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In 2016, let’s make mining and stop trying to break mining

11th December 2015

By: Martin Creamer

Creamer Media Editor

  

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The South African mining industry’s delicate make-or-break phase was outlined earlier this year by some of the sector’s leading lights, who made it clear that only a give-and-gain approach from all sides will prevent the struggling industry from losing colossal value.

It was said that mining stakeholder convergence was essential to get this once-strong industry advancing again.

The number-one priority for South Africa and government in a list of eight priorities laid down by the investment banking division of Goldman Sachs and spelt out by its sub-Saharan MD, Colin Coleman, is the stabilisation of mining, owing to mining’s key position as an industry feeding the rest of the South African economy.

Credit Suisse South Africa chairperson Rick Menell has been vociferous about the need for government, business and labour to rebuild the entire mining industry together in the same way as they have managed to rebuild the safety and health aspect of it so effectively.

There is no doubt that government has adopted a harsh approach to the industry, which has resulted in it shrinking to a size smaller than it was in 1994, losing valuable human resources who have been lured away by other growing mining jurisdictions and ending up in the lower half of the Fraser Institute rankings below countries like the Democratic Republic of Congo.

Government is now learning the hard way that mining does not have those endless financial means to meet an ever-growing number of obligations, in addition to its taxes, but that it suffered an aggregated loss of R13-billion in the six months to June 30 and stands to lose considerably more in the current six months to December 31.

Now is the time to show collective patriotism in finding a common purpose that will benefit all those in the industry and all those in the South African economy.

Without a common purpose, the asset value of our mining industry will decline so significantly that any way back will be many times harder to achieve – ask Zambia and Tanzania.

Mining has to be seen in the wider context of its contribution to the South African economy as a whole and the elusive gears and wheels have to be found collectively to reverse its decline and begin the clawback to profitability.

Mining remains a very capital-intensive industry and South African savings are insufficient to fund its growth.

Foreign capital has to be attracted to fund the growth that is needed and it will not be attracted if returns stand to be eroded by administered costs, regulatory costs and transformation agenda costs.

South Africa can do more in mining, which the world cannot do without, and has the benefit of having capitalised companies at the ready to play their role within an enabling environment.

As Chamber of Mines CEO Roger Baxter has pointed out, mining now represents less than 10% of the market capitalisation of the JSE, down from 30% in the past and mining has been the worst-performing sector of the economy from being the best performer in the past.

The fall from grace must be halted and then reversed. If it is not, the consequences may turn out to be too ghastly to contemplate.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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