We cocked it up says Gordhan

March 7, 2011

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

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

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

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

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


Business the Zuma Way

February 28, 2011

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

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

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

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

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

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

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


The Zuma economic nightmare

February 21, 2011

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

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

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

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

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

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


Diamonds aren’t forever – not in SA

January 23, 2011

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

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

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

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

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

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

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

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


Looming Catastrophe?

November 8, 2010

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

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

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

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

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

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

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

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

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


Malema’s Mines; The end of the Road?

September 8, 2010

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.


The ANC, Australia and the Super miners

June 11, 2010

 

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?