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 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?

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