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.


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.


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?


The Death of a Minister

February 8, 2010

With eminent miners, Nic Holland’s and Nicky Oppenheimer’s, expression of faith and confidence in mining life in South Africa, according to Susan Shabangu, potential investors and mine owners alike can be forgiven for thinking everything was hunky-dory.

Their belief, that the nonsensical and poorly written discussion document released by the ANC Kindergarten is nothing but a hallucination and a bag of typical Malema hot air, is totally understandable considering the utterances by Jeremy Cronin and Gwede Mantashe on Nationalisation. But then, what do Holland and Oppenheimer know, spending the bulk of their time plotting their divestment from South Africa they are bound to be slightly out of touch with reality.  

Shabangu, in the mean time, having assured investors that mines will only be nationalised over her dead body, must have seen her life flashing by for a moment on Sunday when Chairperson and stop-gap Ex-Deputy President, Baleke Mbete, informed ANC heavyweights that ministers and cadres should familiarise themselves with the content of the much-vaunted aforementioned position paper. As for the hapless white-Messiah, Jeremy Cronin, one can only wonder what the future holds.

It seems Shabangu’s past contributions – notably the shoot-to-kill policy, subsequently hi-jacked in spectacular style by Fikile Mbalula; mentor and friend of Malema – counts for nothing as she fights for her life, so to speak. Jeremy Cronin, unlike Kortbroek van Schalkwyk and Barbara Hogan, despite his many years of experience in struggle politics, still do not know his place in the pecking order.

From Mbete’s stance it is patently clear that the views of Malema prevails with the ANC heavies and the Long Schlong himself, who briefly popped out of bed to put to make it clear which hole he is drilling in a manner of speaking. It seems Malema, the Long Schlong’s love child and favourite son – according to that much respected genealogist, Mr. Ben Trovato, wields a bit more power with the elders than the inconsistent Shabangu and the dapper but naïve Cronin.

My advise to Oppenheimer and Holland; “Hedge your bets and, like Cynthia Carroll and so many others, go to Luthuli House and join the queue at Malema’s door. Perhaps the rotund little boy can find it in his heart to arrange a deal with the new movers and shakers in the Mining Industry, Mandela and Zuma Inc.


Nationalisation – A Matter of Life and Death

February 4, 2010

The nationalisation debate or non-debate, depending on your perspective, could become a matter of life and death it seems. Given the quarters in which the discussion rages at it fiercest, where stabbings and burnings are at the order of the day, some statements by major protagonists could  turn out rather prophetic.

I am referring of course to the spat between the Minister of Mines and the ANC kindergarten. Malema started this dice to death when he stated that nationalization of mines will happen in his lifetime, which means – given the average life expectancy of the South African male being down to 47 – the window for this envisaged nationalization of mines, particularly gold and platinum mines – Malema’s stated target – cannot be too far away. Those having false hopes that the window may be enlarged by Malema’s longevity, think again – the tsotsi’s obesity problem is likely to make the window even smaller and he,  realizing the risk,  are upping the ante on this matter.

Susan Shabangu, in reply to the Tsotsi, and in a desperate attempt to calm the nerves, told mining investors – already suffering jitters when they hear the words South Africa  mining and investment spoken in the same sentence – that nationalization will only happen over her dead body.

Shabangu’s statement are contrary to her position only a few months ago when she made her “State of the Industry” address, stating emphatically that mine owners will wish her dead for various reasons. Ironically, that same mine owners are now praying that she outlasts Julius.

However, those naively pinning their hopes on Shabangu, dare I remind you that the same Shabangu has made a number of U-turns on this subject? The statement by the DMR that state ownership of strategic mineral mines is just another form of nationalisation – nationalisation by stealth so to speak.

Anyone trying to get clarity from Gwede will be left justifiably confused, as Chris Barron found when he interviewed the “Jumping Jack” last week.

As for the leading fornicator, he is too busy building a nation to care about insignificant and boring little debates amongst the minnows. That is the stuff that his “Loottenants” deal with.

Anglo America, hedging their bets will not be derailed by the confusion and Cynthia Caroll, whilst promising a bail out for ESKOM and a great partnership in “strategic” coalmines, are reportedly consuming copious amounts of Chivas with the Tsotsi, discussing compensation for nationalised mines – anything rather than getting into bed with Mick Davis.


Malema mining for Gold

December 8, 2009

Julius Malema told COSAS students that the ANCYL objective with nationalization of mines is to put wealth and resources in the hands of the people. He continued to say that they would start with gold and platinum mines because they are the richest. He also acknowledged that he was not educated and did not always understand the intricacies of business and economics.

The Clown Prince, with this profound statement shows his immense grasp for business. The bankruptcy of Pamodzi the closing of DRD and the divestment of Anglo from Anglo Ashanti, coupled with the sharp decline in South African gold production, with South Africa going from the number one global gold producer to number four, over the last few years, are not indicative of the veritable money machine Malema is talking about. Maybe Julius in his zest to bring the nationalisation issue to a speedy conclusion, and flooded with demands for his time and hate-speech engagements and burdened with the task of protecting the president against counter-revolutionaries, overlooked some of the issues besetting the mining industry, particularly the gold mining industry.  

As for platinum mines, outside the big four, there is a multitude of small platinum miners, unsustainable at realistic metal prices with a huge requirement for funding to bring them into production or to keep them alive.

What is interesting is that many of the small unsustainable and technically bankrupt mines have a big BEE component. These mines have become bottomless pits, swallowing vast amounts of money whilst delivering very little other than promises. The only return on investment in these companies are speculative profits derived fro share trading and the chances of making money ranks with gambling at any of the many casinos that amply dots the surface of the South African landscape. Hiding money under a mattress has a better chance of yielding a dividend than many of these mines.

Given the above,  I believe Mal(l)ema(n) is being put up to this by his BEE friends in the ANC.

Nationalisation of gold mines and some small, unprofitable and unsustainable Platinum mines will mean compensation for the owners. The state (taxpayer) will sit with a bunch of unprofitable mines whilst the compensated former owners and their agent, Malema who is having his palm greased, laughs all the way to the bank

Ever wondered why Zuma’s son and Mandela’s grandson would want to buy tired, exhausted and bankrupt gold mines?