South Africa has done just about everything possible to make running mining businesses very difficult, despite having wonderful mineral resources and many major capitalised mining enterprises.
The country is suffering from 20 years of wrongfully assuming that mining has bottomless pockets to pay for a myriad of obligations, in addition to its taxes.
“One can understand the political motive to keep raising the bar and pushing out the goal posts, because we have a major redistribution challenge in our country and major legacy issues that carry prejudice, but it hasn’t been fair and it’s certainly put off investment,” says mining thought leader Rick Menell, the Credit Suisse South Africa chairperson, who is also deputy chairperson of Gold Fields, a director of Sibanye Gold and a former president of the Chamber of Mines of South Africa.
The former Anglovaal Mining head, who has been involved in the building of 11 mines and who directs concerns with a combined market capitalisation of R80-billion and a combined employment complement of 80 000, calls – in a video interview with Creamer Media’s Mining Weekly – on government, business and labour to collaborate and converge, in the same way that they did in safety and health, which cut death and injury significantly.
“Now we have to get together, we have to try to apply our minds to find common purpose in the way we’ve done with safety and health, and that’s the challenge that we face,” says Menell.
South Africa needs mining for exports, jobs and support of all the secondary industries that rely on it for supply; the capital already sunk in resources needs to be turned to best account for the benefit of all South Africans.
“It’s a national imperative,” says Menell of the turnaround need, particularly under the economic stress that South Africa currently faces, and he is hopeful that the country is reaching a point where many in the public sector now understand that mining is one of South Africa’s greatest assets.
“We can’t do without it and we must get the most from it while we go down a different developmental path over time,” Menell urges.
A major factor in putting off investment is the uncertainty on the application of the regulations for transformation, along with the ambiguity and mixed signals sent out.
On the one hand, the support of capital is sought to build what is a very capital- intensive industry, but, on the other hand, the message is sent out to those who do invest that they are part of an unfair dispensation that has to pay back, and should be pleased and proud to do so.
Prospective new foreign investors with capital resent hearing that message, when, at the same time, they calculate that their returns stand to be eroded by administered costs that are out of the control of their chosen management, such as infrastructure costs, security costs, regulatory costs and transformation agenda costs.
These diminish mining returns significantly, over and above any taxes that are charged, and where these costs are heading in the future adds to the uncertainty.
Investors simply decide to go elsewhere and South Africa, from being a favoured mining destination, has become one of the least favoured, which is why the industry has declined.
To make matters worse, South Africans trained to be good managers and mining technologists are working in jurisdictions from Kazakhstan to Chile to the north of Canada.
“That’s a shame and it reflects an industry that has grown very rapidly elsewhere in the world and has remained static or has shrunk here,” says Menell, who is anxious to see the spreading of safety-type collaboration and convergence to all corners of South African mining so that a new era of investment, growth and shared value can be heralded.
He acknowledges labour’s historically unfair deal but advocates that labour’s remedy of a living wage and a decent job for 500 000 people should make way for a realistic solution of far fewer people being paid more for far greater productivity.
He also acknowledges management’s difficulty in building and maintaining mining businesses while being incrementally confronted with a series of challenges, and speaks of government coming to the industry with, in many cases, unrealistic views of its wealth-generating capacity and being guided in its regulatory regime by historical legacy and obligations to repay for the injustices of the past.
But working together in just one facet – safety and health – proved the huge success of collaboration and convergence to the point where a mining company like Sibanye Gold, which employs 40 000 underground in deep-level gold mines, achieves fatality statistics that approach North American benchmarks, which are heavily weighted towards safer and more skilled openpit mining.
But similar agreement on fundamental principles is proving elusive in areas such as productivity, where the laws are stacked against productivity-orientated relationships, and the unsustainable regulatory burden, which stems from a deep distrust of the private sector on the part of many of those making the regulations and failure on the part of the private sector to explain itself satisfactorily.
The resulting uncertainty leads to different perceptions of risk, which changes investment outcomes and results in companies venturing no further than brownfield investments to keep value ticking over, rather than building major new mines.
The transformation agendas required for ownership, employment and procurement continue to be excessively onerous, with Mining Charter achievements going unacknowledged by the regulator.