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 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.

Little Lies

It is disconcerting the manner in which everybody, from the President, including ministers and Chief executives, twist and distort facts to suit their little agendas. Even worse, is the manner in which they proudly tell their convoluted truths, not in the slightest concerned that their reputations may be harmed should they be exposed?

The same people who claim they are adhering to all principles of good governance unleashes their half truths on a public, punch-drunk from being bombarded by nonsense espoused by the pillars of society.

I am not talking here about politicians from the governing party or even politicians in general. We have come to expect lies and deceit from our politicians. Truth be said, we are disappointed and feel robbed if they fail us in this regard. No. I’m speaking of Cynthia Carroll, upstanding leader of the once mighty Anglo American.

Desperately fighting for survival, the once hailed saviour of a faltering organisation – like the legendary Phoenix or using an example closer to home, Shabir Shaik – rose from the ashes and flattened delegates at the annual Mining Indaba, when she proudly announced a staggering safety performance at Anglo American.

According to Carroll, Anglo reduced the fatalities resulting from mine accidents from 44 in 2006 to 19 in 2009, an improvement of 42% over three years.  A remarkable achievement, unless you dig a bit deeper to find that Anglogold Ashanti, responsible for 32 of the fatalities in 2006 are excluded from the 2009 figures by reason of Anglo American’s disposal of that asset in 2007.

Looking at current Anglo operations it should be noted that fatalities at Anglo Platinum remained flat at 17 – 18 fatalities through 2006 to 2008. In 2009, with fewer people employed and more of their production and revenue coming from joint ventures, resulting in lower risk, fatalities decreased to 13. A reasonable performance? Yes. Spectacular? Not in my book.

What it does teach us is to tell a convoluted story, peppered with twisted facts omissions and half truths. You may get away with it for a while, fooling even the so-called experts and informed. However at some stage you will be caught out and people will snigger when you make your profound statements; some may even tell you to your face that they feel insulted by you underestimation of their intelligence.

A Travesty and a Fairy Tale in One

And so the wheel eventually turns, or perhaps I should say; “As the stomach turns”

 It feels like yesterday when NUM members took hostages at the Two Rivers Mine in an attempt to reinforce their noble attempts at transforming the mining industry. The action by NUM at the time was not surprising, after all, one could say they invented and perfected the art of underground hostage taking. As a matter of fact, I am surprised that they, like the taxi drivers in the case of taxi routes, do not claim intellectual property rights.

Be it as it may, a rival union, on the self same Two Rivers Mine, has now had the audacity to infringe on the irrevocable and sole right – bestowed on NUM by the leaders they proudly spawned, Mantashe and Mothlanthe – to take hostages on mines.

To make matters worse and more insulting, the hostages taken are NUM members, more likely than not, the same people responsible for the previous hostage drama at Two Rivers. No wonder then the exasperation of NUM officials condemning this travesty of justice.

I could not help thinking about an hostage taking event not so long ago which has subsequently become the stuff legends are made off. The legend goes;

The Emperor and the Miners

Once upon a time at a Platinum Mine – in the far west of a country, well known for its dancing emperor and Clown Prince, the ruler saving money by multitasking the prince to fulfil the role of court jester and stand-up comedian – the workers, having been told, by the emperor that they were special and feeling they were entitled to all the riches of the platinum mine, an idea mooted by the Clown Prince, decided to cease work until their wages were higher than in any other place in the world.

The workers, quite rightly, believed they were solely responsible for bringing the ruler to power and anyway, he did promise them wealth and comfort beyond their wildest dreams should they carry him to power. The workers fought hard and dirty and got the emperor to power and this was payback time.

Much to the shock and surprise of the workers, now refusing to work in support of their demand for their promised rewards, the evil Mine Boss dismissed them, banished them from the mine banishing them to a life of hardship, a life without DSTV and washing machines. The Evil One brought in other workers; workers who promptly and without hesitation took over the meaningless jobs with great proficiency. Imagine the confusion, humiliation and surprise of the Banished, having been chased away like worthless dogs, witnessing the cockroaches that have been begging for jobs day-in and day-out at the mine gates, taking the jobs that rightly belonged to them, the members of the guild of miners, who swept the Emperor to power.

They were understandably upset and appealed to their guild and the Clown Prince and the Emperor to assist them with reinstatement but to no avail, because friends of the Emperor were also friends of the Evil One. When they saw there was no deliverance from the fate delivered upon them, they slinked back to their houses. There they lay about, drank beer frolicked with their wives, when mentioned wives returned from the fields, where they were trying to eke out a living.  However during lonely moments they, the Banished got together and counted there remaining and fast dwindling cash resources with great concern.

And so it came to pass. Whilst they were sitting around drinking beer and bemoaning their financial woes, having realised the money promised by the Emperor for the unemployed was barely enough to buy food, a scary short little man of demonic appearance arrived, as if out of nowhere, in their midst. This little man of much power declared himself to them as the Tokoloshe – master of malevolence

The Tokoloshe, having listened to doleful lamentations, presented them with a plan so evil, it almost froze the blood in the veins of the bravest warriors amongst them, one of them, Funa Pumile, so-called because of his urge to rest often, afterwards swore the HIV viruses in his body instantly died. The Tokoloshe as is his want, did not only give them a plan, his servant, dressed in a splendid blue uniform, not dissimilar to that worn by the Emperors Police, gave them short sticks that fired very small arrows at great force and velocity. One of the banished workers fired a test arrow at the wall of his hut to find his recently born baby as dead as a dodo. Strong muti indeed.

The Tokoloshe also had his personal witchdoctor at hand and he promptly supplied the banished workers with a potion, made from wondrous herbs blended with body parts of the now dead baby using a machine – borrowed from a workers kitchen, they haven’t reached the pawning phase of hardship yet – blessed by Russel Hobbs himself, to give them immense strength and make them impervious to the weapons of their enemies.

After drinking their potion, mixed with copious amounts of alcohol, and smoking lots of magical herbs the banished and rejected workers proceeded to the mine with sticks, dancing and singing, jubilant in the knowledge that they will regain their positions, and more. After all, did the Clown Prince not ask for the seizure of mines by the people? Did the emperor’s councillor on gold, gems and fabulous mineral wealth, not threaten the evil mine owners to fit-in-or-fuck-off? They marched with the knowledge that, as in the past, their ruler expects them to act strongly and take, with necessary force and commensurate trashing, what is rightfully theirs.

Soon after they arrived at the mine, whilst they were singing and dancing, summoning the great spirit of the Machine Gun and focussing their minds, now slightly befuddled by a haze of intoxicating herbs, a few rotund policemen, not dissimilar in appearance to Mr. Plod, good friend of Noddy, arrived and prevented them from approaching the Evil One where he was sitting in his sumptuous office sipping coffee and counting his fortune.

Having recognised friends and allies amongst the police and not wanting to hurt friends, they used tactics taught by the Tokoloshe and some of the Emperor’s advisers many years ago and staged a fake retreat. The police, not seeing any killing opportunities, promptly withdrew, signalling the opportunity for the banished workers to attack and breach the defences.  

And children, that is what they did.

They broke through the barriers of steel and concrete and proceeded underground. There they secured an area and promptly proceeded to, using the skills passed on by guild leaders and Emperor’s advisors, construct pipe bombs using pipes and explosives liberated underground. They secured a comfortable area, not to cold and not to warm, a suitable sleeping place, for those that do not have watch or bomb making duty, where they could dig in so to speak.

Once they secured their control centre they did what they do best underground; they promptly went to sleep, all of them except one, a man by the name of Katalile Minadagiwa, who, due to his inability to participate in logical debate and being a fan of the Clown Prince, having studied every speech ever made by the crown prince, was chosen to negotiate with the Evil Owner.

In the meantime, the police were called back and arrived with the police’s newly trained special forces, flown in by special jet, in tow. Whilst the suitably obese police commissioner shouted instructions, Katalile spoke to The Evil One on the telephone, demanding the presence of the ruler, the Clown Prince or the big cheese of the guild. 

Whilst this hullabaloo was carrying on the task force proceeded underground armed with rifles, grenades flame throwers and all manners of violence perpetrating equipment, to back up their newly acquired licences to kill, proudly displayed on cards contained in a little pouches hanging around there necks. Positively professional, reminding somewhat of the ID tags of conference-delegates, all very smart.

Yes children; they were ready and well prepared to marinate, tenderise and roast their adversaries. The scene was set for an epic battle. A fight to death – a battle for the hart and soul of the economy.

The first bomb was set off by the rebel miners, a policeman was pole axed by shrapnel from the pipe bomb and all hell broke loose. After the lapse of a suitably long period of time to justify the description of ‘epic battle’, surpassing in length and intensity of the well publicised turf wars of the Zama-zamas having produced a sufficient number of wounded on both sides, the begrudged miners were subdued and hauled away to be drawn and quartered by the Emperor’s men, at the behest of the Evil One, who, it was learned, made a sizeable contribution to the “Welfare of the Emperor” fund.

The mine owner subsequently liberated his money and moved it to a far of land with an honest Emperor and peaceful hard working people. There he started a new mine and became immensely rich.

The Clown Prince became bloated and fat, and his head – like a black hole, dark, empty and dense – imploded and he became rather pleasant blabbering incoherently day in and day out in the process, driving the Emperor insane, prompting him to embark on a crusade against fair-weather friends.

The mines in the once great land quietly died and the workers returned to the land where they tried to eke out a living and eventually succumbed to famine and pestilence.

Ed. What a load of non-sense. You certainly have a wild imagination

Transformed to Death

Before dismissing Susan Shabangu’s recent outburst – when she unleashed her unwarranted, vicious and, frankly, ill informed attack on mine owners and managers – as populist and Malema-ish, should consider her influence in the upper echelons of the ANC and government. Those dismissing her ranting as ill-informed vitriol are well advised to take note of the fact that the President and Bheki Cele’s favourite and general flavour-of-the-month, “Shoot-to kill” slogan was originally coined by the same Shabangu in her role as Deputy Minister of Police. Now, we all know that once a term is accepted and embraced by the alliance, it automatically elevates the creator to “struggle-hero” status and we know you do not mess with ANC icons.

The honourable Minister had the temerity to suggest that the mining industry does not do enough in the way of advancement of blacks. She accused the sector of falling short in skills training, this, despite the fact that the mining sector has been singled out as having done more than any other South African industry in the field of skills training and development. 

What the Minister conveniently forgot when calling for more black managers in operations is the small, but very critical, predicament that the schools, because of government’s lack of delivery, cannot supply sufficiently educated people to tertiary institutions for training in technical fields. The few engineers that do obtain degrees and diplomas are either white or get their qualifications at the behest of mine owners who walk the extra mile to ensure the success of their black students.

Once the students passed the degree or diploma course required to enter the industry, some, due to lack of motivation and a boycott culture, again instilled by the government of the day, having enrolled for industry examinations do not bother to turn up for the examination or perform abysmally because of a non-existant learning culture. The low quality od education are acknowledged widely throughout the government leadership with Shabangu and the Minister of Education probably the only leaders oblivious of the problem. The people singled out and chosen to lead the industry are producing the worst exam results the industry has seen – the leaders of the future, it seems, requires a lowering of standards, against which their success will be measured – entitlement before competence it seems. Possibly a good thing since it may reduce their chances of spotting their Ministers incompetence. 

Shabangu’s singling out of procurement and ownership – as the areas other than operations to be targeted – are perhaps more surprising than her crusade for faster transformation in operations management. The reality is that, as in training, the mining industry has done more than any other industries as far as black ownership is concerned. According to the Chamber of Mines, the industry handed more than R 200 Billion in value to black owners in the last seven years. The BEE efforts has been so successful, the honorable minister’s comrades in NUMSA are for the nationalisation of the wealth of the two most successful recipients of BEE handouts, Sexwale and Motsepe. 

The demand for more black power in procurement management seems even more mystifying to the uninformed observer, especially in the light of ESKOM’s spectacular failure, to a large extent, as a result of the transformed procurement function in that desperate organisation. 

Analysing the three areas singled out for accelerated and revolutionary transformation, one finds a golden thread running through it. The Golden Thread of empowerment for the selected few; Labour wanting more managers and less work for more money; the new ruling elite needing their fair entitlement to ownership whilst their cronies demand unhindered access to the huge spending power of the mining industry.   

By waving the review of the Mining Charter as a stick, to beat mine owners with, serves little purpose in encouraging investors to enter and or re-enter a key industry and major supplier of desperately needed employment. Contrary to the teachings of the ever popular, “Struggle Economics for Dummies – A South African View” by Julius Malema, threats do not entice investors to part with their money draw investment. Consequently, major global miners are leaving our shores in droves, scared of by government regulation, labour cost and labour relations. 

Shabangu whilst admitting the negative effect of the Minerals and Petroleum Resources Development Act of 2002 and the Mining Charter V 1, in the same breath, blames mining companies for not fighting the effects of the law with more dynamism. How far removed from reality is that? Does the minister suggest a man, working in the WTC on 9/11, could’ve saved his life by standing in the window, gesticulating wildly at the approaching aircraft, in a desperate attempt to aim the gargantuan missile at a higher level in the building – hoping that, if successful, it will leave him an opportunity to flee down the fire escape – before all hell brakes loose. 

The reality is that the South African mining contracted during the boom years whilst mining grew by 5% and more in most other countries. The contraction is attributable to government policy (BEE, AA and tenure of ownership), the LRA, unrealistically high wages. Mining in South Africa has become so expensive that Xstrata can now mine steam coal in the USA cheaper than in South Africa. Because of the present mining investment milieu, global miners like BHP Billiton, Rio Tinto and Barrick has stopped investment or at best have their investments pegged to sustain current operations. In many instances, the major miners have moved capacity elsewhere. The only remaining foreign investors are Toronto Securities Exchange gamblers and Canadian Minors investing in platinum. 

Given the Minister’s threatening demeanor, combined with the ascendancy of the unions and the ESKOM disaster looming large, we can expect the situation to worsen rapidly in the next five years with the ultimate collapse of the industry inevitable. 

The ill-informed views of Shabangu can be ascribed to incompetent, under-qualified and inexperienced officials in her department. Officials in the Deparment of Minerals are not unlike their incompetent peers in other departments, the main difference being Shabangu, who unlike her peers, prefer not to hold them accountable, probably not understanding what they do. I’m almost certain her DG must have informed her of the dismal performance of prospective managers in industry exams.   

Malema’ call for nationalisation, initially backed by Shabangu before making the familiar U-turn should not faze owners too much. Given the fading fortunes of the industry there will soon be very little to nationalise. Perhaps Shabangu believes her populist attitude will bring her glory in the gloomy future she perpetuates. 

Maybe the minister should stick to her knitting and join the free-for-all killing spree she mooted during her tenure as Deputy Minister of Police.

An(c) Economy of Lies

             

ANC party secretary-general Gwede Mantashe yesterday announced that the ANC national executive committee, which met at the weekend, has decided to refer the nationalisation debate to its economic transformation committee, which will then develop the party’s position on the matter.

 In three weeks, we saw this unfolding drama develop from a position of “No nationalisation of Mines to the current position.

Malema, at an ANC Youth League conference three weeks ago, called for the nationalisation of mines, invoking the requirements of the “Freedom Charter”. He was quickly backed by Vavi, Cosatu, Vavi and the SACP.

Gwede Mantashe, in his capacity as Secretary General of the ANC reacted, saying that; “Nationalisation of the Mines are not on the ANC agenda”. Susan Shabangu said a few days later that state owned mines are a possibility.

The youth league reiterates its demand for Nationalisation, again backed by Vavi and Cosatu.

Gwede Mantashe in his real skin as President of the SACP makes another one of his famous U-Turns and agrees to that Nationalisation should be considered. At the same time, Duarte tells the media that the ANC will have a national debate, one of those things we hear about but never participate.

Susan Shabangu, to confuse the market, says Nationalisation will not happen, whilst Zuma agrees with the idea of a “National debate”. On Sunday, ANC policy academic and MP, Professor Ben Turok assured all Sunday Times readers that there is no possibility of nationalisation of mines.

I am sure, as with the replacement of Mboweni with hard line Communist Gill Marcus, many commentators will call this a positive development. The only possible positive spin-off will be the closure of mining companies filled with BEE leeches and no economic right to exist

Does anybody know who is in charge? This is a very strange development in the light of the President’ Assurance that the country is not governed by trade unions. To me it seems the tail wags the dog, or is this “Rule by Confusion and Lies”.

Two weeks ago, that great proponent of truth from ANC ranks, Carl Niehaus referred to the science of lying as perfected by politicians the world over, a science in which our ANC and government do exceedingly well and can justly claim world leadership. Honest Carl proudly told us he never told lies as spokesperson for the ANC, he just used the “Science of Spin”. Was Carl perhaps “spinning a yarn?” I, for one, do not see the difference in blatant lies and spin. What I do know for certain, is that the ANC and its partners and therefore the government of the day is particularly adept at lying. Lenin’s doctrine, which is not out of place for an organisation with a strong communist influence, like the ANC, teaches; “Lies told of enough becomes the truth”. In the face of this double-speak a fitting and well-applied principle of Mr. Lenin’s teachings.

As for the owners and investors, they will not go the marginal mines; they are after the rich ones. For those who expect fair compensation, dream on, there is no money to compensate you for your investment. What will the owners and investors do? They will quietly move their money out and minimise risk.

Mining Mechanisation – Ten Years On

Ten years ago saw the successful introduction of a low profile electro-hydraulic mechanised drill rig, Sandvik’s Axera LP Drill, specifically designed for application in South African narrow reef hard rock mining. This completed the process of mechanising chrome mining in South Africa’s Bushveld complex, a programme that started in 1985 with the introduction of the first Load Haul Dumpers on chrome mines in Rustenburg. The Axera LP Drill became one of the most commercially successful machines introduced in the South African mining industry.

By 2005, South Africans chrome mines were producing 70% of total ore output of 700k tons per month, utilising machines. Technically this revolution, after previous unsuccessful attempts at mechanisation was spectacular and had a major impact on the successful implementation of mechanised mining in the platinum industry, so much so, that the total tonnage derived from mechanised mining in platinum mines has grown from zero in 1990 to 1.5 million tons per month by 2008. Production costs of mechanised chrome ore have become very competitive and it is now the preferred production method, it is no coincidence that the some of the cheapest platinum producers, Aquarius and Mototolo, are also mechanised. Add to the benefits mentioned the favourable safety impact of mechanised mining and the choice seems very obvious and straightforward and the visionaries who single-mindedly promoted and implemented mechanisation may be forgiven for feeling smug when looking at their achievements.

Taking a more holistic and detached view of the unfolding process, it is easy to question the astuteness with which our heroes set about the task of replacing men with machines in South African mines. With the current, unacceptably high levels of unemployment in the country, the wisdom of mechanisation in mines must be considered along other socio-economic factors that drive employment, wealth creation and other factors creating value to society. Mining, along with agriculture and manufacturing remains one of the biggest employers in South Africa and anything that has a negative effect on employment opportunities will, quite rightly, be questioned. Fortunately, the visionaries responsible for mechanisation do not have to feel alone in their guilt, government policy and trade unions did more than their fair share of job destruction and contributed more to the destruction of jobs. Unfortunately they wrap their contribution in righteous packages, wrapped up as “Rights of the oppressed and exploited worker” and “Transformation of an unfair society”, giving them the moral right to destroy jobs.

In most normal market driven economies, the move from man to machine follows a set route. The typical road map starts with an oversupply of labour, manually producing products of value. As production increases, unemployment drops, wages goes up resulting in thinner margins and the search for more efficient production methods, inevitably machines. Skills improve to suit the machines and the cycle repeats. In the case of socially engineered economies, especially the less sophisticated ones like South Africa, machines can enter the production process for very different, and often wrong, reasons.

The politically correct motivation for machanisation of South African mines has been improved safety, decent jobs, up-skilling of employees improved salaries the loss of traditional skills because of HIV/Aids and the low-esteem in which the mining industry is held, globally and especially in South Africa, as an employer. I often think people consider mining as a small step ahead of the noble pursuit of sewer engineering. Truth however is, despite the negative perceptions of mining, perpetuated by the ANC Alliance, and their obsession with so called “decent and meaningful” jobs, millions are still prepared to work in mines for market driven wages, a view reinforced by the recent exposure of the extent of illegal mining activities in defunct mines.

It is however not a coincidence that the mechanisation  initiatives in the South African mining industry coincided with the liberalisation of labour law and the rise of black trade unionism on the mines. That chrome mines, despite their relatively low profitability, became leaders in mechanisation is also no coincidence. Chrome mines were always beset by highly volatile markets and wildly oscillating price curves, with the commensurate fluctuation of labour requirements. They recognised the potential opportunity proffered by mechanisation to effectively counter the potential crippling cost of retrenchments and disruption associated with it. Power of machines meant less power to radical unions. Higher skilled people not only meant higher pay, but also higher productivity and less hidden cost associated with a large lowly skilled but powerful workforce. The combination of out-of-control input cost, driven largely by the labour component, unreliable output levels and the physical threat to life and property, posed by militant and highly politicised trade unions, made for a compelling argument in favour of mechanised operations.

Government policy and trade unions must accept a large proportion of causal blame for this economic anomaly. By turning an industry, which should be the backbone of our economy, into a pariah industry, stigmatising it as an “enemy of the people” on par with the apartheid regime and the National party, was irresponsible and devoid of truth and reason, but possibly understandable. It is unforgivable for union leaders and people in government to persist with the perpetuation of that myth at this point of our history, thus continuing the fostering of distrust. To suggest that mining companies are singularly obsessed with the exploitation of workers borders on economic “hate-speech”. The single-minded objective to create a protected competition-free workplace at any cost cannot be tolerated any longer. As long as these “heroes of the poor”, with the active support of government, persists with this madness, jobs will be destroyed and poverty will increase.

It is estimated that the mechanisation of chrome and platinum mines resulted in the loss of at least five thousand conventional jobs in the last eight years. This loss in jobs could have been bigger, had it not been for the slow rate of skills development. The lack of adequate skills has been the single-most critical constraint in the rapid advance of low-profile mechanised mining.

In the mean time, initiatives to turn resources into profit will drive the innovators to find solutions. As things stand, the mechanisation of ultra low, flat dipping, ore-bodies are well advanced and requires skill development and fine tuning before it will inevitably, become the stoping method of choice in platinum mines. Continues Rock Cutting is far advanced and current unrealistic wage demands puts a smile on the faces of the pioneers of this groundbreaking, pardon the pun, technology.

To correct the situation whilst creating a competitive business environment a change in attitude by stakeholders are required. I am not advocating a free-for-all attitude bur rather a joint strategic approach focused on realistic market related wages and the best mining techniques, taking in consideration technical aspects, sound business principles and socioeconomic requirements.  To survive in a competitive world we need to be competitive and smart, face up and understand mistakes, and as stakeholders commit to elevating the South African mining industry to global leadership.

Mudblasts

* According to Mike Cutifani, CEO of AngloGold Ashanti, South Africa experienced  an unexpected fatality stoppage, a brief strike by drillers, a slow resumption of operations after the Christmas break and some technical difficulties — nothing particularly surprising or to be worried about. South African operations will be affected by the usual swathe of public holidays over the Easter period

Maybe that is exactly the problem. Everything normal and nothing to be worried about. Why don’t you just shut it down? If the government and the workers do not care, why should management and the investor care?

 

* Cutifani also stated that no greenfields exploration is being undertaken in South Africa and the country’s mature gold mining industry continues its steady decline.

Mine killer, job destroyer. I wonder what the Vodafools think about this lot. Selling the “crown jewels” to foreigners. I do not think they need to worry too much. The South African operations will be given back to South Africans through some BEE deal that will leave everyone poorer. The Minister probably thinks it has something to do with Cynthia Carol’s goodwill.

 

* Nick Holland , CEO of Goldfields, stated recently that Kloof reduced fatalities by withdrawing from remnants

Another one? Is he telling us the strategy is to withdraw until nobody is left underground? Surely, he does not believe that, not in this land of opportunity. Imagine, No work, no workers and no risk. It sound like a pretty good growth strategy and it should make the government and unions happy

 

* According to Holland, the future of Goldfields’ SA operations relies heavily on South Deep and the adjacent Kloof reserves.

This is becoming hard to swallow. Maybe South Deep is one of those visionary dreams, high on promise and low on delivery. By the time they have figured how to turn the rich promises to account, pigs would have learned to fly. Mind you, with the Mvhela stake in Goldfields and with Tokyo’s self-confessed connections with the witchdoctor fraternity, nothing is impossible. A bit of mumbo-jumbo and hey, flying pigs everywhere

 

* Harmony CEO Graham Briggs said, “We have positioned the company in such a way that we are able to deliver on our promise of paying a dividend in future. Our focus now remains on achieving our overall targets and delivering consistent returns,” he said. This after the March share placement, which followed on from an earlier share placement in December through which Harmony raised R979m.

You know a miner is in trouble when he says as little as possible about his operational performance whilst waxing lyrically about his ability to mine the stock market and then in a spell bounding display dazzles his audience with elaborate plans for the future.

 

*  It is termed a civil war but the squabble for control of Diamond Mining Giant, Rockwell Diamonds is nothing more than a childish scuffle between two parties with different opinions on how best to mine the Securities Exchange, with no concern for the small investor. 

At the end of the day, Rockwell Diamonds, under present market conditions, are probably worth as much as the glowing PowerPoint presentations of its magnificent prospects. The mammoth battle between the famous, some claiming to be famous, some inconsequential and the odd reject claiming fame, is rather absurd. As the combatants (Bristow, Bristow and Copeland  on one side and  Von Weilligh, Reynolds and Van Wyk on the other side) square up for the fight that will destroy what little value remains in the company, spare a thought for the employees and the small investor.

 

* Senzeni Zokwana, President of NUM said; “This marginalisation of women in general and black women in particular not only impacted negatively on the role of women in economic activity but further entrenched their exclusion in the different sectors of our economic landscape .This marginalisation inculcated cultural and gender stereotypes which victimised women particularly in the mining sector .In this regard entrenching the hegemony of male chauvinism in all layers of employment in the mining industry.

Now, many years on, and having had woman minister after woman minister of mines, one ending up as deputy president, and a woman CEO at the helm of Anglo, the mining industry are still miles of the target. Maybe the appointment of a new minister of mines and a minister to look after woman rights will bring fresh ideas. Maybe the Gauteng Premier inadvertently pointed the way forward when she pleaded for open minds on the decriminalisation of prostitution.

This triggered my imaginative mind and I thought of the great Senzeni Zokwana’s wise words; “black men believed also that women must remain in the rural areas or in townships while they dived and descended further into the curse of production in the dark bowels of the earth which have never been hospitable even to the male folk”. Now, if that is a not plea by leaders to make it attractive for men to have woman “on the job” with them, so to speak, whilst their wives are tending the fields, I do not know what it is. If sex is allowed, decriminalised underground in a manner of speaking, the industry will fill their quotas, we’ll clean up the streets by literally driving prostitution underground. It could even solve the skills problem. We’ll have a generation of people, conceived underground, who will unlike normal youngsters, take to mine work like ducks to water. The historic and traditional aversion to work, especially underground work, will cease to be a problem.

Death of an Industry

The bankruptcy of Pamodzi Gold is symptomatic of the dying South African Mining industry. With diamond mining reduced to the level of 19^th century prospecting, scratching for a livelihood and the mighty De Beers, once prosperous and in total control of their destiny and market, now technically insolvent. The gold mining industry in South Africa with technical problems and challenges, are unable to find investors to start new mines. The platinum mining industry is struggling to maintain profitability in a realistic market environment. It is littered inefficiency, with BEE deals and unsustainable “mining ventures”.

Using the Pamodzi example and a bit of forward thinking I see Sentula finding a partner who will invest money to buy the “assets” at a rock bottom price. They will inject some working capital come up with a plan promising a pot of gold and raise more cash from the market. Mining will recommence the company will make losses but promises of future profitability will suck in the gamblers and the price of the stock will increase. A few people, mainly  management, investors and the astute dealers will make money, probably lots of it, however many people; greedy people, poor people and stupid people will loose money. Some will loose a little and say nothing to save them the embarrassment; others who lost a lot will kill themselves. When the mines reopen the unions and workers will rejoice. The Minister will laud the businessmen for showing confidence in the South African economy and the BEE partners will toast everyone for their contribution in making the rebirth of the mines possible. Being increase time the workers will embark on a strike for more pay. During the subsequent strike, management, under pressure, to keep the marginal operations going and to protect the revived baby from harm, brings in contractors to minimise disruption to production. This results in anarchy and the killing of a contract labourer by the strikers, causing the mine to grind to a halt. After severe financial losses, operations restart but a comrade dies in an accident and the workers down tools in sympathy. By now, the projected margins are paper thin or non-existent. A week later inspectors of the DME arrive for a “Blitz”. They find a worker not wearing his Rescue Set and issue a section 54 order. As a result, operations are generally suspended for 24 hours or more. The Mine Manager, a caring man, because of the stress and the threatened permanent closure of the mine dies of a heart attack. The mine in this period produced gold. Unfortunately, it was produced at a loss and no value was generated. The people who made this miserable tale possible will walk away. They will blame the markets but nobody will bother to deal with the real issues. During this time, five people died in road accidents and thirty people were murdered in the areas in which the mines operate.

Who would invest in such a venture? It is better to invest your money in a decrepit sewage plant gushing raw sewage into the Vaal River. At least the technology to clean human excrement is readily available and no one will call you a killer of people.

It is almost inconceivable. We are witnessing the demise of the South African gold mining industry. One of the two pillars that supported the South African economy for more than a century are crumbling right before our eyes giving rise to the obvious question; Why now; with the gold price at its highest level in 20 years? How do we allow an industry to die when we still have some of the biggest gold resources known to man? How do we stand by and see thousands of people losing their jobs in a country with the third highest unemployment rate in the world?

The reason for this is simple. Economics and the market. The cost of mining gold and the resulting lack of profitability of the business do not justify its existence. We all know that, or do we? Many do not realise the simple principle that the lack of profitability and resultant lack of competitiveness can, and will kill an industry. Conversely, and here is the dangerous part, many “leaders” who are aware of the ills of the industry, do not speak about it because it is not politically expedient to do so. I read an article in the M&G recently about a mineworker who religiously monitors the platinum price on TV. To him the price determines his continued employment or otherwise. The concept of profitability does not enter in the equation.. The sad reality is that he is only one of 400 000 mineworkers who hold this belief, people who believe that the mine owners set the price of the commodity they produce. Four hundred thousand mine employees do not know that cost has a telling effect on operations and they do not understand the factors impacting on cost. They only understand the “Market of Economic Myths” espoused by their leaders.

The terminal illness afflicting the gold mining industry stems from the nature and depth of our deposits. As a result, gold mining in South Africa, is technically complex. That should not be a problem. It took us one hundred years to get from reef outcrop to 4000 metres, a magical achievement. In the last 20 years, despite the increasing rate of technological development, we have gone nowhere because there was no money to develop technology Developing technology requires skills, expertise, investment and passion. The South African mining industry was built by hard work; the blood, sweat and tears of true pioneers. It was built by people prepared to take big risks in order to reap a well earned reward. Most of these attributes are now nowhere to be found. Skills fled, because of falling productivity, margins are paper-thin. The prevailing mood around the industry are characterised by a reluctance to face the truth, avoidance of tough decisions and a false sense that somehow a miracle will happen and all will be well. Today the culture in South Africa has changed. We must avoid risk, keep hard work to a minimum and reserve competition  for the sports field. Rewarding risk is politically incorrect, everybody have rights, privileges cannot be earned and should you by chance have skills or knowledge that, in the opinion of some, has been acquired unfairly, all efforts must be focused on avoidance of the effective use of that skills and knowledge. We live in an environment where people demand to eat eggs without breaking the shells. As a result of this madness, we have not seen any major gold mining project since the early nineties. Gold mining companies in South Africa are marginal and struggling whilst global companies operating in competitive market environments contain costs, maintain margins and deliver good profits. Barrick, Newmont and Randgold Resources are doing well whilst past have fallen onto bad times. The former king of gold, Anglo American, sold its gold division, Goldfields are struggling and the South African number three, and Harmony is a marginal miner. For the rest…nothing. South African gold production in 2007 was one third of levels in 1978, but more significant is that the period 1993 to 2007 accounted for two thirds of the wipe, certainly a rapid shutdown. Before we can even think of fixing the industry, we must face and understand the brutal truths facing us:

• Mining has always been a risky and hazardous, so is motorcar racing and policing in South Africa. I am yet to see the SAPS strike every time a police officer is shot in the line of duty and many racing car drivers pay good money to put their lives at risk for the spectators. I can safely say it is more risky to just live in South Africa than working in a deep gold mine if you consider that the life expectancy of South Africans have dropped from 65 to 51 in the last fourteen years. For gold mining and mining to survive in South Africa, people are going to die.
• Labour cost globally, and in competitive countries unlike in South Africa, are driven by supply and demand. Here, with abundant labour at our disposal we restrict employment through counter-competitive measures such as legally entrenched labour practices and unrealistic minimum wage levels. Artificially elevated wage levels with high unemployment are preferred to a market related living wage with low unemployment. People are going to have work harder for less.
• Institutionalised laziness promoted by trade unions and political leaders in the name of ideology. The deliberate destruction of employment opportunities by declaring certain types of work as meaningless and undesirable, resulting in people resorting to crime rather than work. The power of the Unions will have to be broken.
• A development fund can be created to develop the future and to allow our children to benefit from our resources, a reserve similar to the Norwegian Oil Model.

The Unions use safety to score points with members. They prey on the ignorant by portraying themselves as fighters for the poor and oppressed. In the process they keep their membership high and prevent the entrance of competitive alternatives

The CEO of Goldfields stated recently that Kloof reduced fatalities by withdrawing from remnants. Is he telling us the strategy is to withdraw until nobody is left underground? No work, no workers and no risk. It sound like a pretty good growth strategy and it should make the government and unions happy. Nic Holland, the hero killing all those meaningless jobs. Whilst researching and writing this, Anglo Ashanti results was published and CEO Mark Cutifani, in a very blasé manner of handedly fashion, painted a bleak picture for the future of Anglo Ashanti’s South African operations.

To return the gold mining industry to a growing industry we need commitment to profitability. Profitability will encourage investment in green fields projects and R&D. However, no amount of money will prevent the loss of life in the quest to conquer depth and nature. Maybe we need to be reminded of the number of people who died during the construction of the Panama Canal, the Hoover Dam and the conquest of space through space travel. Today we want to forfeit less whilst earning more than our predecessors who died to get us to 4000 metres underground.