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05/08/2011 (On-The-Air)
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5th August 2011
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Every Friday morning, SAfm’s AMLive’s radio anchor Gillian De Gouveia speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:

De Gouveia: Foreign investors are putting pressure on mining giant Anglo American to reduce its South African exposure. Why is that?

Creamer: That is as ironic as saying it is too South African. This is a company that was created in Johannesburg in 1917, it is South African, and people are saying that they should reduce their South African exposure.

This is bad at this point in time, because we need all the investment we can get from the likes of Anglo. These investors are saying that they are too heavily weighted where there is the nationalisation talk and there is lofty inflation.

That is the thing where we are shooting ourselves in the foot. Our level of mine cost inflation in South Africa is greater then in any other geographies where Anglo American is active. So, that then gives another economic reason why you should not go hammer and tongs into an investment. It is all about the fact that our wage inflation is high.

We are having situations where labour is demanding above CPI, above-inflation levels and this is not just once off, it goes on and on. We saw what happened with a decade of above inflation wage increases in Greece. We had that Greek tragedy and we can’t afford to have it here in South Africa. We have the triplet evils of poverty, inequality and unemployment, this would be a far more serious situation.

So, Anglo is sitting there with potential investments of R55-billion. In dollar terms, they have got $4,8-billon already approved for investment with another $3-billion waiting for approval. That is the sort of investment we need. If there is a hesitation on that it is going to hurt our economy.

De Gouveia: Now you mentioned nationalisation or rather the talk of nationalisation as being one of the factors why the foreign investors want Anglo to reduce its South African exposure. So it seems it is really having quite an impact on the industry.

Creamer: This debate is prolonged, it is hurting us and we need foreign investment. We don’t have enough savings here to really put the investment in that we need and people are now hesitating. We are not a country of investment choice.

De Gouveia: Except it would seem that we are for China.

Creamer: Yes, suddenly, Chinese investors are snapping up more South African mining assets, of course, at a much lower level and much smaller assets, but it looks like a starting point. We see the deal Gold One, a mining company that is active on the East Rand with Modder East, that deal is going through, as we speak, on the Australian Stock Exchange, but they have got their ownership of assets here where the Chinese will move their shareholdings from 18% to 75 %.

We have got Wing Hing, companies with that sort of name coming in, to buy a gold mine in Evander in Mpumalanga. Again, smaller scale but also talking of expansion. We see Jinchuan talking an interest in Metorex. It looks like that deal is through, Metorex likely to delist.

We have got Wesizwe Platinum where the Chinese CEO took over this week. It is not only just an investment but physically they are coming in as executives and taking over. So there we see on the gold and platinum front, also rare-earth mining down in the Western Cape, has a Chinese partner.

There is Hanlong next door in Namibia coming through. Many believe that perhaps Africa is on the brink of what Australia saw between 2007 and 2010, when there were massive Chinese investments. It looks like we are entering that. We can see that the Chinese are reportedly planning to invest $1-trillion in resources. South Africa is clearly coming into their radar screen, starting small.

We wish they had taken over the Aurora problem, but they backed off on that. I’m sure there will be some hiccups like we saw in Australia with that failed deal when Chinalco tried to take a big slice of Rio Tinto. The Chinese are here and they are talking consolidation and expansion already.

De Gouveia: I saw this week that South Korea has actually topped up on its gold reserves for the first time in very many years. Are they by any chance looking to invest in South Africa or do they have their focus more on China.

Creamer: Well, you see, central banks like in Korea are wanting to make sure that they have got more gold reserves, so that is good for the gold price as we see it moving and central banks are no longer net sellers, they are net buyers.

De Gouveia: Tell us a bit about the Industrial Development Corporation and their green-economy projects. That sounds quite interesting.

Creamer: The State-owned Industrial Development Corporation, South Africa’s IDC, has been associated with development of this economy going back decades to 1940. They were pioneering and those investments were very successful. We saw them pioneer the coal-to-liquids and they are still reaping those benefits, those dividends come through from Sasol.

They have got BHP Billiton investments coming through, Kumba Iron Ore, so all those old investments that they did in the old economy activities of mining and manufacturing are still bringing in the revenue stream for them. Now they are saying that they want to use that for a new pioneering effort this time into the ‘green’ economy.

They are looking to being a successful investor in the same way. So, for the next five years, 25% of whatever they invest in is going to go into the green economy. We see the R100-billion that they are looking at investing over five years, the biggest single slice of that R22-billion is for the green economy for wind energy, renewables and sun energy.

But, then there is also on the manufacturing side another R20-billion. They are hoping that that will also have a green link, because you need to have massive big components for what they are looking at.

They are quite ambitious both the DTI and the government looking at 23 gigawatts of renewable deployment. That is a lot and will require some very big components that will need to be manufactured. Hopefully it will create those jobs, they are looking at, 300 000 new jobs from the green economy by 2020 and possibly 80 000 in manufacturing.

De Gouveia: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

 

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