Picture: ISTOCK
Picture: ISTOCK

The latest data provided by the gold mining sector make for grim reading, with employment in the industry down 30% — or 48,000 jobs — since 2009, mirroring the decline in production over the same period. And if we’re not careful, half of the remaining production will be gone in the next five years, one of SA’s top analysts warns.

But to blame ever-deepening shafts, declining ore grades and above-inflation increases in labour costs would tell only a small part of the story and would prevent us from learning the crucial lessons offered by the gold sector’s decline.

Let’s rewind a decade or so to Eskom’s rolling blackouts of 2008 when mining companies were forced to cut their electricity consumption. On top of this, attempts by some to build their own power stations to reduce reliance on Eskom, which was growing increasingly unreliable and expensive, died a Kafkaesque death somewhere between Eskom, the Department of Energy and the National Energy Regulator of SA.

The mining industry has long highlighted the importance of regulatory certainty to facilitate investment in the sector, which is highly capital intensive and where projects often have projected lifetimes of many decades.

Solar energy is not an option for energy-intensive users who send thousands of workers underground daily, relying on power to ventilate and cool shafts and transport people in and out. And so the investment dollars — and jobs — started flowing elsewhere, to places with reliable and available power supply where tariff increases were likely to stick to inflation. Electricity costs now account for 20% of South African gold miners’ costs, the second-largest item after labour, which accounts for just more than half.

The impact was felt much wider than the gold sector. Remember, for example, Rio Tinto’s cancelled plans to build an aluminium smelter at Coega, and African Rainbow Minerals and Assore’s decision to build their manganese smelter in Malaysia.

Eskom isn’t the only state-owned enterprise to blame. Other infrastructure constraints and costs, and the effect on production and growth, have been well documented. The coal industry’s battles with Transnet are one example; look out for Kumba Iron Ore’s results on July 24 to see what a large number of derailments can do to a company’s bottom line.

The mining industry has long highlighted the importance of regulatory certainty to facilitate investment in the sector, which is highly capital intensive and where projects often have projected lifetimes of many decades.

Even if investors did not pay too much attention to Julius Malema’s beating of the nationalisation drum during his time as leader of the ANC Youth League, other regulatory issues certainly grabbed their attention. The Mineral and Petroleum Resources Development Amendment Bill has been going nowhere slowly since 2012, and 2017’s version of the Mining Charter, published after almost no consultation with stakeholders, was so universally unpalatable that even a group of illegal miners trekked to Pretoria to protest at the Department of Mineral Resources.

The shambles and corruption at the department – since also highlighted by Mineral Resources Minister Gwede Mantashe — have been an issue of great concern.

Think of the many unjustifiable safety stoppages in the platinum industry in recent years, or the great prospecting rights heist, foiled three years later by the Constitutional Court, at Kumba’s Sishen mine in the Northern Cape.

SA’s gold sector faces structural issues and decline is inevitable, but we remain one of the richest countries in the world when it comes to untapped mineral resources.

Yet we have made it nearly impossible for exploration companies and junior producers to do business here, while the increasing risks means it is increasingly difficult for large, established players to find viable opportunities — and shareholder support — for large-scale investments.

The results are clear for everyone to see: declining investment, employment and production. In a country with unemployment of nearly 30% and half the population living in poverty, what has been done to our mining industry is nothing short of criminal.

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