[miningmx.com] — THE South African government is, as we know, a tad ham-fisted when it comes to implementing legislation or policies. Take the events of July when it informed Aquarius Platinum mining widths would have to reduced following fatal underground accident at its Marikana mine, a development that sliced 25% off shares in Aquarius in a day. As it turned out, the order was softened to a recommendation, no mandatory steps were required of Aquarius, and its share price recovered its losses. False alarm.
Well, not quite. There was disquiet in the South African mining industry knowing that it was unwise to assume mine inspector, Thabo Gazi’s recommendation to reduce mining widths at Aquarius was simply a misunderstanding. As the industry knows well from the leaked mining charter of 2002, the South African government often takes apparently unreasonable positions on policies and industry rules in an attempt to soften up the industry for the lesser position it wants to take.
Having said that, government’s view on safety was no secret. There was the Zuma-backed mining safety audit which found that roughly two-thirds of the industry fell below acceptable safety standards. Then there was the temporary closure of shafts where a fatal accident had occurred to allow for a government investigation.
Finally, there’s the Health & Safety Amendment Act which has raised the prospect of criminal prosecution for management, including chief executives. There’s been much to-ing and fro-ing on whether CEOs are really liable, and when. Fact is: they are and can be criminally prosecuted, says Wessel Badenhorst, a lawyer for Werksmans Attorneys.
This has now been supported by the lesser known fact the minerals resources department has dedicated some R145m towards prosecutions, and has hired a silk – Advocate Schutte – to do its legal work. Mines minister Susan Shabangu said in her 2010/2011 budget in February that money would be set aside to give teeth to safety legislation. What’s interesting about the appointment of an advocate is that it gives the DMR the ability to ask “the right questions and arrive at the right answers’, says Badenhorst.
Investigations by government following a fatality are now geared to establishing whether miner-related carelessness was the problem, or whether the mine has been constructed safely in the first place. Section 2 of the Health and Safety Amendment Act stipulates that the CEO is responsible for seeing that the mine is constructed and equipped properly.
Mining methodology is also taken into consideration, hence the questions about Aquarius Platinum’s bord and pillar mining method. If, in the wake of a fatal accident, the ground conditions were not suitable for the mining method employed, there’d be serious questions required of the CEO. Now with proper legal advice, there’s more chance the DMR won’t be blinded by science when it comes to prosecution. Not that the mining industry obfusticates its safety reviews, but ignorance of mining subtleties has not helped government explore ways of improving safety standards.
Serious legal prosecution against mining management would appear to me to be a question of when, not if, especially as roughly 170 miners die on South African mines per year.
AngloGold Ashanti
If ever a monkey were removed from the back of a CEO, it would be AngloGold Ashanti’s hedge book, and Mark Cutifani’s back. The $1.58bn required to do it was going to have been paid anyway, possibly more, in allowing the hedge to unwind. In a rising gold price environment, the hedge book was always going to be an expense. I agree with Liston Meintjes, chief investment officer of Lion of Africa Fund Managers, why didn’t Cutifani do it earlier?
Perhaps the key question was formulating a view on the gold price’s long-term future. Last week’s decision to cancel the hedge was, without doubt, resounding confidence that the gold price is heading north for the forseeable future. Some careers have been wrecked by calling the gold price wrong. One hopes the likeable, plain-speaking Cutifani has got this right.
It must be good for on the ground morale at AngloGold mines, especially the South African assets amid a tirelessly strengthening rand (yes, Sarb is starting to intervene, but the next resistance level is R6.80/dollar which is scary). One recalls Gold Fields cancelling the hedge at Western Areas. Ancedotally, morale at the mine was re-born knowing their efforts resulted in a margin.
According to a stockbroker, AngloGold was receiving a 9% discount to the current gold price. This is based on its recent guided range of 6% to 11% and a gold price range of $950 to $1450/oz. By cancelling the hedge book, AngloGold will add about $535m of additional pretax earnings per year while margins are expected to improve to 45% from 39%, the stockbroker says.
The gold price went to a new all time record on the day of the announcement. According to RBC Capital Markets, this was because of AngloGold’s decision to pay out the hedge book. RBC added, however: “We do expect this to have a positive impact on the gold price in the longer term as this additional demand should have a meaningful impact on the supply/demand fundamentals’.
