The 1970s are known for political scandal while the 1980s are known for pop culture. They are also known for South Africa’s boom in the mining economy. I write this article from Johannesburg dubbed eGoli (the city of gold) for its once rich gold mines. 



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At the peak of those glory days, for every R100 the economy produced in 1980, R21 was from mining. In fact, during this boom, in 1987, the industry employed 760,000 people.   



&nbsp;Today, the story of
South Africa’s mining sector makes for grim reading. The once mighty sector is
a shadow of its former self as precious metals continue to struggle. Statistics
South Africa (Stats SA) reports that gold has lost ground over the last three
decades. The annual production index for gold is now 46% lower than it was in 2007.




In 2016, the industry contributed only 8% to the economy.
That is R8 for each R100, which is R13 less compared to the 1980s. The problem
is in 2019; the mines are old, deep and lack investors.



According to Stats SA, “mining production decreased by 5.6%
year-on-year in November 2018”. 



The largest let-downs were the once flourishing gold and
diamonds.&nbsp; 



“The bulk commodities and base metals have performed in line
with the global industry. Metals like coal, manganese and chrome have performed
very well for South Africa. Unfortunately precious metals haven’t performed
that well,” says Andries Rossouw, partner at PwC South Africa.



In its 2017 report, PwC revealed that gold and platinum had
witnessed devastating dips in market capitalization. Gold, for instance, saw a
dip of a shocking 52%, which translates to R114 billion ($8 billion), while
platinum’s market capitalization dropped by 21%. Last year, the market
capitalization for gold dropped by 4% from 25% while platinum dropped 5% to
29%. 



Rossouw, however, stresses that it is important to note that
other commodities are performing well. 



Coal is among them. 



“The coal industry has been performing well in the last year
at the back of higher coal prices. Eskom still demands a large number of coals
for their coal-powered plants. So, it is important that our coal industry
delivers that demand from Eskom. We are also exporting big quantities of coal
mainly to India because they also need quality coal for their power
generation,” Rossouw says.



The good performers helped “mineral sales increase by 8%
year-on-year in November”. It’s not enough. Even so, most companies are facing
a painful drop in rankings and profits. 



For instance, “Impala Platinum and Sibanye-Stillwater
dropped by two and four positions respectively in the top 10 companies in the
country,” according to the PwC report.&nbsp;&nbsp; 



In fact, Impala Platinum dropped from R27 billion ($1.9
billion) in June 2017 to R15 billion ($1.06 billion) in June last year. It is
forcing the company to restructure and cut jobs.



“The only option for conventional producers today is to
fundamentally restructure loss-making operations to address cash-burn and
create lower-cost, profitable businesses that are able to sustain operations
and employment in a lower metal price environment,” says Impala Platinum CEO,
Nico Muller. 



Over the next two years, the company will downgrade from 11
to six operating shafts, reduce future production from 750,000 platinum ounces
per year to 520,000 and cut jobs from 40,000 to 27,000.



Gold Fields is another company facing challenges. 



Its South Deep mine, one of the biggest gold mines in the
world, continues to make losses. It lost R4 billion ($283 million) over the
past five years. Last year, it retrenched 1,082 employees at its South Deep
mine.



“South Deep is a complex and unique mine, that has faced
persistent issues that need to be addressed in a holistic manner which include,
rising operating and overhead costs, consistent failure to meet mining and
production targets; poor equipment reliability and productivity impacted by
poor maintenance practices and operational conditions,” said the company in a
statement released last year.



The problem is so big that according to a report by the
Department of Mineral Resources, there are about 6,000 abandoned mines in the
country and massive job cuts. 



“We have about 454,000 people now employed in the industry
compared to 532,000 employees when the industry was performing well. In the
2018 calendar year, it dropped about 3,000 employees and that is despite shaft
closures,” Rossouw says. 



This is a far cry from the industry’s heyday. 



Due to global conditions, mining production reached a record
low in 2016 in South Africa, but since then, other countries have enjoyed
growth, while the domestic mining industry shrinks. It seems the bigger problem
might be the relationship between industry and government.



Regulation is one of the major hold backs for the
sector.&nbsp;&nbsp;&nbsp; 



Until recently, the Mining Charter, which addresses the
distribution of mineral wealth more equally to redress the racial injustices of
apartheid, has caused courtroom battles between government and industry.&nbsp; 



First issued in 2004 and amended in 2010, many agree the
Mining Charter was a hastily and poorly written document, full of oversight,
compiled without consultation with the industry. Industry heavyweights and
unions disputed it, lawyers and economists argued over it and investors stayed
away as a result. 



“For investors to invest in the country, they would want to
see a track record&#8230; We have had about 10 years of under investment,
especially in our platinum sector and that will show in our lack of supply
coming out of that sector in the future. Given the long-term nature of the
mining investment cycle, it will impact our ability to supply in the future,”
Rossouw says.



Last year, in fact, in terms of its overall investment
attractiveness for mining companies, the Fraser Institute, a Canadian public
policy think-tank, ranked South Africa 48 out of 91. It ranked 74 out of 104
destinations in 2016, yet in 1980, mining accounted for almost 50% of the world
mining market capitalization. 



“What has dropped us down the rankings in the last couple of
years is the uncertainty and regulation environment largely due to the Mining
Charter. Investors are cautious. They judge the government on past performance
so there is still a bit of caution out there,” says Andrew Lane, Africa Energy
&amp; Resources Leader at Deloitte.



In February last year, President Cyril Ramaphosa appointed
Gwede Mantashe — a former leader of the biggest union in Africa, the National
Union of Mineworkers, as Mineral Resources Minister. With vast experience and
trust from industry, Mantashe swooped in at the 11th&nbsp; hour to save the day and negotiated a new Mining
Charter acceptable to industry and government. 



“It was bad in 2017 and then we got a much positive outlook
in 2018 when there was good interaction between industry, labor and all the
stakeholders including government which culminated in the publication of the
new Mining Charter which has gone a long way to address some of the concerns
raised in the previous versions of the charter. 



“It doesn’t mean that it has been completely resolved but
there is good engagement between the various stakeholders that only means
positives for the future in terms of the regulatory environment,” Rossouw says.




Lane believes the industry has welcomed Mantashe and it has
a more positive outlook. 



“The issue we have here is that most of the mines are deep
and quite old. A lot of our remaining resources and reserves which are left are
not safely or profitably minable with current technology. We are looking to
technological advances to bring a lot of what remains in those commodities into
a decently profitable environment,” Lane says. 



At February’s Mining Indaba in Cape Town, President
Ramaphosa, a mining man to the core, said significant work still had to be been
done to remove the uncertainty that held back the development of the industry.



“As part of the package, government is reprioritizing
spending, within the existing fiscal framework, towards initiatives that are
aimed at driving economic activity, including financial and non-financial
measures to turn around the economy,” Ramaphosa said. 



Lane says there is a trust deficit which makes the investors
adopt a wait-and-see attitude.&nbsp; 



“We have further recognized the challenges raised with us by
investors, among other things, administered prices for ports, rail and
electricity, as well as infrastructure bottlenecks&#8230;We are working in earnest
to address the constraints that were raised with us as we implement the
Stimulus and Economic Recovery Plan. 



“We are addressing issues that are of concern to companies
such as visa regulations, reducing the cost of doing business, eliminating many
bureaucratic constraints and making it a lot easier to conduct business,”
Ramaphosa said.



There has been positive movement in the regulatory
environment but, for companies, the cost structure is, by far, the biggest
challenge especially with labor and electricity prices and shortage. In
February, investors and credit rating agencies flagged Eskom’s rolling power
cuts which weakened the rand. The power cuts also cost the mining industry
productivity. 



“We have the deepest mines in the world here. Certainly, the
energy costs going up over the years have impacted productivity. Our mines are
quite expensive to operate. We are not the most attractive destination for
mining investment right now,” Lane says. 



Ramaphosa said the government would announce its plans to
stabilize and improve Eskom’s financial, operational and structural position
and to ensure security of energy reserves in the country.



“Eskom’s contribution to the health of our economy is too
great for it to be allowed to fail. It is too important and is too big to fail;
and we will not allow it to fail. Restoring and securing energy security for
the country is an absolute imperative,” he said. 



Lane says government needs to continue to send a message of
regulatory stability, act on Eskom and reliability of energy to start shifting
the sector towards a more investor-friendly option. 



There is also inadequate transportation in the industry.
Some economists have said improving the costs related to exports such as port
tariffs and railway costs would make the sector more profitable. 



“Last year for example, we had to truck manganese to Durban
which is inefficient. We should have freight rail in place to take care of
those commodities,” Rossouw says. 



Another concern is the socioeconomic conditions around
mining companies.



“Mining companies are quite often the main providers of
employment in rural areas and that means it creates expectations by community
and when our economy is struggling as it is at the moment, it means the
pressure of the communities around that mine provides pressure on the mine
environment. We have seen mines being closed down by communities and not by
employees in the last couple of years,” Rossouw says.



Minerals Council CEO Roger Baxter says the council has
engaged extensively with government and other stakeholders on the challenges
that have prevented mining from reaching its true potential. 



“A collaborative approach is needed to develop and implement
solutions that will see our industry grow and thrive in the future for the
benefit of all. We need to get investment back in mining. We, as the industry,
are fully committed to play our part,” he says. 



There is also a push for green coal to boost the industry
and according to Rossouw, however, the green economy won’t replace coal in
developing regions like Africa, Southeast Asia and India. 



“There is still a big increase in coal-fired power plants
and generation capacity&#8230; The challenge the coal industry is facing, as a
result of the green economy, has to do with the holding of new projects. A
number of banks said they won’t fund any new coal projects and therefore some
of these projects,” says Rossouw. 



“There is potential for clean coal going forward and we need
to invest in research and development to make coal work for us to provide
cleaner energy from the vast coal resorts we have.” 



Just over two in every three gold mining jobs in 1995 no
longer exist. However, mining remains an important earner of foreign exchange
for the country and employs one in every 40 working people according to
Statistics SA. Love it or loathe it, if government and industry play the ball
right, South Africa may reclaim a large slice of one of the world’s richest
cakes.

Precious Metals Excavation And Mining Operations At Northam Platinum Ltd Booysendal Mine

South Africa’s Precious Metal Mining Industry Is On Shaky Ground

If radical socio-economic transformation – the term favored by South African politicians these days – had a face, it would probably look like one of the many new mining operations being established by new players in the industry.
A recurring theme over the years at the Mining Indaba has been the uncertainty in the South African mining industry. This is driven by contested regulatory and legislative issues which have looked to aggressively introduce transformative initiatives across the industry.
That narrative has not changed but this year’s gathering in Cape Town had a tinge of optimism, with miners waiting for the contentious legislation to be changed.
In 2017, the then-Minister of Mineral Resources, Mosebenzi Zwane, announced a new Mining Charter that “shifted the requirements for black ownership and employment equity at mining companies, as well as the companies from which they procure any goods and services.”
Following this, industry stakeholders say they have lost confidence in the ministry. According to the Chamber of Mines, the Mining Charter made investors wary of committing any capital to the country. A report by the Chamber of Mines claims that investment into the sector, which contributes 8% to GDP, has been stagnant since 2008.
This year, there were calls for the minister to stay away from the event. The stakeholders wanted Cyril Ramaphosa, who at the time was Deputy President, to deliver the keynote address. Zwane ignored this and defiantly asked, “In terms of the population of South Africa, what percentage of the people do these critics represent?”
“Anyone who thinks they can better the charter, our door is open for discussion,” Zwane told FORBES AFRICA on the sidelines of the event.
But, if you look past the legislative woes and the political rhetoric, you’ll see an encouraging story of a young black man who struggled to break into the sector which has previously been dominated by a privileged few.
A recent report by Statistics South Africa noted that mining production had increased by 6.5% year-on-year, up from the annual growth of 5.2% reported in October 2017. This bodes well for Black Royalty Minerals, a subsidiary of the Makole Group, which launched its first colliery in Bronkhorstspruit, a small town 50kms east of Pretoria, at the end of January.
“For us, mining is a pillar and a cornerstone of the South African economy. It’s a foundation that you cannot ignore when you talk about economic development. So, in 2014, [Bronkhorstspruit] is where Chilwavhusiku started, we did our prospecting and applied for all our authorization and after this was done we realized that we could take this project into the mining phase and that’s exactly what we did. And now, as we stand here, we are very proud of this development,” says Ndavhe Mareda, the Chairman of Black Royalty Minerals, which is 100% black-owned.
“One of our mandates is growth. We are looking at both the domestic market as well as export markets. We are working with a lot of traders in the hopes that we’ll be able to expand our horizon. And, we want to do this the right way, in a way that will not exploit the land or its dwellers and of course that works well with the society.”
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Mareda was born in Venda, a former homeland of the apartheid regime in northern South Africa. He obtained his matric and moved to Johannesburg, the City of Gold, to further his studies. He obtained his Bachelor of Commerce at the University of South Africa and practiced as an accountant before venturing into entrepreneurship.
The company, which became operational in 2014, employs 350 people – 90% of whom are Bronkhorstspruit locals. It is hoped the colliery will create opportunities for the some 20,000 people that live around the mine.
“There is a huge level of unemployment in Bronkhorstspruit and our mine eases a lot of the pressure applied by the poverty. We give tender preference to the locals. These tenders may be for transportation or any other services that the mine needs to commission,” says Mareda.
This is what the disputed Mining Charter is looking to foster – assisting black-owned businesses like Black Royalty Minerals.
Disputed government policies are not isolated to South Africa.
The Democratic Republic of Congo (DRC) is no stranger to legislation battles between government and mining conglomerates. The government recently completed a new draft of what it calls the Mining Code. It awaits the signature of the president. In the meantime, mining companies are anxious about the future of their operations in the region.
Randgold Resources started developing Kibali, in north east DRC, eight years ago. After investing $2.5 billion in the operation, the giant gold mine may have to stop productivity.
Randgold chief executive Mark Bristow says the mine is on track to produce its target of more than 700,000 ounces of gold in 2018, making it one of the largest gold mines in the world. But, with the Mining Code, this prosperity may be short-lived.
“It is our express wish that the government grasps the serious consequences this ill-considered code will have on its ability as a country to attract international investment and re-investment to the DRC, and to refer the code back to the ministry of mines for further consultation with the industry,” says Bristow.
Officials, however, are confident the code will demonopolize the industry and allow the country to enjoy a percentage of the profits made from the exploration of its resources. Albert Yuma Mulimbi, Chairman of the state-owned mining company Gecamines, says it will be renegotiating its contracts with international mining partners operating in the DRC.
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Regulation is not the only issue facing mining in Africa. The former president of Nigeria, Olusegun Obasanjo, in his official address, highlighted that creating a sustainable environment for emerging miners is no simple task. He said the industry is marred by a lack of transparency as well as a legacy of mistrust of major miners. The mining industry has been accused of pursuing profits at the expense of its workforce.
Solutions to these issues need to be found.
Apart from the emergence of junior miners, the mining industry in South Africa is looking at technological advancement to resuscitate the sector.
&#8220;Technologies like robotic process automation and artificial intelligence will enable core mining activities to be performed from locations that can support a more diverse and inclusive workforce,&#8221; reads Deloitte’s Tracking The Trends report. &#8220;These new technologies will turn the mining value chain upside down, disrupting both existing business models and the traditional roles and relationships among mining companies and their customers, suppliers, and even competitors.&#8221;
This is the kind of disruption that excites another junior miner, Olebogeng Sentsho, who’s a disruptor herself as a young woman emerging in the mining industry. She is the founder of Yeabo Mining, a company that specializes in erecting and operating waste management plants at mines.
“In order to make headway in this industry we need greater support and space from various stakeholders. The increasing cost of mining, especially when discovering alternative minerals in decommissioned mines, is immense,” she says.
Sentsho says Yeabo Mining will need R50 million ($4.1 million) for infrastructure needed to mine in the current climate.
“It’s not an easy ride but it’s one worth hanging onto and I am confident about the future and the markets we’ll be serving as Africans,” says Mareda with a smile and genuine hope.

New Kids On The Mining Block

Sure, optimism shone forth in Cape Town like the late summer sun bouncing off Table Mountain, as more than 6,000 powerful people, including more than 20 government ministers, headed for the biggest mining gathering on the planet.
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There were more mining companies this year, up 50% on last year, after more than five years of decline. The keen-eyed investors were back and looking for contenders across the continent. A fruitful place to be for the brave, like the motorbike riding maverick Mark Bristow who has spent the last 20 years making money digging gold in mines from Mali to Cote D’Ivoire. Two decades ago many fellow South Africans may have laughed at Bristow for taking risks far from home, in what many see as barren land for mining, but now they’re laughing on the other side of their faces. At the Mining Indaba, Bristow’s Randgold Resources announced it had increased gold production, for the fifth year in a row, plus it was debt free with more than $500 million in cash. Many mining companies would kill to be in that position.
Among the investors looking to blaze a trail across Africa is the Lagos-based African Finance Corporation that began life, in 2007, with a fund of $1.1 billion and now has assets of $3 billion, according to one of its directors, Osam Iyahen. It is a public-private fund, 42% owned by government, that invests in: oil; gas; resources; infrastructure and power. In January, it broke ground on a $200-million bauxite mine in the Boffa region of Guinea Conakry, just 15 kilometers from the coast, with plans to ramp up to 15 million tons.
“I think there has been a rebound in the industry this year,” says Iyahen in Cape Town.
“Last year was a bit of a disaster. People were not interested in talking about transactions; all they were worried about was protecting their downside. There was a lot of sulking going on.”
You could be forgiven for thinking the host nation is still sulking. South Africa, the biggest mining country on the continent, has been like a boxer on the ropes since the power cuts and global financial collapse of 2008. More than 60,000 jobs have been lost since 2012; capital expenditure ground to a halt and the South African industry lost R38 billion (about $2.8 billion) in 2016 alone, in a year when mining output fell 4.8%.
“We have to get our house in order in South Africa, capital is a coward and it goes to the place where there is least risk. We have to remember mining is a global game now and it is easier than ever for foreign investors to move capital around. Our grandchildren will live with the legacy of what we do now,” says Kieran Whyte, a lawyer and partner at Baker McKenzie, who specializes in energy and infrastructure.
The last few months of 2016 were better as commodity prices lifted, according to the Chamber of Mines, especially the risk haven of gold in the wake of the unpredictable, to put it kindly, presidency of Donald Trump.
“I think we are seeing the green shoots here, we just have to watch out for frostbite,” says Roger Baxter, the CEO of the Chamber of Mines, with a smile on the first day.
Baxter was alluding to two cold fronts: the first, the fact that South Africa – that mined more than a third of the world’s gold – is no longer the king of mining. In fact, in these troubled economic times, more and more nations, from West Africa to South America, are ready to accept foreign investors with open arms. A sign of the times is that, on the eve of the Mining Indaba, analysts in Cape Town were extolling the virtues of the copper, gold and coal mining nation of Chile.
The second frosty front is regulatory uncertainty. The South African government, which has met six times with the Chamber of Mines, has been working on amendments to its mining law since December 27, 2012. It promises to gazette the amended Mineral and Petroleum Resources Development Act (MPRDA) by the end of March; the Chamber of Mines feels it could be April.
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What is likely to be in the bill could cause conflict. It is expected there will be greater ministerial discretion and set in stone that all mining companies have to have 26% black ownership at all times. One of the problems is black shareholders, once they have passed their lock-in date, often cash in their stakes by selling to white shareholders, thus diluting the empowerment stake.
The Chamber of Mines, which represents almost all South African mining houses, disagrees strongly with this. It feels that once mining companies have borne the cost of financing black shareholdings it has done its job regardless of dilution. If this so-called “once empowered, always empowered” principle is accepted, many of the country’s biggest mining houses will be compliant overnight.
“I have never seen the Chamber of Mines so aggressive. Normally they get along to go along, but it seems the worm has turned,” says one mining insider in Cape Town.
It is all likely to end up in court where mining lawyer Peter Leon reckons they have a strong case.
“All they have to do is challenge section 100 of the MPRDA. This gives the minister the power to promulgate the act, but doesn&#8217;t give the minister the right to rewrite or amend the act. That would blow it out of the water,” says Leon.
There appears to be little sign of a U-turn by the government over an issue that could further confuse and deter investors.
“We don&#8217;t want to encourage a place where courts take the place of government. We don&#8217;t agree with the norm that if you don&#8217;t agree with us you take it to court,” says South African mining minister Mosebenzi Zwane.
It’s a cold front that could mean a Chile future.

Beware, It’s Chile Out There

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.
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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.
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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.

Four Frantic Days  Full Of Fear

On February 9, Africa’s biggest mining gathering will kick off in Cape Town, South Africa. From Australians mining iron ore in West Africa to Chinese interested in our rare earth, more than 7,000 people will arrive at the Mining Indaba to talk about the future of the industry.
One of the topics likely to come up is why the riches of mining struggle to reach the poor. Government and mining companies make promises of empowering the poor through shares and wages; most are empty.
Before a word is said, the head of the National Union of Mineworkers (NUM) is sceptical. Frans Baleni, the union’s general secretary, says the Mining Indaba means little to the people who live next door to mines.
“You will notice that these discussions are about issues of maximizing productivity, there’s nothing much about improving the lives of communities. In these deliberations we don’t get a platform to say what we want to say,” says Baleni.
As delegates gather, a do-it-yourself solution will be underway in another part of the country. Thousands of the country’s poorest people will be buying into its richest industry.
Baroka Tribal Mining (Pty) is a community-owned company in the Sekhukhune District in Limpopo, in northern South Africa. It represents 90,000 poor people of the Baroka Ba Nkwana tribe. This community is buying a 49% stake of Bokoni platinum mine, worth $385million, from Anglo American Platinum (Amplats), the world’s largest platinum producer. It tabled the offer early in January.
Baroka’s transaction is backed by the Public Investment Corporation, a state-owned pension fund and a bank loan.
It is a deal that is a sign of the times. Following South Africa’s crippling six-month platinum strike in 2014, Amplats CEO Chris Griffith announced that the world’s largest producer was selling under-performing mines. It wants to concentrate on the more profitable open-pit and mechanized mine.
It has taken time and perseverance for Baroka since they set up in 2009. Out of their own pocket, Baroka representatives have traveled the world trying to secure investment. They went to Russia, Thailand and the United States but returned empty handed. The question of mining strikes in South Africa was often raised.
“Everything about Baroka shows that if you believe in something, you can actually get it if you are determined. We have never received royalties from any company, yet we are buying a R4 billion ($347 million) mine. We are lucky because we have government backing. That made it easier for us. Where the mine is sitting, there is 600 million tons of iron ore. There’s a large chrome deposit. We are currently sitting with 51 percent exploration rights,” says Tshepo Phiri, Chief Executive of Baroka Tribal Mining.
“Except for Royal Bafokeng, I can’t think of any successful story regarding mining communities. The government’s role tends to be limited; government tends to rely on these companies to implement the mining charter. But our advice is that the government needs to do constant evaluation of these companies and raise the red flag quite early,” says Baleni.
Both parties have a long way to go. Amplats will get credits towards black ownership which is required by the Mining Charter. The next Mining Charter update will be out on March 31 when researchers will tell how much &#8211; or how little &#8211; has been transferred to black owners. Each company is required to show at least 26% black ownership.
Ngoako Ramatlhodi, Minister of Mineral Resources, has a broad administrative discretion to unilaterally amend the charter as and when the need arises. Non-compliance with the provisions of the amended charter will render a mining company in breach of the Mineral and Petroleum Resources Development Act (MPRDA). Under section 47 of the MPRDA, the minister has the prerogative to suspend or cancel rights, permissions where the holder is in breach.
At least the Baroka Ba Nkwana tribe has not let the grass grow under its feet in the effort to convince poor people that a share of mining riches can be theirs too. Surely, this is a route to long-term stability in mining.

Anything Is Possible  If You Wish Hard Enough

If there ever could be heaven on earth, this was it. The sun peeped over Table Mountain and lit the winding streets below with a brilliant light as I walked through Cape Town to the first morning of the Mining Indaba—the 20th annual gathering of investors and mining experts. Its rays exuded optimism and felt like a warm, comforting hand caressing your face.
Without wishing to stretch the metaphor, South Africa’s mining minister, Susan Shabangu, tried to emulate the sun’s rays in her keynote speech.
“This is Africa’s time; indeed Africa has arrived and we shall seize the opportunity with both hands,” says Shabangu.
True, it is Shabangu’s job to hold the line when her country’s mining industry is under attack, especially with an election coming up on May 7. Even so, this was a speech too far; dismissed by most at the Mining Indaba. She was at pains to present a rosy picture, saying the number of mines and mining revenue had increased; further that South Africa had topped a list of 158 countries, compiled by the World Economic Forum, for corporate auditing and reporting. She also mentioned billions that will be spent on infrastructure and pledged to protect investors.
When it came to the strike on everyone’s lips in Cape Town—70,000 workers at the platinum mines, which earn 9% of South Africa’s export earnings—there was disbelief when Shabangu said there was no need to be complacent and there were many areas that needed improvement. The understatement of the year, in light of a strike that cost the South African economy 10,000 ounces of platinum and more than $40 million-a-day.
Roger Baxter, the chief economist for the Chamber of Mines, warned that 45% of the platinum shafts were either loss making or marginal. A long strike, followed by a high wage settlement, may push many more over the edge, he says. South Africa has 80% of the world’s reserves of platinum and 40% of supply; by the next Mining Indaba, the latter figure is likely to have fallen. This is one reason why many foreign investors, looking for a competitive return, say off-the-record, they are fighting shy of South Africa for now.
“The world mining funds are flush with cash right now, but they don’t want to put it here because they are very risk averse at the moment,” says one investor in Cape Town.
“They may look at an easy project, but let’s face it most of the easy projects in Africa have gone.”
Another concern for investors is the threat of South Africa’s government amending its mining bill to give the mining minister the discretionary powers to make certain minerals strategic. That would mean the producers of minerals, like iron ore and coal, could have to ask the government for permission to export and accept prices fixed by the state. For South African power generator, Eskom, this would be a boon because it could have all the coal it needs for its power stations in the country at a price it can afford. Critics, like mining lawyer, Peter Leon, has called the move creeping nationalization and warns it could frighten investors.
“It means we are closed for business,” says a former coal mine boss in Cape Town.
The Chamber of Mines paints a less worrying picture. It says that the government is unlikely to touch prices and a clause in the bill ensures consultation with the mining industry over exports. The bill was due for review on February 18.
“We are still engaging with the government,” says Baxter.
What is likely is that the government is going to push ahead with the transformation towards the 26% black ownership promised by the Mining Charter 10 years ago. In 2014, the Mining Charter—a voluntary document signed by the mining companies—will be reviewed. It is widely accepted that the ownership figure is far short of the target. Foreign investors often don’t understand South Africa’s often clumsy attempt to rebalance the scales after apartheid; the mining companies complain the process of transferring equity, to those who didn’t have the vote before 1994, is expensive and futile.
“Many mining companies put transformation systems in place thinking that 2014 will be the end of it. Nothing is further from the truth,” says Shabangu.
There is more hope across the rest of the continent for mining held in the rugged hands of the Australians. It seems the Australians don’t know what a difficult project is and are pouring billions of dollars into mining, from the Democratic Republic of Congo to Ghana, in some of the most inaccessible corners of Africa.
The Mining Indaba heard there are 246 mining companies operating in Africa. They include Sundance Resources, which is spending $5 billion on building two iron ore mines, 40 kilometers apart, in Cameroon, near the border with Congo-Brazzaville. It is hoped that by 2018 they will be producing 35 million mt of iron ore every year.
The project is an 11-hour drive from the capital and the Australians will also build a 500 kilometer heavy gauge railway to the coast to export the iron ore.
“Risk? Mining is risk and we Australians have a way of tackling it,” chuckled Giulio Casello, the managing director of Sundance Resources.
“What really impressed us on this project is that Cameroon put together a committee of experts to help us set up this project. Cameroon doesn’t have a mining industry and clearly wants one.”
Another Australian carving his way through the African outback is Harry Anagnostaras-Adams, who spent 30 years working in the banks of Sydney and now spends his days trying to figure out how to get gold out of Ethiopia. Through his resources company, KEFI Minerals, he spent $6 million buying Tula Kapi Mine, 500 kilometers west of Addis Ababa. The mine, which has two million ounces of gold in resources and another million in reserves, went for a knockdown price—ten cents in the dollar—because the previous owner had failed to deliver.
Anagnostaras-Adams will invest $150 million in the mine with the hope of producing 60,000 ounces by 2016.
“It is not for the fainthearted,” he says.
“The response to us trying to fix the problems of the mine was like greased lightning. The government always wanted us to get the show on the road; I was impressed by their pragmatism.”
There were other encouraging signs at the Mining Indaba. Brazilian resources giant Vale told how it was going to invest billions into increasing output from the Moatize coal project, in the north west corner of Mozambique, from 4.7 million mt to 20 million mt. More than $2 billion will be ploughed back into the mine; $3.4 billion will go into building a railway line from the Moatize, through Malawi, to the export port of Nacala. Another billion dollars will build up Nacala so it can ship more coal.
There were also encouraging words from the Toronto Stock Exchange, the great mining fund raising bourse in Canada. Graham Dallas, the head of business development for the holding company TMX, said around $800 million had been raised in 2013 for mining projects in Africa.
“I think if you have the right asset and the right management you can still raise foreign investment. It is not all doom and gloom, things have been better, but there is no reason to despair.”
If this optimism was not enough, Nick Holland, the CEO of Gold Fields, was brave enough to make this prediction.
“I think China is going to come back. I’ll stick my neck out and say there could be a mining boom by the end of next year,” says Holland.
This is the kind of bullish approach that has sustained mining in Africa and built the Mining Indaba into one of the biggest industry gatherings on the planet. Twenty years ago, the Mining Indaba held its humble beginning in one room in the Cape Sun; in 2014 it has expanded to fill the vast International Convention Centre. African mining has to play a clever game over the next 20 years or risk ending up back in one room at the Cape Sun.

No More Easy Money In Mining

Shortly after his controversial re-election in late 2011, president of the Democratic Republic of Congo (DRC), Joseph Kabila, promulgated a new agricultural law, which stipulates that farmland must be majority-owned by a national or a company whose majority shareholding is owned by the state or a Congolese entity.
Nationalization is also a hot topic in the DRC’s mining sector. In February, during the Mining Indaba in Cape Town, South Africa, the Congolese minister for mining, Martin Kabwelulu Labilo, made his disappointment clear: the investor-friendly mining code had not delivered the intended changes. Designed with the support of the World Bank in 2002, the mining code will be 10 years old this year and is likely to be reviewed. In 2011, Gécamines, the main public mining company in the DRC, announced a review of all its joint ventures.
These talks are the direct consequence of growing investor interest in land and mineral resources in Africa. National control is at the center of debates in countries like Gabon, South Africa, Zambia and Chad. And Africa is not alone—in Brazil, foreign-controlled companies cannot own more than 250,000 hectares and raw materials diplomacy is becoming official policy in Europe. In the DRC, the new agricultural law and the likely mining code review are serious sources of concern for business.
In the 1970s, to end Belgian domination of the economy, former president, Mobutu Sese Seko, made full Congolese ownership a mandatory requirement for every business in the country. The DRC’s nationalization policy lasted only three years, from 1973 to 1976. Without capital and expertise, this policy led to an economic disaster. Foreign owners and businesspeople disengaged from the country, and the new Congolese owners were unable to run the businesses. In 1976, foreign investors were allowed to own 60% of their business. Since then, joint ventures are the norm and land belongs to the state.
State intervention in the mining sector has left bad memories in business circles. The mining contracts review (2007-2009) was intended to correct the imbalances of former president Laurent Desiré Kabila’s mining deals, to increase state shareholding and to revive the mining pillar of the nation, Gécamines. Unfortunately, the opaque review process put an end to these hopes. Under the supervision of the late Katumba Mwanke, special advisor in the presidency, the contracts review turned into a money-making scheme for state rulers. The review made mining investors bitter and the DRC is now considered a risky place to invest.
Given this historical background and the presence of Zimbabwean president Robert Mugabe at Kabila’s inauguration, the return of the nationalization policy just after the president’s re-election is making investors nervous. The minister for agriculture failed to reassure foreign donors during a meeting in Kinshasa, despite arguing that only new investments in agriculture will be affected by this law. Some foreign investors are preparing for a legal battle, while others are ringing the alarm bell, even though no-one knows how seriously the law will affect agriculture. But beyond the logical preservation of their interests, this quick reaction is very important for African governments.
In itself, the claim for national ownership is not illegitimate. This is official policy in Saudi Arabia, Dubai and Qatar. In times of aggressive investment policy, the anti-colonial rhetoric of nationalization may be appealing to African governments, but the practices are questionable. Real wealth redistribution is the objective of nationalization, but it is often used as a pretext for the ruling elite to capture resources, turning foreign plundering into domestic plundering.

Tag: Mining Indaba

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