Quarry Southern Africa November 2018 - Page 18

BUSINESS BACKSLAPPING BETWEEN MINERS AND MANTASHE By Eamonn Ryan A t this year’s Joburg Mining Indaba held in October, the mood was completely different. Mining bosses at the Indaba were enthusiastic in their praise of new minister Gwede Mantashe, if only because he was willing to hear their side of the story. Some spoke of receiving late-night calls from the minister for help with sticky details of the new, improved Mining Charter. For the first time in history South Africa has a mines minister who has actually worked in the industry. He understands the need to have open doors and robust conversations. Now the country can start the process of getting this once-great industry back on its feet. This is a minister who believes in negotiation and compromise – a skill developed no doubt during his time as a trade union negotiator. The result is a Mining Charter that is not subject to change, at least not for the next five years, which is precisely what mine bosses have been calling for. They say regulatory certainty, rather than the actual terms of the charter, is the key to unlocking mining investment in South Africa. Mantashe has clearly identified mining as the means to create jobs and spur economic growth. He implored South African mine officials to stop criticising the mining industry to foreigners, thereby creating wrongful perceptions of realities on the ground. South African mining is far from a sunset industry, he told the Mining Indaba. It has the potential to rise again, creating hundreds of thousands of jobs in the process. One of the ways government 18_QUARRY SA| NOVEMBER/DECEMBER 2018 intends to make this happen is by making mining rights conditional upon meeting BEE supplier and local content targets. If all goes according to his vision, mining could be the engine for the revitalisation of downstream manufacturing industries. A key obstacle to mining investment that has now been removed from the new Mining Charter is the requirement that mining exploration companies have BEE representation. An alarming statistic disclosed at the Mining Indaba is that South Africa, once synonymous worldwide with mining, now accounts for just 1% of global exploration. Mantashe appears to understand that exploration is essential before new projects see the light of day and that it is pointless to subject this non- revenue-generating activity to onerous BEE requirements. For all the budding bromance between Mantashe and mine bosses, there are still plenty of challenges to overcome if mining is to return to its glory days. Economist and head of economists.co.za, Mike Schüssler, put a dampener of optimism when he told delegates that mining inputs costs are running well ahead of general inflation. Among the worst offenders are so- called administered prices over which mines have no control – such as electricity, water and rates and taxes. Electricity increases have been running at four times the level of consumer inflation. Transnet rail and harbour costs are likewise a drain on mine profitability. Mine labour costs increases, too, are running above the national average. A result of these costs and inefficiencies is that South Africa used to each year export What a difference a year can make. Last year in a statement of sincere unease, the Minerals Council of South Africa shunned former mines minister Mosebenzi Zwane, believing he had ulterior and nefarious motives. Government then was intent on pushing through a version of the Mining Charter that many believed was suicidal for the industry. Mineral Resources Minister Gwede Mantashe. more than 1 000t of granite blocks. Today it exports 250t, simply because other countries such as Brazil can do it so much cheaper. It will take a coordinated attack on all these cost sources before mines start to see a decent return on capital. Schüssler attributed much of the blame for this situation on the surge in ‘administered costs’ – such as electricity and water – in South Africa along with the rise in labour costs all of which had been running for an extended period at rates well above South Africa’s domestic inflation. At the launch of PwC’s Mine Report 2018 the day before, Andries Rossouw, PwC partner, noted that the aggregate cost of electricity in mining had increased from 5% of the turnover of the mining industry a decade ago to almost 10% in 2018. Investors are better off in a risk-free money market account than betting on mining, Schüssler told the Indaba, and that has to change before mining can really take off. South Africa still has plenty of minerals below ground, even gold, so it is way too early to write off the country’s mining. But now the hard work begins: knocking off a percentage point here and there from electricity, water, harbour and rail fees and labour. Will Mantahse be able to get labour to lock itself into a multi-year wage increase at or below inflation? If he can do that he will be a miracle maker, and could very well go down in history as the man who saved South African mining. 