Eskom top of mind for concerned mining sector
Last week’s mining indaba spoke to a range of issues facing the sector, including climate change and community engagement. But while prospects are generally improving, threats to investment remain
The Investing in African Mining Indaba is considered a kind of proxy for the health of the mining industry as a whole. A few years back the annual event was losing its shine. But on its 25th anniversary last week, the indaba — already the largest mining investment conference in the world — hosted the biggest delegation yet. It was also the first time a sitting SA president addressed the event.
Renewed optimism in the sector, and the heightened possibility of deal-making, brought people to the indaba in droves — quite an astonishing feat, when one considers that tickets at the door cost R23,000 a pop.
Prospects for the sector are improving globally. And green shoots are also appearing in SA, where mining has suffered the effects of chronic policy uncertainty.
According to the Minerals Council SA, the mining sector contributed 7.3% to GDP and grew by 1.2% in 2018, "representing a growth rate slightly faster than in the overall economy", said council CEO Roger Baxter.
Mineral resources minister Gwede Mantashe said the government aims to grow mining’s contribution to the economy to 10%.
In expounding their hopes and fears for the sector, the speakers brought into sharp focus the pivotal opportunities and issues facing the industry today.
There was a marked emphasis on sustainable mining and the question of climate change, as well as community engagement. And a notable effort was made to bring some of the issues discussed at the alternative mining indaba — a parallel event that represents mine-affected communities — into the conference. Additionally, CEOs of multinational mining companies took the time out to address delegates at the alternative event.
Ignoring communities around mines is no longer possible. In SA and elsewhere on the continent, community unrest around mines can adversely affect production.
If you want to search for elephants, you have to go to elephant country. And when it comes to mining and gold mining, Africa is elephant countryMark Bristow
As Mantashe said: "The industry must move faster to realise mining is not about rocks, it’s about people."
Gold Fields chair Cheryl Carolus agreed: "Doing the right thing is always the best thing for business. Taking short cuts will always come back to bite you."
Sibanye-Stillwater CEO Neal Froneman noted how the Fraser Institute’s annual survey has found SA to have the worst perceived community and labour relations in the world. It is "an area that requires a significant amount of work", he said.
Mark Bristow, CEO of the world’s largest gold mining company, Barrick Gold, said companies need to look after all stakeholders: shareholders, host governments, workers and the communities around the mines. But everyone needs a change in mindset, he said — "all have succumbed to the desire for instant gratification".
While Bristow and other major investors at the indaba reaffirmed their commitment to mining in Africa, there is marked concern over the rising trend of resource nationalism on the continent. Unlike outright nationalisation, in which governments take full control of mines, resource nationalism takes various forms, such as states imposing higher royalties and taxes on companies and introducing or increasing compulsory minimum quotas for ownership.
Given the historical exploitation of Africa’s mineral wealth by the private sector, governments claim these policies aim to ensure the people benefit from the mineral wealth of their countries. However, the worrying factor is a lack of consultation and a sudden change in rules for investors, as seen in Tanzania, the Democratic Republic of Congo and Zambia.
Barrick has operations in all three of these countries, and though it is facing challenges there, Bristow said the mineral wealth of the continent cannot be denied: "If you want to search for elephants, you have to go to elephant country. And when it comes to mining and gold mining, Africa is elephant country."
What it means
In Africa, resource nationalism is a concern for investors; in SA, Eskom is top of mind
In SA, too, the question of exploration was a prominent concern among indaba speakers. Anglo American CEO Mark Cutifani said exploration is "critical" to the future of the SA industry. Mantashe similarly dubbed it "the lifeblood" of the sector.
But in SA the project pipeline has been running dry because red tape imposed on prospecting rights has deterred investment. The latest mining charter will now not apply to exploration and it’s hoped this will unlock investment in this area.
However, Eskom was the issue on everyone’s minds.
The ailing utility, still reeling from poor governance and corruption, is struggling to keep the lights on, given its R420bn debt burden.
Eskom CEO Phakamani Hadebe took to the stage for a question-and-answer session, in which he reassured investors that the utility’s new management knows what needs to be done to fix things.
President Cyril Ramaphosa announced that the mammoth state-owned entity will be split into three business units. However, the plan faces fierce opposition from trade unions — a real problem for the ANC-led government in an election year.
Days later, load shedding returned.