SA mining keeps a stiff upper lip

[] — THE South African mining industry has responded in typical fashion to the insulting attack launched by Minister of Mineral Resources Susan Shabangu at the AGM of the Chamber of Mines on November 3.

It’s saying nothing in public and hoping it will be able to smooth things over behind closed doors at a soon-to-be-held meeting with the minister.

This is because the mining industry’s preferred modus operandi has always been to negotiate behind closed doors and avoid public confrontations.

“You don’t get anywhere arguing in public with government,’ De Beers MD Gareth Penny told me a few years back after an inaccurate and nonsensical lambasting the diamond group received in parliament from former deputy mines minister Lulu Zingwana.

But I think the real reason SA mining industry executives have been – and in many cases still are – so scared to criticise government on the record is because of fears of repercussions on their businesses.

The key issues here are the conversion of old order into new order mining rights, and the granting of new order mining and prospecting rights.

The only executive I can recall who was really prepared to speak his mind on the record was Coal of Africa (CoAL) MD Simon Farrell, a blunt Australian, who in February tore into SA’s civil servants.

He said: “The regulatory process in South Africa is far too slow and the country’s civil servants and bureaucrats need to get off their bums.’

It now looks to me like even Farrell has been gagged. That probably has everything to do with the fact that CoAL still does not have its new order mining right for its proposed Vele coal mine.

It should have been granted by the end of September in accordance with the minerals department’s stated policy of handling new order mining right applications with a year. Farrell declined to comment when asked about the delay.

The drawbacks of not responding in kind to government when attacked are that the general public gets the impression the state may actually be right, and also that the government starts really believing its own rhetoric.

The closest comparison in the business world would be a CEO whose management style is to denigrate any subordinate bringing him news he does not want to hear.

What happens is that subordinates stop telling the CEO the bad news – and the CEO gets out of touch with the realities of what’s happening in the business.

Instead of being identified and dealt with before any real damage is done, the problems are left to fester until eventually the CEO finds out what’s really been taking place when the wheels come off his business.

So let’s take a look at the position the SA mining industry has managed to get itself into through its “let’s all be friends’ policy.

In late April, government published the Code of Good Practice for the Minerals Industry, and the Mineral and Petroleum Resources Amendment Act (MPRDA).

These retroactively introduced legislative changes will affect companies that had applied for – but had not yet been granted – conversion of their old order rights.

The legal assessment is that the changes have materially weakened the position of those companies which have not yet converted.

The Chamber of Mines said on May 22 it was hoping to find “common ground’ with other stakeholders on the issues.

The down-to-earth assessment of Andrew Mitchell, MD of legal firm Bell Dewar, is that “hopefully, sanity will prevail at the end of the day’.

Now we have Shabangu launching a broad attack on the mining sector after a government review of progress on the Mining Charter, which the chamber was not party to.

Her audience was made up of industry heavyweights and blue-chip companies such as Anglo American, BHP Billiton, Xstrata and Lonmin. She told them: “The review has indicated there is a lot of fronting …by this industry. A lot.’

Her tone has to be viewed as threatening, given her comments like: “You just pray that I die tomorrow – then you’ll survive. If I am alive, you’re still in trouble.’

There’s a lot that should be said to Shabangu upfront by the SA mining industry, instead of off the record as some executives are doing at present.

Topics that can be raised include the incompetence of Shabangu’s own department and the imposition of complex and poorly-defined concepts in the legislation.

Then there’s the damage being done to the country’s investment image through the imposition of retrospective legislation and such actions as government’s approach in forcing the mining industry to provide basic infrastructure and services that government itself should be providing.

The message coming through loud and clear is that South Africa has become a difficult country for a mining company to operate in, compared to other African mining destinations such as Botswana, Tanzania, Ghana and Mali.

The SA mining industry missed out on the last commodities boom. It seems likely to miss out on the next one as well for a number of reasons of which the most important is the country’s power crisis. The blame for that has to be placed squarely at the feet of this government.

You could liken this scenario to a case of the wheels coming off South Africa Inc because the country’s CEO – the government – does not really know what is happening on the ground.

It’s clear there’s a powerful left-wing political motivation behind what government seems to be trying to do but let me quote a man far more versed in political developments than I am – Financial Mail editor Barney Mthombothi.

In the November 6 edition of FM he wrote: “It’s ironic, however, that having benefited from the collapse of the Berlin Wall, SA should become an experiment in communism’s vain attempt to resuscitate itself.’

For an example of the practical consequences of that, look no further than the disasters at state-owned diamond mining company Alexkor and the State Diamond Trader.

Next up, the state mining company?