South Africa missing the point…and the cage

March 4, 2011

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

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

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

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

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

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

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

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

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

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

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

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

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


Business the Zuma Way

February 28, 2011

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

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

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

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

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

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

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


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?


Jacob Zuma’s Leaking Begging Bowl

August 26, 2010

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

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

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

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

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

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

In SA management are vilified and threatened.

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

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

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

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

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

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


The Great Resource Scam

July 6, 2010

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

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

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

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

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

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

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


The Great South African Mining Disaster

February 24, 2010

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

February 10, 2010

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.