Four Frantic Days Full Of Fear

Published 9 years ago
Four Frantic Days  Full Of Fear

There were fewer miners at the Mining Indaba this year and more mining service companies to make up the numbers among 7,000 delegates. Everyone is trying to cut costs as commodity prices tumble.

“It’s been a lot quieter this year,” admits one of the organizers.

“The investors are there, but the group is getting smaller and smaller,” says one delegate who asked not to be named.


“I think the opportunities are like the gold rush of 1849 in America,” says Robin Saunders, the head of Clearbrook Capital, an investment company looking to sink billions into African mining on behalf of rich families in Europe and the Middle East.

There were plenty of strident young mining nations from across Africa selling their minerals. This optimism couldn’t disguise the pain of the hosts; decades of battering and disinvestment leaves South Africa, where once 40% of the world’s mining was carried out, struggling to cling onto 5%, according to KPMG.

Investors are fighting shy of South Africa because of three big problems: power, rather the lack of it, strikes and fears over regulation.


The power shortages that have plagued most mines in South Africa has cost Harmony – the country’s third largest producer – 50 kilograms of gold in the last quarter to December 31,  worth around $1.87 million, according to CEO Graham Briggs. It meant production at Harmony fell 10%, in the last quarter of 2014, to 271,963 oz.

“What happens is we have communication from Eskom that we have to cut our consumption by 10% or sometimes as much as 20%. This means we have to stop milling and hoisting, which impacts on our production,” says Briggs.

Like most large South African mines, Harmony is in a cleft stick. It consumes 2,600MW at its South African operations – enough to power a city and more than half the output of a large coal-fired power station. This means, like most mines in South Africa, it can’t risk the capital to build a generator or power plant large enough for its needs.

South African mining minister, Ngoako Ramatlhodi, just over a year into the job, sees himself as riding to the rescue. Even so, he brushed over the glaring power problem; merely talking about private power producers and getting power from the Grand Inga dam, in the Democratic Republic of Congo, in 2023. It could have been 2093 for all the difference it makes to the mines.


Ramatlhodi’s speech was full of reassuring words for foreign investors: the rule of law was to be respected; the government was prepared to get tough on violent wildcat strikes and the country was open for business.

He wasn’t so clear cut on the regulation front. There was plenty of confusion over the amendments to the Minerals and Petroleum and Resources Development Act – the law that governs mining that is going back and forth through Parliament. President Jacob Zuma sent the amendments back saying they were unconstitutional.

One of the bones of contention is the proposal of so called developmental pricing – that is, lower prices for commodities like iron ore and coal to help stimulate the South African economy. A year ago the miners negotiated so called ‘mine gate prices’ similar to import parity pricing, where transport costs are taken into consideration, leaving the producer with a fair profit margin.

The problem is there is a strong voice within the ruling party for developmental pricing to be written into law. If so, the minister could be handed the power to declare minerals strategic; meaning miners would have to accept government prices and have to ask state permission to export. It could bring down the price of coal for Eskom, with it the cost of electricity, which is likely to be popular with voters.


But among foreign investors it is likely to go down like a lead balloon laden with ten tons of coal. They are likely to see it as the state tinkering with the economy, laced with uncertainty, at a time when investors are looking for long term stability.

“It doesn’t feel like we are getting clarity,” says Wickus Botha, a mining analyst with EY.

“How long is it going to take to get these regulations through Parliament? It is not going to happen overnight. For the next two years it is going to be very difficult.”


In many other countries in Africa, these fears are far away. Many miners are making hay from Abidjan to Maputo as the hunt for investors overcomes shortcomings in infrastructure and financial systems.

One of them is Mark Bristow, the CEO of Randgold Resources, who has spent 20 years building mines everywhere from Mali to the Democratic Republic of Congo. His company’s results, released at the Mining Indaba, shows this penchant for the byways of African mining is paying off. In its Q4 figures, the company recorded record year-on-year production, up 26%, to 1,147,414oz in a company that is debt free and has paid a dividend at a time when the gold price is falling and most mining companies have forgotten what a dividend is. Bristow says his company is making a 20% real return on investment and is looking to invest in South Sudan and Kenya.

“Risk is in the eye of the beholder, as long as you have a good relationship with the stakeholders it is fine,” he says.

Elsewhere, Côte d’Ivoire, famous for agriculture, has a golden dream. The West African nation plans to open a gold mine every year for the next five years as part of its economic diversification, according to mining minister Jean-Claude Brou.


Gold mining in Cote d’Ivoire has grown rapidly in five years. In 2009, the country produced seven tons of gold; in 2014, it mined 18.6 tons. The country plans to increase production to 30 tons in the next five years.

“That is a very conservative target,” says Brou.

One last cautionary tale for African mining; there was a lot of talk about the increased mining royalties in Zambia and Zimbabwe and the threat they pose to investment.

From the gloom came a voice of sweet moderation from Ghana. The West African nation mined 4.4 million oz of gold in 2014 earning 40% of the country’s foreign currency.

In 2006, Ghana imposed a 5% royalty and mining minister Nii Osah Mills says his country plans to keep it at that rate for at least another 10 years.

“We were thinking recently of increasing the royalty, but we decided against it because we felt it would be disruptive to mining. So, no one is fleeing Ghana and that is a vote for us,” says Mills.

A dash of pragmatism that could help Ghana keep its place as the world’s 9th largest gold producer.