[miningmx.com] – FOR a state-owned bank, the Industrial Development Corporation’s (IDC’s) activities in the mining sector during the last quarter of 2012 were spectacular. It bought Anglo American’s stake in Scaw Group for R3.4bn, joined a Chinese consortium in bidding R5.3bn for Palabora Copper (Palamin), and concluded the R3.24bn investment in 16.2% of Sedibelo Mines, operated by Pallinghurst Resources.
Amid all the noise about increasing state intervention in mining, which coalesced at the ANC’s national conference in Mangaung, one wonders whether the IDC’s increased investment appetite is a gloss on official policy?
Already, the IDC has been identified as an important constituent in two state-backed business initiatives in the resources sector that mirror government policy directly. One is the establishment of a new steel manufacturer with the IDC identified by the trade and industry department as the financier of choice.
Secondly, the IDC is to become the flywheel in a public enterprises department (DPE) initiative to build a vibrant black-owned coal sector, and to help consolidate existing black-owned coal mining firms where necessary in order to de-risk Eskom’s dependence on the current suppliers of thermal coal. Eskom also needs 2.1 billion tonnes of additional coal from now to 2040. It falls to the IDC to fund this emergent coal sector.
Abel Malinga, divisional executive for mining and manufacturing at the IDC, is understandably cautious on issues of policy.
Asked if he believes the IDC will ultimately become the vehicle for the government’s mining investments, replacing the much-criticised African Exploration & Mining Finance Corporation (AEMFC), he says: “We need to understand what we mean by a state-owned mining. Do we want to follow the model in Zambia, or in South America’.
Right now, there’s nothing on the table regarding either the steel mill or the coal sector. Malinga says he hasn’t met with DPE or Eskom on a coal fund but he seems to back the idea: “We have coal enterpreneurs knocking on our door every day,’ he says. “And, we’re not shy,’ he adds.
“Once we understand what Eskom and DPE have in mind, we’ll seriously consider it,’ he says. He likens the capitalisation of the coal market to the subsidisation of Sasol, the petrochemical giant that now trades with such distinction.
Steel plans are similarly veiled. There’s much suspicion that state plans to build a steel factory will vindictively reprimand ArcelorMittal SA (Amsa) for its domestic pricing that critics say is exploitative. “Whatever we do, it will introduced responsibly,’ says Malinga of the steel mill. “Sure, certain stakeholders may not be happy with Amsa, but it’s an important producer in South Africa and we need to guard against unintended consequences,’ he adds.
He means job losses. South Africa can’t sustain repeated retrenchments, especially among the ranks of big business as evidenced by the outrage that greeted Anglo American Platinum’s (Amplats’) plans to cut production affecting up to 14,000 jobs.
But there are structural problems in the steel sector. Malinga criticises the scrap market and steel merchants, such as Macsteel which, in turn, refutes the market dominance ascribed to it.
Employment is also behind the 16% stake in Sedibelo Mines. Pallinghurst Resources has no obligation to follow the IDC in its downstream platinum plans, but the point of the investment is to secure feedstock to supply an independent smelter.
Creating smelting and refining platinum capacity outside the Amplats-Impala Platinum-Lonmin axis has been picked over for years. But it has proved too expensive for a single company to achieve, while co-operation among the junior platinum firms has been elusive.
But is there more fundamental change for the IDC? Enoch Godongwana, head of the ANC’s economic transformation committee, told Miningmx last year that he didn’t favour a state-owned mining company operating mines, which is currently the mandate of the AEMFC. Godongwana would rather see the state take investments in mining which is already the function of the IDC.
A test case of future cooperation between the AEMFC and the IDC is thought to be the financing of the T-Project, a coal resource owned by the AEMFC that it thinks could supply a coal-to-liquids (CTL) plant. The IDC has been connected with financing it, but Malinga is not convinced. “CTL is capital intensive and risky,’ he says.
“We need to crawl, before we can talk, before we can run,’ says Malinga. “The relationship between the IDC and AEMFC has to one of housekeeping first.
“We are doing similar things, but we need for first understand what each other is supposed to be doing. Once the mandate is sorted, we can decide what we mean by state intervention in mining,’ he says.
