Although SA mining once again experienced a tough year in 2014, a somewhat different industry is starting to emerge. It will be safer, more skills-intensive and, at the top end, very aware of its social responsibilities. However, the question of whether or not this is a good thing raises many issues – some mutually contradictory – and thus does not give rise to an easy answer.

Mining remains the backbone of the SA economy. It is far more important than its 8.2% direct contribution to GDP would suggest. According to the Chamber of Mines, when the multiplier effect is taken into account, one-fifth of the local economy can be attributed to the sector, and every job in mining creates two jobs in related industries.

Direct exports of mined products account for about 38% of SA’s foreign earnings, a figure which rises to over 50% when beneficiated products, such as steel and chemicals, are taken into account.

However, perhaps most important of all is the ‘social multiplier’ effect of mining. The chamber estimates that over 13.5 million South Africans depend on the sector for ‘the daily food on their table’. The vast majority are from or in poor subsistence-oriented rural communities.

Mining provides both a first step towards urbanisation and compliments the welfare grants that rural communities depend on. That, however, is the old model, dependent on migrant labour and widely viewed as grossly exploitative.

The aggression of organised labour and limp response of government over the last couple of years show that it is no longer viable. On the upside (and partly as result of the industry’s greater capital intensity), work fatalities are on a decline, year-on-year.

2014 saw what has now become a familiar litany of negative or ‘headwind’ conditions continue to assail the industry. Total mining output fell, reflecting rising costs – especially labour and electricity – and declining output in gold and platinum mining.

Platinum, the country’s second biggest sector (by value) behind coal, suffered a 45% year-on-year decline to August 2014. Only iron ore production (the third biggest) expanded.

Mining remains the backbone of the SA economy. It is far more important than its 8.2% direct contribution to GDP would suggest

SA’s mining industry was subjected to a now familiar double whammy in 2014: weaker international commodity prices and uncertainty in the national operating environment.

Commodity prices reached decade lows in 2014. According to PwC’s November 2014 edition of SA Mine, the gold price has dropped nearly 50% since it achieved a 10-year-high in 2011. Platinum has dropped 68% since its 2008 peak, and coal by 52% since 2011.

  The only way out of the dilemma is to focus on what PwC calls ‘the dreaded P word’ – productivity – and increasing it. In fact, EY identified it as the top risk in global mining in 2014. Mining  companies have cut costs as much as they can – survival now depends on increasing operating cash flow per worker.

For years, the term ‘productivity’ has, in SA, been viewed by both ANC leaders and organised labour as a smokescreen; hiding exploitative and even racist views. But this has shifted with the rise of an ANC mining capitalist class epitomised by Cyril Ramaphosa, Patrice Motsepe and Tokyo Sexwale.

SA mining companies with the best performance have dealt with productivity issues in two distinct ways. One obvious strategic direction is a move towards greater mechanisation and capital intensity, which is the route chosen by Anglo American Platinum (Amplats). This means that assets are no longer viable, and in July 2014, the company announced plans to sell its older, deep, narrow reef, labour-intensive platinum operations. Amplats has signalled that it will concentrate on projects such as the enormous open-cast Mogalakwena platinum mine near Mokopane.

The other strategic direction has been demonstrated by Sibanye Gold which, in early 2013, inherited undervalued Gold Fields’ group assets – Driefontein, Kloof and Beatrix. These mines were once great names in the industry but are now close to exhaustion. Gold Fields was perceived to be ‘sanitising’ its more viable assets and little was expected of the new company.

Mining companies have cut costs as much as they can; survival now depends on increasing operating cash flow per worker

However, Sibanye’s performance stunned observers. The company’s share price rose 220% in its first year. An entrepreneurially minded CEO, Neal Froneman, cut the sort of head office ‘fat’ associated with big corporates (such as Gold Fields) and retrenched 6 000 of its 45 000 workers without incurring the wrath of labour; re-organised shifts to allow more time at the mining face; and ended the Gold Fields habit of ore extraction without reinvestment. With the prospects of a viable future, morale improved and was no doubt a factor in the company’s success.

With these innovations, Froneman expects the original assets to last at least another 10 years. ‘It was basically a turnaround opportunity,’ he told BizNews in July. Froneman has said that Sibanye is eager to move into the platinum sector where the older assets – such as those Amplats is seeking to offload – lend themselves to these techniques.

All too much has been said and written about SA’s difficult operating environment. However, while the major uncertainties were not resolved in 2014, some developments can be viewed in a positive light. The controversial Mineral and Petroleum Resources Development Amendment Act – which gave even greater discretion to the minister – was rushed through Parliament prior to the May 2014 general election before being ‘returned’ (for reconsideration) by the new minister, Ngoako Ramatlhodi.

The problem is that Ramatlhodi’s motives have not been made public. The final version of the Act had in fact been approved by the Chamber of Mines, which is why withdrawal casts doubt on the efficacy of government-industry negotiating processes. It is not clear whether the minister thinks the Act went too far or not far enough (in areas such as mandatory beneficiation, for instance) or whether the problem perhaps lies elsewhere.

Looking ahead, the industry is a little apprehensive about an industry assessment in terms of the Mining Charter, due in early 2015 and based on the situation at 31 December 2014. The Mining Charter sets ‘targets’ for the industry, notably 26% ownership of each company by previously disadvantaged South Africans in addition to other employment equity, procurement and social requirements. The apprehension is based on two issues: the Department of Mineral Affairs has real teeth and could, in theory, cancel a non-compliant company’s 30-year mining rights.

Even with the best intentions, however, compliance is beset by uncertainties. It is debatable whether government will recognise the ‘once empowered, always empowered’ principle. The industry believes that empowerment transactions should continue to count even if the original partners no longer hold their shares.

At best, 2014 was a year of consolidation for the SA mining industry. At least the downside didn’t bring with it any real surprises.

By David Christianson
Image: Gareth van Nelson/HSMimages