The towns SA mining forgot

David McKay | Mon, 21 Dec 2009 17:32
[miningmx.com] -- WHAT happens to mining towns after mining has ended? In the case of Kleinzee – a diamond mining town about 600km north of Cape Town on South Africa’s west coast – it’s near oblivion.

Having sprouted expressly to support marine diamond mining the community is now clutching at straws following De Beers’ decision to ratchet down operations.

“All my friends lost their jobs,” Ann Engelbrecht told an AFP news agency reporter in a report posted on Miningmx in August this year. “This is a mining town – what must they do here?” she asked.

Engelbrecht runs the local Spar supermarket and has seen sales fall 60% since taking it over in 2007. She’d worked for De Beers since 1984 but wonders whether her career switch was a wise move after having already suffered two heart attacks – from stress. “It’s just not worth it any more,” she says.

Virginia, the gold mining town in South Africa’s Free State province, is another typical example of what happens when mining leaves.

Gold was discovered there in 1955 and an extensive gold mine industry developed around it. But the once vibrant industry is in decline. Harmony Gold keeps the flag flaying for gold but at current rand gold prices even its key Free State mines are under pressure and could be reviewed.

One particular problem is how residents relocate when, having ploughed savings into mortgage repayments, they find property demand so poor it’s impossible to get a return. Who wants to pay R1.5m for a house in a town without a beating heart? They either stay or move to Johannesburg and live with their children.

South Africa’s government has attempted to head off the problem of mining ghost towns by legislating for it, quite punitively in some cases. For example, the Minerals and Petroleum Development Resources Act of 2005 requires mining firms to submit social and labour plans or risk losing their right to mine. One of its aims is to stimulate industry outside mining and mining services.

In iterations to the writing of the Royalty Act of 2008, the government said it wanted to reinvest funds levied on mining companies in terms of the Act to invigorate mining ghost towns and even centres with the potential to become ghost towns.

Pre-emptive strike

That pre-emptive strike is one that would be supported by Stuart Bartlett, head of the development and support division at the Industrial Development Corporation (IDC), which is attempting to mobilise municipalities to stimulate entrepreneurship and lasting economic activity in areas that have grown exclusively around a single industry.

Three pilot studies are being planned, with the aim of unifying the efforts of mining companies interested in adding flesh to the bone of their social plans and local communities.

Though in essence the IDC will identify potential business ideas it hopes it will be the municipalities that will become the programme’s flywheel. It’s to the municipalities that the projects, created as discrete legal entities, must report.

How a place like Virginia reinvents itself is difficult to say. “Tourism, mushrooms grown in the dark of mining shafts, fish in ponds left by mining,” says Bartlett.

Certainly, a major advantage of the mining industry is it leaves massive infrastructure behind that can be reused. Mines also have property that can provide a base for economic diversification. After all, mines are the exploitation of the resources beneath real estate.

In order to qualify for IDC backing, the proposed business ventures have to be “catalytic,” says Bartlett. They need to provide a hook from which other industries can grow.

Tourism, mushrooms grown in the dark of mining shafts, fish in ponds left by mining

As for other qualifying criteria, entrepreneurs would have to show the project was sustainable and viable enough to be supported by a commercial bank.

It also has to show a clear line of reinvestment back to the community. The IDC wants to avoid well-heeled businesses in Johannesburg seizing upon a regional opportunity and effectively repatriating the proceeds. In return, the IDC will plough R22m into each project, with support being provided once certain milestones are reached.

Generally speaking, it’s probably better for a currently flourishing mining centre to develop other streams of economic growth. But Bartlett says there’s concern in looking at mining areas that could be hit by retrenchments amid South Africa’s current recession.

According to the Mining Qualifications Authority as many as 50,000 mine workers risk losing their jobs. Towns such as Rustenburg, a known platinum centre that was cash flush just two years ago, risk being turned into ghost towns were mining operations to wind down, it says.

While the extinction of Rustenburg is hardly likely it’s still worth remembering that – given the multiplier effect – the livelihoods of 400,000 people could be threatened by the recent climb-down in mineral prices internationally.