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?

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Transformed to Death

November 4, 2009

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.


The Chinaman and the Sheep

August 13, 2009

A woolly, feel good story of hope and success. 

In view of a suggestion, made by Clem Sunter, that all South Africans, especially those complaining about the ills of our society, should focus more on finding the good news stories and boldly broadcast these astonishing triumphs, of our rainbow nation, to the world out there. I hope Mr. Sunter does not expect us to put our heads up our collective bums, and tell everyone, prepared to listen, the brown stuff we see, is top quality Belgium chocolate, made in South Africa, by workers who just obtained an increase, double the inflation rate, after threatening to cut off the chocolate supply to the 2010 world cup. 

I was so inspired I immediately went out to look for good-news stories to celebrate and there, amongst the flood of toxic economic data, the dropping manufacturing output, falling mining output, transformation to – in grand Zimbabwean style – a net food importer and rising unemployment, I read about the magnificent performance by the woolgrowers of South Africa. In the middle of South Africa’s unique, and much fêted strike season, the woolgrowers apparently produced and sold the highest ever volume of wool. A remarkable feat indeed, in times of global economic doom and despair. Being naturally analytical by nature, I started digging, hoping to find the reason for their story of glory and triumph. It seems, the biggest buyer of South African wool at this year’s sale, was the Chinese. Very good news, I thought, our wool goes to China and we end up clothing all those little Chinese children. 

To my surprise, as I researched my good-news story, I found, to my shock and horror, Chinese textile workers will turn the South African wool into clothe, which they will sell to us, at prices lower, despite import tariffs, than our textile workers can produce it at. I also discovered that the textile workers are demanding, like all other unions, an increase well in excess of the current inflation rate, which will result in an inevitable increase in local production cost. Does not make sense, does it? My good-news story approaches the farcical when, to my astonishment, I realise that the textile industry is earmarked for a “Presidential bail-out” and the current Minister of Economic Development, Ebrahim Patel, is a past General Secretary of the trade union (SACTWU). I suppose, expecting the workers to understand the consequences, is asking a bit much, after all, the President and the Minister in charge of economic development, seem to have things under control. It is ironic that one of our stated economic developmental objectives is the promotion of downstream value-adding product enhancement. Well, so much for my good news story, destroyed by an industry, which has been on the road to self-destruction for years. 

Not surprisingly, the “good news” story turns out to be a common occurrence. South Africa, having the best Chrome Ore resources in the world by far, developed and grew from a small base in 1980 to the worlds primary ferrochrome producer in 2004. However, since 2004, ferrochrome production stagnated and ore producers started exporting chrome ore to China who, with ore from South Africa, Kazakhstan and India, are now producing Ferrochrome cheaper than we do. The premium resulting from the additional cost of shipping high volume, low-grade chrome ore, instead of lower volumes ferrochrome, are negated by the lower cost of labour and power in China. The creeping rot will continue to accelerate, at an alarming pace because of unsustainable and unrealistic increases in the primary input costs, power and labour, over the next few years. Somehow, like confused alchemists, we turn gold into dirt by allowing the rape of the best Chrome resource in the world. 

It is “success” stories, like these, that drive investors to Brazil, China, India and Indonesia. Volkswagen recently, having reduced output from South African factories, has opened a factory in India. BHP Billiton, a company with South African roots, reduced aluminum output from their Richards Bay plant and moved production to Brazil. The same BHP Billiton’s planned capital expenditure in South Africa is limited to USD 1.3 million, a mere 10% of their total planned capital expenditure.

Sorry Clem, maybe you can find good news in this lot…I tried. Just do not blame me for not suggesting a solution. It is just too obvious. Even Malema, Vavi, The President and Patel should spot it.


Eskom and Fani (the Funny) Zulu

June 24, 2009

The Eskom disaster is just not going to die and quite rightly so. The contrasting statements made by Barbara Hogan and Dipuo Peters highlights a disaster of gargantuan proportion and allowing liars, sorry, “Spin Doctors”, like Funny Fani Zulu and his incompetent boss, to create perceptions aimed at minimizing the devastating effect on our economy, is nothing less than criminal. Unfortunately, government representatives, having been the main contributor to our perilous situation, and Eskom are diverting attention away from the real issues once again, minimising the extent of the crisis and diverting attention from the real issues. They are, very successfully aiming their message, modeled for the consumption of the uninformed masses with deadly effect. Millions of South Africans believe them, many of them are payment defaulters, not necessarily poor, and beneficiaries of illegal connections, who do not, for the most part, understand or care about the impact of an imploding power utility.

Pointing out the disaster facing the South African consumer and economy inevitably results in the popular, head-in-sand retort;”Pre-94 Power generation was for the privileged part of the population, it now caters for a wider population”. This argument is only partly true. Domestic use of power constitutes only 15% of the utilities’ capacity; the balance is utilized by industry for worthless job creating pursuits such as manufacturing, mining, beneficiation and many others. Imagine the small-minded self-interest of money-grabbing capitalists wanting to light up hotels so that the privileged can stay in luxury, forcing the poor and perpetually disadvantaged to do meaningless jobs like cleaning rooms and waiting on tables.

Eskom committed four deadly sins that brought us to the precipice. The first sin was committed when, in 1999 the esteemed, and still valued despite his spectacular failures in Trade and Industry and Transport , Jeff Radebe and the incompetent Nosizwa-Ngakula, was told that  infrastructural capacity investment in Eskom is critical to sustainability. Their reaction, in typical African visionary fashion was; “Live for today, tomorrow will look after itself”. Some will justify the inaction, saying they must be forgiven for thinking the request to expand the utility was an evil plot by white counter-revolutionaries trying to force the new masters into making costly mistakes. Anyway, it is not very African to make quick decisions. Because of the postponement of expansion projects Eskom could now spend their money and efforts on other things such as the accumulation of bad debt, compliments of the payment defaulters.

Management could now embark on the second deadly. They could focus their full attention on the sacred crusade against the sins of the past. Their single-minded commitment to transformation left the organization purged of white management- and technical skills. In a noble campaign to rid Eskom of the injustices of the past and to make it an AA benchmark, huge resources, which could’ve been used to build infrastructure, was paid out in voluntary separation packages to highly skilled and experienced people. The waste of money was exacerbated on fast tracking of under-qualified, inexperienced and incompetent replacements. The successful implementation of corrective action was probably a bonus criteria and management rewarded themselves handsomely for their efforts. Ironically, they re-hired, often through “vile”  labour brokers, many of the skilled people purged from the company, at an exorbitant price. These former employees, unpatriotic swine,  are like mercenaries, only in it for a quick return with no long-term commitment.

The third sin committed by the newly liberated Eskom management was their mind-boggling inventory management strategy. I can only imagine it being instigated by some recently appointed “black diamond”, who successfully and with a “Cum” completed a “six month” on-line Executive Development Progamme for Inventory Managers. Our “whiz-kid” was probably so taken by JIT-management, he missed the chapter on strategic inventory and his excuse for his oversight is the fact that he comes from a part of the country where it does not rain too much. The Eskom executive team was so taken with the effect of inventory reduction on the balance sheet and their bonuses, the strategy was accepted with much acclaim.

Continuing their journey to self-destruction Eskom sinned in their dogged commitment to BBBEE initiatives at any cost. By awarding transport contracts to unsustainable companies, one-man operations with a “bakkie” and a busted scrap-yard truck and often-fictitious companies their actions are analogous to risking the oxygen flow to the heart of our economy. On top of the transport fiasco, coal supply contracts with BEE compliant coal miners were concluded on terms weighed in favour of the supplier. The tried and trusted cost plus contracts flew out the window and soon Eskom was faced by rising coal prices based on buoyant coal demand.

It was hoped that, with the appointment of Godsell as Maroga’s mentor and Ras Myburgh as his coach, we would see the end of stupidity that have beset ESKOM. One would’ve hoped to see the end of statements by Bulwica Sonjica advising us on electricity efficient sleeping habits. We should be forgiven for hoping that the return of competence and skill would be a main priority. Alas, the more things change the more they stay the same.

The inane statements continue. Should Maroga continue to tell us about good of power supply and the absence of load shedding I think I will hang myself on the roof rafters. We are not stupid. With the number of Ferrochrome furnaces shut down because of the economic crisis, we should have enough spare power capacity to feed a city the size of Johannesburg.  Maroga should be drawn and quartered every time he tries to shift the blame or put the “guilt monkey” on our shoulders, we did not cause this mess. As for the Funny Fani asking for understanding, I’m sorry no can do, it is unfair to put the bulk of the financial load on household consumers using 12% of your output.