Pressure mounts for major shake-up in mining sector

Resources are a 'metaphor' for SA economy, writes Jana Marais

The mining industry must address empowerment and transformation as an "absolute necessity" and increase its contribution to the country's economic development if it wants to silence critics and calls for nationalisation.

This was the message from the Mining for Change conference in Johannesburg this week.

ANC Youth League president Julius Malema reiterated his insistence on the need to nationalise "profitable mines", while many other speakers said increased government action was needed to ensure that the industry played a bigger role in beneficiation, job creation, transformation and economic development.

Nationalisation of mines will be discussed at the ANC's national general council meeting in Durban this month.

Despite being the most resource-rich country in the world, according to a Citigroup estimate of its resources being worth $2.5-trillion, SA's mining has been declining for years and shrank during the commodities boom from 2001 to 2008.

A McKinsey report, part of the mining charter review process, found SA's mining sector, in real 2005 rand terms, shrank to R92-billion in 2009 from R103-billion in 1993. If the domestic mining sector had matched growth in the SA economy between 1993 and 2009 of around 3.3%, its value would have been R173-billion, 87% bigger than it was at the end of 2009.

The nominal value of mineral sales would have totalled R390-billion in 2009, compared to the R232-billion achieved, according to the report.

Mining exports contribute about a third of SA's total exports, 10% of GDP and about 500000 jobs, mainly in poor, rural areas. Despite the decline, the industry remains "absolutely central to our economy", said David Lewis, professor extraordinaire at the Gordon Institute of Business Science (Gibs) and former head of the Competition Tribunal.

"Globally it is looked upon as the health and character of the SA economy. If something goes badly awry in mining, fairly or unfairly, it is read as something of a metaphor for the SA economy. If something goes wrong in the relationship between mining and government, it is read, wrongly or rightly, as a metaphor for business relationships in SA," Lewis told a Gibs panel discussion this week.

Much of the lacklustre performance of mining in the past decade is blamed on the regulatory framework and the Minerals and Petroleum Resources Development Act of 2004. Gaps in legislation and the government's lack of capacity are blamed for the licensing debacles with Kumba Iron Ore and Lonmin, which made international headlines and shook investor confidence.

Speaking at Gibs, AngloGold Ashanti CEO Mark Cutifani said the regulatory environment alone was not to blame for the lack of growth. Other factors included a shortage of skills, the impact of empowerment on capital allocation, above-average international unit cost inflation of inputs such as electricity and labour, infrastructure issues and a decreasing productivity trend - "due in part to health issues, and due in part to some labour and management practices that we have to work on".

He said SA remained one of the top five mining countries in the world. "I also believe our politicians and bureaucrats within the department are genuinely concerned about the industry," he said.

Regarding empowerment, the industry is awaiting publication of the mining charter review, which was scheduled for release in August. Jeremy Michaels of the Department of Mineral Resources said this was imminent.

At the conference, Jeremy Cronin, the deputy transport minister, called for an end to BEE targets, blaming "narrow ownership targets" for setting back a "critical sector".

Cutifani expects an outcome to the charter review process within the next two to three months. He described the review as a "critical piece of work", and said empowerment ownership remained a concern.

"Empowerment ownership is an absolute requirement and an absolute that we need to deliver on. But if that exceeds the need for security of tenure and certainty for investors, then we will never achieve empowerment because we won't have an industry or we won't have investment in the industry to achieve empowerment.

"So we just have to make sure those two conversations are managed together in an appropriate and balanced way, and ensure that balance is not skewed so you scare away investment," Cutifani said.

A mining lawyer said companies needed to "balance their quest for profitability and sustainability with the proposed ownership and employment equity targets by taking cognisance of the real imperative to reduce poverty and unemployment.

"Mining companies need to give serious thought to social and labour plans to tangibly benefit surrounding communities and labour forces."