Twilight of mining not yet upon us
A summit of labour, government and the mining houses is urgent
LET us be blunt about where the mining industry is, and how to fix it.
Internationally, the industry has seen an unparalleled boom, but this has not been reflected at nearly the same level in South Africa.
How will the South African mining industry be able to benefit in the future, especially in light of investor perceptions that have deteriorated thanks to corruption, delays in the regulatory environment and decision-making processes, and uncertainty of tenure? In particular, the illegal strikes in 2012 have meant that investors have not committed to the industry.
But there are other problems. For example, there is a risk of further BEE rules being required after 2014 and the government has also suggested higher mining taxes.
Let me move to the technical and operational challenges of the gold industry, which make it difficult for
Industry took back its right to manage its business by being firm with the government
industry leaders to remain positive.
The industry is in turmoil owing to last year’s illegal strikes and, more recently, a rout in metal prices.
Admittedly, the gold-mining industry is mature and costs have risen as mining has moved deeper, Eskom has raised prices and workers have received double-digit wage increases.
This has been exacerbated by a difficult regulatory regime that favours labour over employer rights, resulting in indiscipline and falling productivity.
But the gold-mining industry is definitely not in its twilight years — as long as we can reach an agreement with labour and the government.
We have excellent infrastructure, robust ore bodies, large unexploited resources, a large labour pool and the skills required to profitably extract these resources.
Mining, by its very nature, is a finite industry extracting a depleting asset that cannot be replaced without further investment — which requires additional capital.
But when there are hurdles to investment, capital will go elsewhere. So what are the solutions? Let me sketch a scenario of what things could be like in 2020, when India has joined China in prioritising the urbanisation of its population.
This, coupled with China’s move to a consumer economy, has seen the demand for metals far exceed that considered possible in 2013.
Thanks to the doom and gloom of 2013, mining exploration and development has stopped because of a lack of investment capital.
The projects that were in company pipelines are now all in production — but owing to the lack of exploration spending, metal prices have rallied because demand outstrips supply.
In my vision, South Africa is now enjoying the benefits of favourable policies implemented after 2013 — let us call them the “post-Marikana revival package”.
In this scenario, how did we change the environment?
First, by taking on the mantle of leadership and engaging with the government, labour and all stakeholders. And we did so with urgency. Industry took back its right to manage its business by being firm with the government and organised labour and focusing on the commercial realities.
Discipline was instilled with shareholders and boards backing the CEOs through this volatile phase. The improved work ethic added at least 25 working shifts a year.
The workers became disillusioned by the suffering they endured because of strikes. Significant profitsharing aligned workers’ interests with shareholders and contained rampant wage increases.
The need for worker representation decreased, the labour market became more flexible and employment rose as the industry started to grow. Taxes and royalties flooded in. All of this led to better service delivery. Improved living conditions reduced absenteeism and this led to increased productivity.
Companies with longer-term interests stood together to avoid being compromised by those with shortterm interests.
Improvements in technology and work ethics provided further momentum to improvements in health and safety in deep-level mines. This restored the trust of the Department of Mineral Resources and reduced the culture of policing. With the rise in safety standards, investors returned to deep-level gold mining.
BEE was revised and benefited everyone instead of just a few wellconnected individuals.
An improved regulatory environment led to the rights applications pipeline being cleared and company requirements being clarified, as well as a transparency in regulatory procedures, which limited corruption.
But today, in 2013, the industry’s leaders need to formulate a plan to get all the interest groups to act for the good of South African mining. A business summit is required to break the impasse.
We have the technical capacity to revive the industry and ensure that all South Africans enjoy the benefits of our natural resources.
We need to make decisions based on economic reality. The government needs to take decisions that, although unpopular with its political partners, will be in the interests of the country.
So why do we wish to sustain this industry? Because that it is what investors want — and the dividends that come from strong cash flows are good for our economy.
If the industry is harvested for short-term political gains, there will be nothing left. Mining is a 20- to 30year investment — and elections are held every five years. If the status quo is maintained, the lack of investment will lead to the death of the industry.
There is much wrong, but there is time to sort it out — if we start now.
Froneman is CEO of Sibanye Gold. This is an edited version of a speech at the Rand Club, Johannesburg