companies’ shares listed on the
Johannesburg Stock Exchange have
declined by 30%. At the same time, the
rest of the exchange performed
exceptionally well.”
“For an industry that is the most
important driving force of the local
economy, directly and indirectly
contributing 18% to GDP, it is not good
enough,” he continued. “No one can
afford to stand by and let the next 10 yr
be another lost decade for this country.”
Productivity a problem
Highlighting problems faced by the
South African industry, Seamus French,
CEO of Coal at Anglo American, said
productivity at Anglo American mines
in South Africa was only 50% that of its
mines in Australia.
“We have gone through a process of
benchmarking and identified where
opportunities for improvements are,"
he said. Although neither he nor
Cutifani blamed the low productivity
on the workers – they attributed it to
the use of continuous miners rather
than longwall mining equipment –
French said that the company’s
Australian metallurgical coal mines had
seen a 30% reduction of its workforce
after a similar work audit and
subsequent changes.
The audit has now clearly been
repeated in South Africa. This is
unlikely to go down well with the
country's government, which dislikes
talk of labour reforms as upsetting to
the delicate balance between itself, the
labour unions and the
Communist Party with which it forms a
governing alliance.
Investor concern
Speaking in Cape Town at the 2015
Investing in Africa Mining Indaba,
Director of Equity Research at
Credit Suisse, Justin Froneman, said
international investors were worried
over a number of serious issues in
South Africa’s mining industry. They
were prepared to take their capital
elsewhere if the situation persisted.
“The thing people want most is active
leadership at both corporate and
country level,” he said.
“There is perception that not
enough is being done. Things are quite
unstable at the moment and investors
want to see mechanisms put in place to
address that. Unfortunately, we are not
yet seeing anything. The legacy issues
that surround South African mining
cut deep. The starting point is that the
sins of the past are there and we have
to rectify [them].” The ability for
industry to fall back on support from
government was lacking and that
caused frustration.
He also expressed concern about
what he described as the “seemingly
continuous adjustment” to legislation.
“There needs to be a fundamental
understanding that the government
cannot take out everything it wants to
from the mining industry regardless of
the environment in which it is
working,” he said. “Unfortunately
mining is cyclical. Mines will pay lots
of tax when times are good but not so
much when times are bad. It is a
mature industry, but the government
wants to tax it to death or keep
changing legislation to its own
benefit.”
A dismal economy
Much of the confusion, dissent and
ambiguity that surrounds the
South African mining industry is that it
remains politically driven, not allowed
to develop on the innovation, initiative
and industry of its own highly-skilled
and world-respected leaders. Many say
this is to detract from the government’s
record in other areas.
South Africa’s economic
performance had been dismal in recent
years and might only reach 3% growth
in 2017, according to Moody’s Investors
Service. It has cut its 2015 growth
forecast for Africa’s second-largest
economy to 2% from 2.5%. Inflation,
which accelerated to 4% in March, also
seems likely to breach the Reserve
Bank’s 3 – 6% target band by the end of
the year, according to Kristin Lindow,
Senior Vice President at Moody's
Investors Service. She said: “Any major
slippage from the government’s current
position would put the public finances
on a worse footing.”
Moody’s last year downgraded
South Africa to Baa2. Fitch has awarded
a similar rating, while Standard &
Poor’s rated South Africa a notch lower.
New ratings are due at the end of this
month.
Black empowerment
Away from the economic situation,
there are repeated allegations from the
government and unions that the mining
industry has not complied with the
National Mining Charter. This defines a
Broad Based Black Economic
Empowerment (BBBEE) code to which
the mining industry subscribed in 2004
and was updated in 2010. The mining
companies have refuted the allegations.
Recently provoked by the
government is a current dispute around
the future of those companies, which,
under threat of losing mining rights,
sold 26% of their equity to black
groups, some of which included
employees. Some of these shares, which
were initially sold at heavily-discounted
prices, were resold on to non-black or
not “previously disadvantaged” groups
for substantial profits. The companies
now have to face up to diluted black
shareholdings and non-empowered
ratings but are arguing that
‘once-empowered’ means ‘always
empowered’. The government
disagrees, saying they must build up a
26% black shareholding again. It is also
proposed, until virtually forced to
succumb to unexpected pressure from
the National Union of Mineworkers
(NUM), to drastically reduce the
recognition given to employee
share-acquisition schemes in the final
calculation of shares that count towards
so-called ‘meaningful economic
participation’ in the measurement of
empowerment.
Few goals scored
At a meeting in May, the Department of
Mineral Resources (DMR) said that
while 90% of the companies achieved
the 26% target on an employment
weighted basis, when the issue of
meaningful economic participation was
taken into account, only 20% had
complied.
The department also claimed an
estimated 45% of mining rights holders
did not meet the target for improving
living conditions of mineworkers and
only 36% of mining rights holders met
their target on mine community
16
|
World Coal
|
June 2015
