Mining industry must lead the transformation charge

WE SEEM to have missed the opportunity to learn from the Marikana crisis as a wake-up call to address the structural problems in our society.

Dark clouds gathering over the mining industry reflect the depth of the looming crisis resulting from our failure to create a growing and inclusive economy. The response of the industry to the pressure on its uncompetitive “low skill, low wage” operating model, worsened considerably by Eskom’s inability to provide reliable power, could make or break the industry and take the rest of the economy with it.

Retrenchments might be seen as inevitable but the spillover effects could be disastrous. The despair of those caught up in poverty, unemployment and inequality is mounting and is likely to lead to robust resistance to any move to retrench the breadwinners of large extended families.

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There would be no winners in the death dance that could break out under such circumstances between the private sector, the trade union movement and the government. What is needed are tough conversations about how we can work together to address the root causes of our socioeconomic problems. Such conversations should lead to a new social compact on transformation that lays the framework for drawing up industry-by-industry action plans with short-, medium-and long-term goals and targets.

The mining industry is ripe for such discussions to guide the drastic action its leaders know they have to take to stay alive. The looming wage negotiations should be used as a platform for union and mine leaders as well as the government to discuss the transformation of the industry into a more sustainable and competitive one.

The first principle should be putting the preservation of the livelihoods and wellbeing of workers at the centre. The latter requires creative modelling of the size and shape of skills needed for a “high skill, high wage” competitive industry. These would need to be fine-tuned at company level, taking into account the characteristics of each resource sector. Matching the profile of the existing workforce with that of the desired size and shape would yield a picture of the extent of the restructuring needed.

Those not fitting the new model should be given new opportunities that would leave them no worse-off economically. There are pilot models that hold promise for linking the urban-rural nexus that many mineworkers have to negotiate as migrants. Viable agribusinesses, protective-clothing manufacturing and other services can be developed into sustainable businesses in the home areas of those affected.

There is much we can learn from Brazil about the value agribusiness can add to the economy. We have the opportunity to turn our vast underutilised land resources into a platform to develop a strong farming industry. High-value food crops, such as soya, sunflowers and nuts, as well as high nutrition-value vegetables, such as mushrooms, spinach and berries, could transform the rural and periurban landscape.

Fibre crops such as sisal, flax and hemp that generate significant jobs along the value chain, from cultivation to processing, are highly suitable for the Eastern Cape, KwaZulu-Natal and other areas.

Our natural, mineral and human resources could be recombined in ways that produce higher economic value and shared prosperity for all.

The government has a major role to play in the industry to partner private sector incubators/accelerators that nurture and grow entrepreneurs. Pooling funds from the Industrial Development Corporation, the Development Bank of Southern Africa, the Land Bank and the Jobs Fund, as well as collaboration with the departments of rural development and agriculture, could unlock huge value.

Collective effort is needed to transform poor provinces such as the Eastern Cape, KwaZulu-Natal, Limpopo and Mpumalanga into vibrant food baskets. This would significantly contribute to meeting our land-reform and job-creation goals.

The second principle would be to give those affected by silicosis, tuberculosis and HIV, estimated in a study in 2012 to be 25% of the workforce, the first shot at the opportunity to get out of harm’s way without losing their livelihoods. Linked to this must be agreement on the settlement of outstanding occupational diseases’ claims to free the industry of the high-liability risk profile that hangs over its attractiveness to investors.

A 2009 study indicated about 288,000 workers with silicosis had laid claims of R10bn. The industry’s approach of literally fighting poor, unskilled miners to the death as a way of avoiding the flood of claims is not only ethically wrong, it hurts the industry’s image. Investor sentiment is not neutral to this issue.

The third principle is to commit to investing in skills development to migrate the industry to a high-skills operating model and increase productivity and competitiveness. The focus must be on-the-job training for new entrants to make the transformation needed industry-wide.

Collaboration within the industry, between the industry and vocational colleges, with the government providing incentives and removing bureaucratic barriers to pools of funds, is essential to success.

Using the National Skills Fund, the Jobs Fund and black economic empowerment scorecard points for skills development could work magic in moving us up the skill and productivity ladder. We should learn from the decades-old successful German artisan training scheme, including the development of skilled master tradespeople, who are essential for carrying out highly specialised tasks that unlock productivity.

The mining industry is the appropriate spearhead for transforming our socioeconomic landscape. It is a significant contributor to gross domestic product and generates 1-million jobs, 500,000 directly. It contributes R78bn to the wage bill and R17bn to the tax base. It produces 94% of the feedstock for electricity generation, while it consumes 15% of our energy pool. It also has a historic mission to contribute to socioeconomic transformation. It was the foundation on which our economy was built and it pretty much shaped the nature of urbanisation and industrialisation.

It now has to rise to the challenge and opportunity to once more lead the charge. The odds may seem against it but that is precisely what history’s magic moments are made of — turning moments of crises into opportunities for greatness. The industry is sitting on a treasure trove of reserves and talented leadership that has proven its mettle in tough times. It is time to leverage all these strengths to tackle the challenges.

The workers, the nation and the world are waiting with bated breath for that magic moment to lift the dark clouds hanging over us. We have been here before. Yet, in 1994, we came together to surprise ourselves and the world. We can do it again and complete the journey of transformation.

Source: bdlive

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A new age of sustainability for South Africa’s mining industry

Contributing 19 percent to its GDP, mining is essential to the economic prospects of South Africa. Chris Griffith, CEO of Anglo American Platinum, tells World Finance how platinum can be extracted in a sustainable way.

Although mining is the backbone of South Africa’s economy, its success is not without consequence; and only by considering environmental and social wellbeing alongside financial performance can leading companies pave the way for sustainable growth. As the country’s mining industry enters into the modern age, it is essential that companies work responsibly and, in doing so, benefit all corners of society.

Looking to the example set by Anglo American Platinum, it’s clear that key industry names can bring a greater measure of sustainable prosperity by focusing on matters aside from profit-making potential. We spoke to Chris Griffith, CEO of Anglo American Platinum about the country’s mining industry and the importance of corporate social responsibility in shepherding it on to greater things.

What’s the current economic environment like in South Africa, and how is this affecting the mining industry?
The South African economy is diverse with a number of activities contributing to the economy. However, mining is still a significant contributor to the South African GDP. Here at Amplats, we develop socio-economic programmes such as agricultural programmes and contribute significantly to South African education and health by building schools, clinics, roads etc. We see ourselves as an integral part of the society.

We are also encouraged by the manner in which stakeholders such as unions, employees, the government, businesses, investors and NGOs collectively agree that we have to work together to develop sustainable solutions in the mining industry. Labour unrest affects all sectors of the economy especially small businesses within mining towns. We have seen how a labour strike in one sector can negatively affect other sectors that are stable.

[M]ining is still a significant contributor to the South African GDP

Environmental, social and governance risks are fundamental to our business, we see financial risk as an integral part of the business, the same way we see environmental, social and governance risks, and we continue to identify risks in all areas of our business to ensure a holistic approach to business sustainability. We are encouraged that the South African economy is steadily improving.

How has that affected Anglo American Platinum and how has the company adapted to it?
Despite the challenging environment of the industrial action, the effect of business improvement initiatives is evident across all our operations. Our revised marketing strategy aimed at improving margins and increasing future demand for platinum group metals (PGMs) continues to have a positive impact. We prioritised all existing asset-optimisation, supply chain programmes and initiatives identified in the 2012 Platinum Review. We continue with our value-driven strategy, cost-reduction programmes and improving operating efficiencies.

Our focus remains on the restructuring and repositioning of our portfolio. We have the high quality assets to enable us to do this, and a new capital optimisation programme to ensure we allocate our scarce capital to the highest potential assets and projects.

What mechanisms does Anglo American Platinum have in place with regard to the environment?
We aim to create and extract maximum value from our full basket of metals in a safe, profitable, competitive and sustainable way, for the benefit of all stakeholders. We do this responsibly by ensuring that resources such as water and energy are optimised and saved. For example, our total new-water consumption decreased from 33.4 million metres cubed in 2013 to 27.1 million metres cubed in 2014. We have total basal energy expenditure of 61.3 percent against a 2013 target of 58 percent. Our safety has improved too. We believe that zero harm is achievable.

What has the company done to ensure it is socially responsible towards South Africa?
Social deficit is a fundamental issue not only for Anglo American Platinum, but for all sectors of society and governments in the developing nations, and South Africa is far from unique. Moreover, South Africa is still repairing wounds suffered as a result of apartheid, and most of our host communities still lack fundamentals such as schools, roads, health facilities, transport infrastructure and so on. Mining is seen as a source of employment and income, and the local economy still needs to be uplifted to improve access to facilities and other opportunities.

Mining contributes significantly to the GDP of South Africa and other countries where we operate. In figures, mining creates 1.35 million jobs, accounts for about 19 percent of GDP and is a critical earner of foreign exchange – typically greater than 50 percent. The industry also accounts for 20 percent of private investment, 12 percent of total investment, attracts significant foreign savings of around ZAR 1.4trn ($121.4bn), has approximately ZAR 440bn ($38.1bn) in annual expenditure, spends ZAR 93.6bn ($8.1bn) on wages, ZAR 4bn ($346.9m) on skills development and ZAR 2bn ($173m) on community investment.

In 2014, Anglo American Platinum trained 49,763 employees, with 4.9 percent of total payroll spent on training and development. With regard to sustainability indicators; in healthcare 16,875 community members received primary healthcare by company funded mobile clinics. In education 79.4 percent of the company bursary fund for communities was awarded; and there was the completion and handover of a ZAR 40m ($3.47m) school for the local community in Bizana. We also invested in skills training, with 1,320 employees, community members and contractors benefitting from adult basic education and training programmes.

We believe our social contribution is notable and significant. However, our host communities and citizens require more and there is still a lot to be done, which is why, as a company, we have developed Alchemy. Alchemy – Anglo American Platinum’s ZAR 3.5bn ($303.8m) social development framework model for shared ownership – is a community based empowerment scheme. The sole aim of Alchemy is simply to develop and empower our host communities beyond the life of mine. We believe that this is the right thing to do and that overtime, communities will benefit immensely from this strategic initiative.

Anglo American Platinum was recognised as Best Performer in 2013 and 2014 by the Johannesburg Stock Exchange’s Socially Responsible Investment Index.

What main governance structures and processes has the company put in place and what impact are they having?
The board regards governance as fundamental to the success of the company’s business and is committed to principles of good governance in directing and managing the company to achieve its strategic objectives. The board conducts its business in accordance with the principle of King III, which includes the exercise of independent discipline, responsibility and transparency, and also the accountability of directors to all stakeholders setting out its role and responsibilities.

Platinum supply by region

Through proactive stakeholder engagement, not only do we integrate media views but, specifically, engage minority shareholders because we believe that they provide useful and important views and strategies to ensure that the business remains sustainable.

Stakeholders are engaged in groupings and on an individual basis. That is why we have developed an ESG communication strategy that will ensure that every stakeholder’s view is taken into consideration and addressed.

In short, structures such as a Safety and Sustainable Development Committee, Social Ethics and Transformation Committee, Audit and Risk Committee, Executive Committee and a Business Integrity Committee ensure that the whole system operates within local and international good governance frameworks.

What are Anglo American Platinum’s key policies with regard to sustainable development more generally?
Sustainability is not an isolated phenomenon but an integral part of the business. Everything we do is done through lenses of sustainability, and our policies are reviewed and tested against best international sustainability practices and standards. The anti-competitive policy is a practical example: our reputation as a business may be negatively affected if we do not identify employees and contractors who are exposed to antitrust risk, and ensure that they all receive appropriate training. As a company we subscribe to the principles of International Council on Mining and Metals, which means that we must mine responsibly. We ensure minimal environmental impact and eliminate other factors such as noise and dust.

What challenges do the company and wider industry face?
As the company develops so too do social needs. Land and housing is a challenge, and the two represent a high risk to employee health and safety. As a company, we build houses and ensure employees have a living-out allowance when choosing to live outside of identified accommodation. Some of the challenges have come as a result of undeveloped infrastructure, such as public roads, and while this is not entirely within our control, we see this as a challenge because our employees are exposed to unsafe roads. In response to these challenges we partner with local, provincial and national government in initiatives focused on improving infrastructure. We build roads, provide safe transport and provide accommodation.

What is Anglo American Platinum’s overall vision for the future in terms of the wider platinum industry?
Our vision is to be a global leader in PGMs, from resource to market, as we work towards a better future for all.

Source: World Finance


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Balancing productivity, profitability and headcount in mining

By Craig Hook

Productivity is a hot topic in South Africa with economists frequently advising that productivity has not grown as well as it should have in the last few years. One sector where productivity is always in the spotlight is the Mining industry.

According to the South African Reserve Bank (SARB), the nation’s productivity has grown on average between 1970 – 2013 by a mere 1.02% a year. It measured growth in productivity of 1.92% per annum between 2010 and 2013. Despite the recent economic slowdown, productivity in the country has grown by an average of 2.8% a year during the 18 years spanning 1995 – 2013.

For many organisations, the one simple solution to balance costs against profits, is to cut-off the dead wood. This begs the question, is it possible to attain sustainable profit beyond headcount reduction? And if so, how do organisations strike the balance between productivity and maximum profitability?

According to Chamber of Mines chief executive Bheki Sibiya, labour costs were escalating to higher levels while productivity was not improving.” If the salary is growing at 10%, productivity should also grow at 10%.” In an interview with the Sowetan, Sibiya –  who is unhappy that President Jacob Zuma has returned the Mineral and Petroleum Resources Development Act to parliament for further consultation –  warned that the mining industry was a long-term industry and needed to operate in an environment that did not change too much.

One should ask though, is this a fair statement in the South African environment which is constantly in flux? With challenges such as a striking workforce, and load shedding impacting on the sustainability and long term profitability of the mines, it is not hard to explain why productivity would also be severely impacted.

Sustaining profits is about identifying and managing the economic drivers of costs (reduce) and revenue (increase) during the business cycle to achieve a desired profitability target.  Reducing headcount (people resources) can lead to sustainable profit contribution if it is linked to an economic driver. For example, if an economic driver is truck productivity and you can implement an operational improvement to reduce cycle time which means less truck hours to mine the same quantities of ore then headcount can be reduced. If however, headcount reduction is done without changing the operational processes to improve productivity then quantities of ore mined and sold may drop and profits will be impacted.

Likewise, reducing support function headcount without a corresponding process change may increase risks to product quality, reserves replacement, safety, etc.  In the medium to long term it is productivity improvement not headcount reduction that sustains profits and allows you to react to upturns in commodity demand.

Source: BizNews




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Fatalities at South Africa’s mines drop

The South African mining industry has reported a significant drop in the number of fatalities and injuries on mines, although official numbers from the Department of Mineral Resources are only expected at the end of the month or early next month.

Zero harm is the target, with the industry’s mantra: “Every worker returning from work unharmed every day.” The unofficial number of fatalities in 2014 had been placed at a record low of 84, the industry reported last week. It was expected that the official safety achievements would be about 9% better than the 93 fatalities reported in 2013, despite the industry adding more than 100 000 workers in the past decade to well over 500 000 now.

Chamber of Mines’ safety and sustainable development acting head Dr Sizwe Phakathi told Mining Weekly Online that significant progress over the past few years. He said that 2014 was the seventh consecutive year of a drop in the number fatalities. In 2013, the industry made history when it reported less than 100 mining deaths for the first time. As at November 2014, 80 fatalities were officially reported.

In the past decade, fatalities have been cut, safety has been improved, exposure to dust and noise reduced, tuberculosis (TB) infection rates reduced, more effective TB/HIV infection control and treatment programmes have been implemented, and best practice to improve health and safety outcomes has been adopted, according to the Chamber of Mines.

Screen Shot 2015-01-29 at 8.58.03 AMFatalities on mines had been cut from 615 in 1993 to 270 in 2003, and to 93 in 2013, said David Msiza, the chairman of the Mine Health and Safety Council (MHSC) and the chief inspector of mines. “It was noted that 2014 achievements are an improvement from 2013 by 8%, but [are] 85% better than 1993.”

“The sector also saw a reduction of cases of noise induced hearing loss from more than 6 000 in 2003 to around 1 200 in 2013. TB rates in the gold sector have also halved.”

At the Mine Health and Safety Summit in November 2014, the council said it would launch a centre of excellence in April. It will lead industry efforts to promote innovation through research and training of mine workers. The centre will go beyond health and safety to align with the National Development Plan.

“We need to reclaim our space as a country that leads in mining innovation and excellence,” Mike Teke, president of the Chamber of Mines, said at the time.

The centre is expected to undertake research; build capacity; facilitate research outcomes in areas such as rock engineering, human factors and occupational health and hygiene; and provide health and safety related training at all levels.

Relationships with major international research centres and programmes will be built.

The numbers

Coal mines recorded a 93% safety improvement between 1993 and 2013, from 90 to seven fatalities, while the gold sector registered a 91% improvement from 436 fatalities in 1993 to 37 in 2013.

The platinum sector had 29 fatalities in 1993 and 28 in 2013; this was down from a peak of 64 fatalities in 2004.Overall, fatality rates improved 72% to 0.09 in 2013 from 0.32 in 2003.

Australia, Canada and the US recorded a combined improvement rate of 29% to a rate of 0.05 in 2013 from 0.07 in 2003, Mining Weekly Online reported.

Injuries in South Africa fell from 8 515 in 1993 to 3 126 in 2013. In gold, injuries fell from 7 368 in 1993 to 1 252 in 2013; in coal, the drop was from 279 to 263 over the 20 years.

In platinum, injuries went from 1 344 to 395.In the 11 months to November 2014, injuries decreased 25% from 2 799 in the comparative period the year before to 2 095.

Harmony Gold had its first fatality-free quarter in the final quarter of 2014, while Lonmin had a calendar year without any deaths.


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SA looks at pension for low-income earners

The Department of Labour was looking into the introduction of a national retirement mechanism for low-income earners in South Africa, Compensation Fund Commissioner Shadrack Mkhonto told a departmental workshop in Irene, in Tshwane on 16 January.

A discussion paper would soon be tabled at the National Economic Development and Labour Council (Nedlac), once it had been approved by the Cabinet. The department’s two-day mid-term review workshop was held to evaluate its achievements against targets set, as well as its Strategic Plan and Annual Performance Plan in the financial year under review. It also looked at crafting a future strategic direction. The workshop was attended by Labour Minister Mildred Oliphant; Deputy Minister Nkosi Phathekile Holomisa; and Director-General Thobile Lamati, as well as heads of branches and various public entities such as the Unemployment Insurance Fund; the Compensation Fund; Productivity SA; the Commission for Conciliation Mediation and Arbitration, the Sheltered Employment Factories and Nedlac. During its investigation of the retirement mechanism, the department will turn to the International Labour Organization for information on international best practice, according to spokesperson Mokgadi Pela.

The initiative is part of the government’s efforts to reform South Africa’s broader social security system. Another process under consideration is the inclusion of government employees in the Unemployment Insurance Fund and the Compensation for Occupational Injuries and Diseases Act benefits.The reform of social security policies is to be aligned with labour market initiatives, Pela says.

Statistics South Africa’s most recent General Household Survey, released on 18 June 2014, reported that the number of people receiving a social grant from the state grew from 12.7% in 2003 to 30.2% in 2013, while the number of households receiving at least one social grant increased from 29.9% to 45.5% over the same period. Meanwhile, the September 2014 Quarterly Employment Statistics report, released by Statistics South Africa on 11 December 2014, reported that total formal non- agricultural employment decreased by 129 000 jobs from 8.67 million in June 2014 to 8.54 million in September.

A total of 132 000 jobs were lost in the government sector, mainly at the Independent Electoral Commission, which shed a large number of jobs following the general elections in May 2014. During the September quarter, 9 000 jobs were lost in the manufacturing industry, while 3 000 jobs were lost in both the construction and transport industries.

However, quarter-on-quarter increases were reported by the mining (8 000), finance (6 000) and trade (4 000) industries. Year-on-year, an additional 83 000 formal jobs were created between September 2013 and September 2014, an annual increase of 1%.

The largest increase was recorded by the community services industry (73 000), followed by the trade and finance industries, with 21 000 and 20 000 jobs, respectively. Gross earnings paid to employees increased by R18.9-billion (+4,6%) from R409-billion in June 2014 to R428-billion in September 2014. The mining industry recorded the largest quarterly percentage increase of 20.9% in earnings, signalling the return of mine workers after the lengthy strike in the platinum belt.


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Mining sector poised for a bumpy 2015 as legislative uncertainty, other challenges linger

South Africa’s long-embattled mining sector has slumped into the new year a little worse for wear, having been ravaged by an array of challenges during 2014, not least of which were the longest industrial action on record, a prolonged period of legislative uncertainty and downward spiralling commodity prices.

The toll of these challenges, particularly the five-month-long platinum-sector strike, is evident in the fact that mining output contracted substantially last year, contracting by 24.7% and 9.4% during the first and second quarters respectively. The output decline resulted in a noticeable reduction in the two quarters’ gross domestic product, which fell by 1.6% and 0.5% respectively.

Given the particularly tough period the sector has just suffered through, having faced an array of challenges during the course of 2014 including the longest industrial action on record, a prolonged period of legislative uncertainty and downward spiralling commodity prices, as 2015 dawns, a burning question on every stakeholder’s mind is how will South Africa’s troubled mining sector fare this year?

The general consensus among South African mining experts is that the sector is in for another bumpy ride as a range of challenges have aligned to create what has been described as a ‘perfect storm’ through which local mining companies will have to persevere during the course of 2015.

At the heart of this perfect storm is the lack of mineral policy certainty, an issue that has been troubling South Africa’s mining sector since 2013.

While the Minerals and Petroleum Resources Development Act (MPRDA) Amendment Bill was, in fact, passed by Parliament in March last year it has yet to be signed by President Jacob Zuma and enacted into law.

There is very little consensus as to why the promulgation of the Bill is being delayed at this stage, Chamber of Mines (CoM) president Mike Teke says.

Although the CoM has attempted to engage with the Department of Mineral Resources and the President on the issue, he states that they have, up to now, received little response.

“We need to expedite the engagement with government over their concerns with the MPRDA Bill. We, as the industry, are saying ‘please make a decision’ and give us policy certainty,” insists Teke.

However, it is anticipated that the Bill could be referred back to Parliament this year so that clauses relating to the oil and gas sector, which have caused much contention in the industry, can be separated out of the MPRDA.

It should be noted, however, that even if the Bill is promulgated in its present form within the next few weeks or months, because it is essentially enabling legislation, the rules and regulations to support the new Act have yet to be formulated.

“Even if the Bill does get promulgated in its current form, until the rules and regulations are determined, there will be continued uncertainty over mineral policy,” states Nedbank investment banker for mining and metals Paul Miller.

Miller adds that the delay in promulgating the legislation is creating not only an uncertain operating environment for local producers but is also sending the wrong signals to international shareholders and potential investors.

The other significant factor fuelling this perfect storm is the sector’s poor levels of productivity and issues of instability caused by tensions between miningmanagement and labour.

Teke elaborates that the platinum strike, which was led by the Association of Mineworkers and Construction Union (AMCU) in early 2014, shook the industry to its core and left the historically-strained relationship in an even more fragile state.

“We fully appreciate and accept that we need to provide decent wages, address historical legacies and look after our employees. But, at the same time, we should all be careful not to kill the goose that lays the golden egg,” says Teke.

Webber Wentzel mining regulatory head Peter Leon notes that wage increases in the mining sector have averaged 12.3% for the past five years, which is almost double the current rate of inflation.

“However, such wage increases have not been matched by a concomitant rise in labour productivity,” adds Leon.

To increase productivity in the sector, Teke insists that all stakeholders need to start engaging and creating an environment in which the various needs and obligations are understood and realised. He adds that some progress is being made in this regard, particularly as AMCU, the youngest and most militant of the mining unions, has been actively engaging in various stakeholder discussions in recent months.

“We are encouraged by the increased engagement between stakeholders, particularly AMCU, and are hopeful that stability in terms of labour can be achieved this year,” says Teke.

However, his hopeful prediction may be premature in light of the upcoming gold-sector wage negotiations, due to start in May.

Deloitte & Touche industry leader for mining Tony Zoghby believes that, while both labour and management will have learnt lessons from the platinum strike, it is likely that the industry will go through another tense period.

“Having lost ground to AMCU in the platinum sector, it is possible that the National Union of Mineworkers (NUM), which is still the dominant union in the gold sector, will use the negotiations as a platform to try to win back some of its credibility and support,” says Zoghby.

Should gold mining companies be subjected to a lengthy strike, he warns, the sector may not have the staying power of the platinum sector and would certainly struggle for survival.

“Given the soft gold price and rising operating costs, gold mining companies are really struggling at the moment and, unless there has been some very good planning in the sense of having adequate stockpiles, a long strike will present a massive challenge,” states Zoghby.

However, he adds that, while the NUM may threaten long-protracted strike action, it is likely that a settlement will be reached much quicker than was the case in the platinum sector, with all stakeholders being cognisant of the implications and ripple-effects of protracted industrial action.

In the midst of regulatory uncertainty and labour activism is the ever-present reality that South Africa’s mining sector is in a very mature stage of development. As mines become ever deeper, mining companies not only have to contend with declining ore grades but also rising operating costs and increasingly dangerous working conditions. While this is an inevitable progression, the difficult operating conditions and rising costs will certainly be exacerbated by South Africa’s critical energy shortage, which will not be alleviated in the next year.

As a result, Zoghby states that mining companies will have to continue focusing attention on cost-cutting initiatives both at an operational and corporate level.

“However, because all of the easy costs, or the layer of fat, have already been stripped out, the process of further cost cutting will now be a much more difficult and painful affair,” notes Zoghby.

While such challenges have become characteristic of the South African operating environment and local mining companies have learnt to be adaptable and proactive when dealing with such problems in order to survive in such an environment, there is a much broader and inherently inhibiting challenge that will prove the driving force of this perfect storm in 2015.

“The South African mining sector’s current challenges are overlaid, firstly, by very soft commodity prices and, secondly, by a difficult global market,” elaborates Nedbank Capital head of resources finance Peter van Kerckhoven.

Commodity prices have been substantially lower than anyone could have expected and are proving a bane on the already embattled local producers, continues Van Kerckhoven.

The consensus amongst financial experts and analysts is that commodity prices have hit, or are nearing, the bottom of the cycle. However, as this is the downward trend of a ‘supercycle’ of commodity prices, it is likely that the industry will experience a sustained period of low prices during 2015.

“The difficulty in this regard is that many South African executive teams have become very good at managing operations in times of elevated commodity prices but find it challenging to adapt operations during depressed cycles,” says Zoghby.

Van Kerckhoven adds that a further deterioration in commodity prices, particularly in terms of bulk commodities, might prove the final nail in the coffin for many South African junior producers.

Coupled with that challenge is the ever- present reality that investors have lost confidence in the mining sector with investment in mining at an all-time low, globally.

“Equity markets have largely closed up and, while there are pools of capital available, particularly in the form of debt financing, it’s a case of South Africa Inc versus the world in attracting that capital. And given its presently uncertain and challenging operating environmentSouth Africa is not the most attractive investment destination,” says Van Kerckhoven.

While South Africa’s mining industry may be beset by a myriad of challenges and is expected to experience a difficult year, Miller insists that one should bear in mind that the country still has an attractive resources base and may well have many payable deposits, particularly in terms of base metals, still to be discovered and exploited.

“There is a long life left in our industry if we want it. But there is a lot more that we can do as South Africa Inc to grow our mining industry,” concludes Miller.

Source: Mining Weekly

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South Africa industry group warns energy minister of reduced mine output

JOHANNESBURG (Reuters) – A South African industry group has told the country’s energy minister that further power constraints would lead to reduced mine output and plant closures, according to minutes from the meeting seen by Reuters.

The meeting, which took place on Tuesday, was between Energy Minister Tina Joemat-Pettersson and members of the Energy Intensive User Group (EIUG), an industry body that includes major mining companies operating in South Africa such as AngloGold Ashanti and BHP Billiton.

The ministry noted the meeting in a statement on Tuesday but provided few details about it.

South Africa is currently facing its worst power crisis since 2008, when rolling power outages cost the mining industry in the world’s top platinum producer billions of dollars in lost output and brought misery to retailers and households.

South Africa‘s state-run power utility Eskom [ESCJ.UL] last Friday implemented rolling blackouts in some parts of the country, the first such power cuts this year, and has warned that more are certain as demand threatens to outstrip its capacity to keep the lights on.

Minutes from Tuesday’s meeting obtained by Reuters show the minister indicated that she was exploring the idea of getting the private sector to reboot power plants mothballed in the past, such as those owned by local municipalities.

On the subject of Eskom‘s precarious financial situation, she was quoted as saying that the utility was “burning cash faster than it is making it” and that the company needed to rein in costs.

Even with a 20 billion rand ($1.7 billion) cash injection from the government and permission to raise electricity tariffs, Eskom has said it needs more funds to ensure liquidity.

The minister also said the high cost of diesel to run Eskom‘s open cycle gas turbines was unsustainable.

An Eskom spokesman said last week that if the cash-strapped utility was unable to purchase diesel supplies, it would lose 5 percent of its capacity and blackouts would then occur on an almost daily basis until the end of March.

Controlled power cuts are used to prevent a total collapse of the grid.

Source: Reuters Africa


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