being plotted, are dead set on engineering a “compromise” that will satisfy Julius Malema’s nationalisation dreams and the Anti-Malema faction with the establishment of a state owned super mining company to be managed in the same effective manner as ESKOM, SABC, Denel, Transnet and SAA; a company which will, with the assistance of the taxpayer, distribute great riches to the deployed and their patrons. Like Malema, the well informed Gona assures us that, despite popular belief and countless reports to the contrary, South Africa remain the most mineral rich country in the world.

Ever wondered why foreign investors are not falling over their feet to invest in this untold mineral wealth? To add substance to the learned Mr. Gona’s claims we just have to look at the Pamodzi/Aurora great gold venture. For those who have not followed the saga; a year or so ago, Pamodzi Gold Mining Company – a company scavenging off the remains of mostly worked out gold mines, effectively abandoned by the bigger players reluctant to invest in these carcasses because of prohibitive regulations, restrictive labour practices and other risks – ran out of cash. Having assured investors of a major foreign investor, who subsequently miraculously disappeared, they; Pamodzi, went into liquidation with the only benefactors the BEE partners and their patrons – the directors.

The liquidators soon announced that Aurora, a company high on big names – Zuma, Mandela and Hulley better known for mining dirt in Presidential trials – but light on management savvy; with the backing of a filthy rich Malaysian, will take over Pamodzi. For good measure they will ad Primrose Mining who owns mines that were mined to extinction a century ago, to their magnificent portfolio. The Malaysian disappeared into the remote forests of Borneo it seems; the mines produced nothing but polluted water which was pumped, untreated, into the surrounding streams; the workers were not paid and apparently starved of the property but these small challenges did not deter the great new age miners. They soon found a new backer but somehow the tight fisted greedy bastard became dodgy and, much to the delight of many – including the great number of ANC parliamentarians who lauded and cheered Malema’s nationalization submission to Parliament – the liquidators announced that a Chinese Consortium are preparing an offer to take over this poisoned chalice.

Given the hullabaloo over the super mining tax proposed by the Australian Government, with the giants of the Mining world BHP Billiton, Rio Tinto and Xstrata threatening to take their toys and go play elsewhere, many must be wondering why the global miners are so relaxed about the intention of the ANC and the future of their investments in South Africa, especially in view of Gona’s tales of the untold mineral riches lying below our soil. Truth is; they’ve are here; they’ve experienced mining in South Africa and they don’t like. The big players do not trust the direction of the industry, they dislike the uncompetitve labour set-up and anarchic unions demanding pay way beyond their skill level; they do not take kindly to the implied and the real threats to their tenure. Knowing Africa however, they remain condescending. Their attitude; keep quiet, patronize them whilst sweating the assets, discount the in the balance sheet, they build for the distant future, twenty-thirty years hence, when, like with Zambia and the DRC, they can walk right back in, this time invited, and, in the ashes of a decimated industry find a few embers to nurture and build into new industry on their terms.

The rosy picture of our mineral wealth, pictured by some, is belied by the behaviour of BHP Billiton, a company with its roots in South Africa and being steered by a South African. They have sold much of their interests in South Africa; amongst others a thriving Chrome and Ferrochrome business and diamond interests, simultaneously allowing licences and options in other minerals and oil to lapse. The BHP Billiton exit strategy is simple, milk ESKOM for what they can, sweat their coal and manganese assets and avoid green fields projects investment.

The BHP Billiton model is closely followed by others. Rio Tinto, chaired by a South African, has not made a significant investment in South Africa for ages, preferring to invest in Zimbabwean Diamonds and Namibian Uranium whilst flogging a large part of their stake in Palabora Mining Company, a dying and marginal asset, to BEE entities. Barrick, the world’s biggest gold miner only maintains a token presence in South Africa whilst expanding their operations in Tanzania. Norilsk recently got rid of all the technical expertise housed in their Johannesburg office, deciding to maintain a small administrative staff to keep an eye on their joint-ventures with the likes of ARM, whose chairman Patrice Motsepe, is not against nationalization as long as he gets enough for his, not insubstantial, chunk of worthless Harmony shares. Meanwhile Xstrata, another miner being steered along by a South African, having dipped their toes into Platinum mining with their Angloplats joint venture and a small investment in their own Elands Platinum Mine are not prepared to convert their 25% investment in major platinum player Lonmin into full ownership and are seemingly reluctant and circumspect with any new Ferro Alloy and coal investments, probably considering the risk as excessive.  

It is ironic that the mighty De Beers – on the bones of their backside because of some worthless South African assets and the loss of their marketing stranglehold – consider sending their explorers trudging, like Frank Zappa’s Nanook and the evil seal hunters, across the Canadian Tundra, to dig through the perma-frost and the deadly yellow snow (where the Huskies go) so that they can mine the rich diamond veins lying underneath freezing lakes, less risky than investing in South Africa. Anglo Ashanti would rather invest in the war torn DRC than in South African gold projects whilst Randgold Resources would, according to their great African Leader – Mark Bristow, rather face the logistical nightmare of building mines in godforsaken parts of Mali, Ivory Coast, Senegal, DRC amongst other, than face the insecurity of super miners like Gona and his political backers Malema and others. As if all of that is not convincing; the mighty Goldfields, unable to make much from “the biggest known gold-resource” in the world – South Deep, are now celebrating the success of their exploration teams discovering new deposits in Peru and whilst the production from South Africa are shrinking with the dawn of every new day; their investments in places like Ghana, Peru and Australia – in some instances they have to build their own power generation plants – are showing excellent returns in the wake of a high gold price.

To think that study tours to Venezuela will bring answers is rather foolish and a thinly veiled reason for another overseas trip. Perhaps the wannabee miners like Gona, Malema, Kulubuse Zuma and Kodwa Mandela, their friend Hulley and others like them should visit 3762countries that are struggling to rise from the ashes of socialist agendas and learn how to stay out of the quagmire. Perhaps Jacob Zuma should’ve dragged his friends from COSATU of to India to see how they the Indians work and find out why they can be competitive.

In Australia, when Kevin Rudd announced his populist “mining super tax”, his ratings initially shot up. However, the Aussies being relatively educated, and having assessed the effect of this tax on the goose laying the golden eggs, are now giving Rudd the thumbs down and his ratings are dropping. In South Africa, if a politician conjures a populist hair-brained scheme, any opposition to that plan will result in thinly disguised threats and punitive measures by deployed cadres, making life impossible for such opponent whilst hardening the resolve of government to destroy. Makes one wonder; what did those convicts that built Australia have?

The Great South African Mining Disaster

Nic Holland, upon taking over at the helm at Goldfields, vowed to close down working places considered a safety risk. Being a man of his word and having the integrity of an old-style accountant he carefully assessed the risks and duly started shutting down workings considered to risky. Having not done the “Mining Math” properly in the first place, he found, perhaps too late, that he will eventually have risk free operations. That was however not the only reality that dawned upon him – he also found no risk means no gold and after all, that is what Goldfields is all about – mining gold. With every risky place they stopped the gold output fell inexplicably; A difficult concept? Not really. Most call it common sense. As the saying goes; you do not make scrambled eggs without breaking a few eggs.

Nic Holland was not the only one trying to get rid of the “risky” operations. Anglo American’s Cynthia Carroll went a bit further and sold all of AngloGold Ashanti, getting rid of a whole whack of dangerous operations in one foul swoop. She went further and then publicly claimed a massive reduction in mining related fatalities at Anglo – a novel variation on the concept of selling your problems to the uninformed – in this case selling your deaths, sweetened with a splattering of gold to the unsuspecting foreigners. Fortunately in this case the foreigners got a bit more than a smattering of gold with the Africa operations that came with the South African assets. My reckoning; if Julius and friends succeed in nationalising the South African mines with compensation the foreigners can get rid of the South African poison pill – the deal of a lifetime.

As this drama continues to unfold, South African mining production continues to fall sharply. At a time when the gold price is at its most favourable in decades, South African gold production has reached an all time low of 232 tonnes, less than half the 490 tonnes produced in 1985 and falling ever faster. Ironically, as the gold production from South Africa was dragged down by labour issues, government regulation and risk aversion, output from the rest of the world, particularly the rest of Africa and China rose sharply.

Looking at the latest round of reporting by mining companies, it is particularly noticeable how many companies reported a great number of production days lost due to safety issues a new inclusion in their reports. As in the case of Goldfields, the South African mining industry will come to the realisation that the easiest way to ensure no risk is to shut the mines down.

With the loss of 15 000 jobs in the mining industry in 2009, a year when resource prices were showing a recovery  from the global recession with the gold price reaching an all time high, South African mineral production continued to fall.   

Having said that, it is particularly noticeable how the cause of accidents and the reasons for Section 54’s, Mine closure orders, are glibly attributed to the owners and management. When an incompetent and reckless miner, holding a certificate issued under the auspices of the relative government department, blows himself and his colleagues up by smoking in an area which he has tested as being laden with methane, management is blamed, the mine is closed down and the bad and twisted – by the Union and the Department of mineral Resources – publicity, loss in production and subsequent revenue loss accrues to shareholder.

No wonder Patrice Motsepe is so keen to give his mines to Julius Inc., compliments the South African taxpayer. He learned from Cynthia Carroll.