Managing mining costs requires bravery

Bernard Swanepoel, chairman: Joburg Indaba, encouragesopen and honest conversation in mining sector at the 2016 Joburg Indaba breakfast © Wynand van der Merwe

In reality, the only price that South Africa could control would be that of platinum, as its responsible for 70% of global production. In addition, South Africa mined most of the world’s gold for 90 years, and considering the constant rising trend in the rand/dollar rate, it looks like the best metal to produce, but for how long?

Mining policy consultant at Cadiz Solutions, Peter Major says: “The South African mining underperformance is no longer cyclical, it’s now secular.” He backed up his view citing many factors that he believes have contributed to today’s bad state of mining:

• The subsequent loss of billions of dollars in capex due to nationalisation in 2002

• Mining companies have been forced into debt within unknown partnerships required under the law of +25% BEE

• Effects of a complex, burdensome and interpretive Labour Relations Act

• Dramatic rise in total production costs from 2% to 20% due to Eskom price increases and stoppages

• Union rivalry

• Inadequate rule of law applied unevenly and often not at all

• Breakup of the mining houses, as a result all gold mines are now on their own

• Huge and ever growing social labour plans and requirements

• New tax and royalty systems provoking less reason to mine underground

Gamblers and dreamers

The biggest problem as to why mining is now secular, Major believes, is the miners themselves. “We don’t have miners any more. We have gamblers and dreamers. Miners need to take control of their mines, their costs, and their people. They need to think how they can cut costs and increase productivity.”

Roundtable discussion

Delegates deliberated in roundtable discussions and presented the following outcomes:

• A strong belief that the department of mineral resources (DMR) is an officially corrupt entity

• It will require some bravery since the mining industry cannot control the cycle, the one thing that it can do is control costs

• To weather the storm and be competitive in terms of productivity, the mining industry must drive innovation

• Mining entities must bring costs back down to where the commodity price is

• To be more productive, mining must look to incentivising labour and implement cost management structures

Sharing lessons learnt

The industry wishes to share lessons amongst themselves, as well as drive detailed discussions with government, although there are frustrations on the lack of any outcomes from last year’s five-week long Mining Phakisa workshop. Apparently the report is sitting in the Presidency, presumably alongside the Mining Charter.

Bernard Swanepoel chairperson of the Joburg Indaba wrapped up by saying: “There is a new found boldness in the mining sector and we will continue to speak the truth to both power (government) and to each other, this is the only way we can move forward.”