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On-The-Air (26/02/2016)

26th February 2016

By: Martin Creamer

Creamer Media Editor

  

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Every Friday morning, SAfm’s AMLive’s radio anchor Sakina Kamwendo speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly.  Reported here is this Friday’s At the Coalface transcript:

Kamwendo: The local rollout of platinum fuel cell technology is being fast-tracked with full government backing.

Creamer: The Department of Trade and Industry (DTI) is giving full financial backing to the feasibility study, which is already underway to make sure that we can manufature parts for fuel cells, that we can make them locally competitively, because one of the things of the fuel cells is the price. You have got to come down the cost curve with fuel cells in order to make them competitive.

The big benefit is that fuel cells, of course, are devices that generate electricity cleanly and that is what the world is looking for at the moment. We can be right in there not as a first mover, but as an early mover. We see that appointed is Isondo Precious Metals, they are the ones that are taking the ball and going to get the funding from DTI, which is from you and me, the taxpayers.

There are going to be generous incentives, with an underpinning from a special economic zone, which they want to create. Isondo itself has set up an agreement with an American company to have the rights to manufacture parts for these fuel cells and also to market those. The vision is that a lot of Africa is off the grid.

A lot of South Africa is off the grid and it can be a starting point to get little fuel cell power stations in areas that are just off the grid, Africa and South Africa. We know that with clinics that are 20 km off the grid, it pays already to put in these fuel cells. Schools off the grid pays. Also, underground mining equipment now they are looking to power with fuel cells. So we are getting something moving on it, not only in South Africa, but also in Africa.

Kamwendo: AngloGold’s South African mines – once the pride of the pack – have fallen badly behind the company’s mines in the rest of the world.

Creamer: I think South Africans have got to look at themselves in the mirror and say brother we need to pull ourselves together. Because, if you compare 19 mines that AngloGold has in nine countries, the laggard is South Africa.

If you look at a place like Tanzania they are knocking us into an absolute cocked hat. If you look at the cost at which they can produce an ounce of gold it is like $600 an ounce lower. How do they get into that position? We are still way above the $1 000 an ounce mark and we have even lost our volume status.

We are no longer the big volume producer, we are no longer the value producer. So, where we are we? At one stage the shareholders demanded that the South African mines be hived off separately. If they done that, AngloGold International would be flying, because if you look at that graphic that they flash up onto the big screen every time they present, the third quarter we saw laggards, outliers South Africa’s way out there hardly on the scale running above the gold price at that stage.

It improved slightly in the fourth quarter, but the international companies and mining operations have improved much more. Now, we are left even further behind. South Africans are focusing their minds at the moment on getting a 10% improvement and confident that they will.

We have got the benefit of the weak rand, which is pushing the rand gold price to record levels, R600 000 per kg – we have never seen anything like it – and beyond. So, that is a big protective device at the moment, but without that we would be exposed. We are way behind South America, Africa and also Australia. We really have got to do something about it.

Kamwendo: A top South African mining company this week seized the opportunity to lock-in the benefits of the weak rand.

Creamer: People now want to bank that weak rand, that is how desperate we are. Saying inflation doesn’t look like coming too soon, so we know things go up and things go down. While they are up, let’s bank them, because we don't see the inflation yet. Now we see Harmony Gold going in there and hedging the exchange rate on a third of its gold sales.

It has got a guaranteed R15.59 to the dollar on every bit of gold that it sells under those contracts for the next 12 months. That is a third of its gold. So, is it speculative? Some of its peer groups say this is very speculative, you don’t call the rand, but the people doing it are well experienced. Frank Abott, the FD of Harmony Gold, is the longest serving financial director in gold mining.

He is looking at it and saying let’s have insurance on the low rand and let’s capture some of that attractive revenue while we can. He is planning to do that and he has signed up the contracts to protect Harmony over the next 12 months. We also see that Sibanye Gold, yesterday, when they presented, they did a very unusual thing and they showed their bone fides.

Neal Froneman said, during the wage negotiations, we offered employees a social and economic compact like we have never done before, but the unions and employees said at the time that this was a tactic to divert them away from the wage negotiations. But Sibanye wants to show that they meant it and it is not a tactic, he is prepared to come back to the table not to renegotiate the wages, because those have been done, but now to look at the social and economic compact that will make the industry better.

It will be like Germany, when things are good the unions get more, when things are lean they constrain themselves. This is the sort of attitude they are trying to bring in now, particularly as the gold price goes, in rand terms, to record levels. They are saying that we are wanting to do this. Even though we have clinched our deal with you, we are prepared to come back to the table. Both unions and employees, lets do this now for the better of the industry and not being accused of tactics, because it is not a tactic, this is to make sure going forward, the South African mining industry is in a far better position

Kamwendo: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly.

 

Edited by Creamer Media Reporter

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