The State of mining in South Africa and beyond

South Africa’s historic mining industry has been taking it on the chin for the past five years with economic recession, political interference and rand fluctuation playing havoc, but it’s showing signs of recovery of late, with specific commodity rallies, giving hope ahead of the 2017 Mining Indaba in Cape Town

Lead1216_-_Article_19814_-_Warren_Beech_Sitting1.jpg

Our internal problems were not helped by the wider economic/oil and gas slowdown internationally, making the need to streamline and modernise mining operations locally a priority, whilst dealing with a number of labour and social issues head on.

The ‘State of Capture’ report has done the industry no favours, casting a dark shadow over the ethics of the mining house and electricity provider mentioned. However, it is positive to see the reported wrongdoing brought to public attention.

Now, to make sense of the complex nature of mining locally, and provide the expertise of arguably South Africa’s top mining lawyer, Warren Beech, Head of Mining at Hogan Lovells, provides exclusive insights.

And to make improve matters substantially, Beech was in Houston, Texas at the time of the interview, attending the Global Energy Summit, giving him a prime seat to give feedback from the much talked about US Presidential Election, which could have implications for mining in South Africa.

Beech starts off by painting a picture of the feel in the States at the moment, “Firstly there is a general consensus over here that the election was surprising. When it comes down to questions of why Donald Trump won and what it means, it is more a case of why Hillary Clinton lost. There is a feeling that he won as a rejection of globalisation. The vote was based on a strong desire for localisation. Therefore, if that is the case, there could be a negative impact on the mining industry in due course, particularly from an American perspective and their investments worldwide, and naturally, in Africa.

“But there is another debate about honesty, which rated Trump’s dishonesty versus Clinton’s and it was very interesting because his dishonesty during the election was permissible for typical political rhetoric, which is accepted in an election campaign, whereas Clinton was dishonest about the emails, which was not an acceptable level of dishonesty. People understand that Trump is not necessarily going to continue with that rhetoric once he is elected. Thus, nobody can really say, with any certainty, what impact it will have on anything,” he explains.

However, it may not be all doom and gloom for mining, with Trump taking a stance against so-called climate change. “But if you look at what he’s said so far, there is a very strong focus on coal, denial of climate change with less importance on environmental aspects. So if that’s true, it will make a permissible environment for mining,” reflects Beech.

The state of mining in SA

With portions of mining locally having to lay thousands of workers off with pricing dips and operational cost spikes killing profit, there have been a few rays of light. Those rays of light often have to penetrate a thick cloud of political miss-management along the way.

“There have been glimmers of hope of recovery but those were sporadic and not sustainable—now they seem to be possible. Your gold, manganese, chrome and even coal are at sustainable prices and that is a positive. But the report on State Capture did not do us any favours; the MPRDA amendment bill has gone through its first stages. So the regulatory uncertainty still comes back and creates a un-investor friendly environment,” says Beech.

And Eskom has not been doing itself any favours of late, with a string of failed CEOs and baffling statements to the media and public over the need for a massive nuclear spend. “Somebody like Brian Molefe stepping down at Eskom sends a very strong signal to people that things are not right. Investors do look at all of that and are highly sophisticated with regard to where they invest, they don’t just look at the commodity prices.

“The smaller players are looking and asking, ‘Why can’t I do this?’ I need just as much support from Eskom to keep my business going.’ The established companies are looking on in concern, not certain if new mining and prospectus rights will be handed out, which will prevent them from doing business.

“On the flip side, one could argue it is a good sign that people are being ‘brought to book’ and exposed by the media and Public Protector for wrongdoing. I’d suggest that our media does a lot more exposing of corruption than other countries. I’ve heard that the sleepy hollow of New Zealand often hides their dirty laundry, with billions in corruptions taking place without much press exposure,” he says.

Beech sees disclosure as a team effort. “It’s a combined effort of people wanting disclosure; the media has played a part in covering the events and having the strength of courage to disclose it. Our previous Public Protector, good people and citizens who believed in this was crucial.”

Streamlining the Department of Mineral Resources (DMR)

The DMR has also come under fire over the past few years for not managing mining optimally in SA and allowing encroachment on precious natural resources while allowing scarce water resources to lay vulnerable to pollution.

“You’ve got some really good people in the DMR, but again, it’s a capacity issue and the empowerment of the inspectors, from junior to senior level. Quite often, there is a lack of understanding of what they can and can’t do. The industry did not do itself any favours when the labour court set aside the informative guidelines from the International Ferro Metals Judgement. They took away the guidelines, and, for me, that was a concern.

“Now, all they have to work on are interpretations of the Act. This is where lawyers can get it wrong—if you get 20 lawyers in a room, you’ll have 25 opinions. The only way it can work is if the inspectors are given the tools and guidelines when they have submitted an application. They need to learn from mistakes made in previous judgements,” says Beech.

“There have been glimmers of hope of recovery but those were sporadic and not sustainable—now they seem to be possible

Balancing environment with profit

The fine balancing act between the environment and the need to mine and create jobs is a very telling factor for the sustainability of the industry, going forward. Without a steady supply of water, mining is nearly impossible.

“It’s extremely difficult. Some people will say that no commercial gain can outweigh the potential harm to the environment. But then there is the other end of spectrum that says, ‘Project x will create jobs, feed into the local community and the general commercial environment beyond that.’ So it’s a very fine balance and the most important thing is the enforcement,” says Beech.

Change of leadership

Some quarters have asked for a change in cabinet leadership for the mining portfolio, but Beech feels a change would just create more short-term uncertainty, which would be untimely, considering the recent smoother patch.

“It would mean another short-term, highly disruptive period. When they changed ministers a while back, it was very disruptive but everybody has got into a fair rhythm and understands what business wants. A lot of people are saying Mineral Resources Minister Mosebenzi Zwane needs to go but it would have a highly disruptive short-term effect,” he explains.

Key opportunities in 2017

Aside from the doom and gloom, let’s now focus on the opportunities in 2017 for the resource-rich Africa.

“Namibia has been on the radar for quite a while from a natural resources point of view, and is fairly stable from a political and regulatory point of view. Mozambique comes up every couple of months as a hotspot. Unfortunately, every time they get a bit of headwind, something happens, and it’s not normally political, but rather natural disasters. Mozambique is regarded as important for energy and infrastructure.

“Zambia and Botswana have essentially bottomed out with nothing really exciting happening. Nigeria, if you are looking further north, is big from a telecoms and TMT perspective. The most important developments have been in agriculture and water/food security. Therefore, any of our neighbours with decent soil to graze or grow on close to water will become very important,” he adds.

Meanwhile, the Department of Water and Sanitation (DWS) has raised their game of late, speeding up the time taken for a water license for mining. “The Department of Water and Sanitation, over the last five-six years, has implemented a programme to speed up licensing, which was horrifically long. You could wait for up to six to eight years to get a license. These days, the licenses are coming out more rapidly, with more resources being given to it.”

Mine closure

You only have to turn on the news to see abandoned mines, with contractors not being paid, and, most importantly, massive environmental and social effects on the communities left behind, to contend with.

Beech explains, “There are always going to be three different types of companies. Some will put the money away and sit on massive trust funds and will allocate for the rehabilitation. Then you have the middle range of companies that are not making a lot of money, and there is never enough money for social and environmental safeguards. The third category of miners gets into real trouble and walks away leaving a big hole, and those are the biggest concern. The new regulations are looking at setting up a trust fund for post-closure, which is mostly related to water.”

Mechanisation

The older mines are very difficult to fully mechanise because the structure and design can’t take that into account. Only new mines are being set up for not only mechanisation but automation, which is a key criterion for a modern mine. Thus, no human will be exposed to the danger associated with mining.

Job losses are, sadly, a key component of mechanisation.

“The reality is that there will be some job losses, which would be at the lower end of the scale like operators, assistants and spotters. The idea is to upskill those people who can and want to be upskilled into a higher, more specialised category. That will come down to the maintenance on these mechanised, autonomous vehicles and the ability to operate them remotely. So job losses can be minimised by the upskilling aspect,” he says.

Beech has an ‘adapt or die’ attitude to technology for those who fear it taking their jobs. “If you are fearful of technology then you’ll fall into the category of people who can’t keep up and can’t adapt. You should not be fearful of technology but make sure you are up to speed on it and remain relevant in the workplace. Unfortunately, there is a vast pool of people who simply can’t adapt to the new training environment,” he explains.

Education

Some have argued that universities are no longer relevant, falling behind the cutting-edge knowledge needed in this demanding industry.

“The universities are still very academic, thus, the transition into real life is still holding us back. I’m very strongly in support of vocational training, like Canada, who integrate their students into workplaces for extended periods before they graduate. Thus, strong co-operation is needed between the institutions and businesses. There is a common view that people should have access to education, but it’s about what you are paying for. If you are getting free education, what exactly are you getting? We need relevant education, we’ve got enough lawyers, and it should be more practical, scientific areas that need the money,” says Beech.

Mining Indaba

The Mining Indaba, held in beautiful Cape Town every year, has been falling off the map in recent times. With a change in focus and increase in fees, have the new owners killed the goose that laid the golden egg?

“They have taken a step in the right direction by reducing the delegate passes but it is still very expensive if you take in the whole package. They need to reduce the price of the stands, which are hellishly expensive. They need to attract the investors back, with the shifting emphasis over the last three years into a trade show.

“Having said that, it still remains a very important event because the right people are there at the right time to connect with. From a legal point of view, you are not necessarily going to walk away with instructions, but if you are not there, your clients will notice,” he explains.

Women in mining and empowerment

The role and numbers of women in mining and the manipulation of Black Economic Empowerment (BEE) into something more tangible has been slow to take seed in SA. While there are signs that it’s slowly moving in the right direction on some levels, it falters on other levels.

“It’s not where it should be. Women in mining, the percentage goes up in certain areas like machinery and haul trucks at operator level—there has been an influx. But the supervisory chain still requires a lot of work, as well as the boardrooms.

“Empowerment is always a very tricky question. The theory being is that BEE should assist as many people as possible, hence the amendment to the Mining Charter Three to make sure the various categories benefit from employees to communities, so you don’t have the same merry-go-round of people on the empowerment rollercoaster. Until we get it right and spread it widely enough, there will never be happiness amongst the mining companies,” he concludes.

comments powered by Disqus

RW1
R1
R1
R1

This edition

Issue 35
Current


Archive


Mining_Magazine Gold rises as oil price slump boosts safe haven demand https://t.co/t0Y1Ky0Uhq https://t.co/Lj9tcKg0KD 2 months - reply - retweet - favorite

Mining_Magazine Book your seat for the biggest event of the year Sustainability Week 2017! Time is running out guys!… https://t.co/Libo0QaG4j 3 months - reply - retweet - favorite

  • Jola Ngonzo-Jafta
  • Leon Louw
  • Sphelele Makhoba
  • Katlego Raboshaga