Outlook bleak for deep-level mining

In unusually frank comments from gold and platinum mining CEOs, the future of those two industries was mapped out in a few minutes, with bleak consequences for workforces.

In unusually frank comments from gold and platinum mining CEOs, the future of those two industries was mapped out in a few minutes, with bleak consequences for workforces.

At the Joburg Indaba mining conference, industry veterans and top CEOs, with Chris Griffith and Nico Muller heading the world’s two largest platinum producers in Anglo American Platinum and Impala Platinum (Implats) respectively, and Peter Steenkamp of Harmony Gold, outlined a future without deeplevel, conventionally operated, labour-intensive mines.

Muller and Steenkamp were unflinching in their appraisal of their respective sectors, ruling out any new deep-level shafts in platinum and calling the end of SA’s once world-dominant gold sector. Just a handful of mines will still operate in a decade, having been the bedrock of SA’s economy for a century.

Employment in the gold sector dived to 112,000 in 2017 from nearly 400,000 jobs in 1994 as production plunged from 583 tons over the same period to 138 tons.

While Steenkamp says four or five ore bodies will continue to be mined in the next 10-15 years, analysts have a much gloomier outlook, seeing South Deep as possibly the last big mine, with others such as AngloGold Ashanti’s Mponeng and Harmony’s Moab Khotsong potential contenders if their owners are willing and able to make billions of rand investment in them.

Ironically, it could be the oldest gold belt in SA, the Barberton mines, that last the longest, but they are small sources of gold and employment.

The number of jobs could fall below 50,000 with just a few big gold mines left in a decade.

The single most crippling factor for SA’s deep-level mines in gold and platinum has been runaway cost increases, well ahead of inflation, which have eroded profit margins and forced hefty restructuring at mines in both commodities in recent years.

“Our problem is a cost problem and this is the worst problem you can have. In mining, you have few things you can control — cost being the most important,” says Nedbank mining analyst Leon Esterhuizen.

“So when government legislation forces ever higher costs, you end up effectively gambling on higher metal prices.

“This is no longer a business decision based on good practice and/or staying competitive.”

The National Union of Mineworkers, born on the gold mines during the struggle for worker and political rights in the 1980s, accused gold mining companies of taking their profits from SA to build international portfolios and demanded the companies sell their underground mines to others wanting to get into the sector.

It is much more difficult to extrapolate what the slowing of deep-level mine investment would have on employment in platinum, especially if companies actively chase and develop shallow, mechanised mines in SA and Zimbabwe. This will protect their profit margins from above-inflation increases of labour, electricity and water, coupled with difficult community and labour relations.

During his time as CEO of Implats, Terence Goodlace spoke of how in the past, 90% of his time would be spent on managing a company’s mining assets and 10% on labour, community and social issues. That has now swung around to 90% of a CEO’s time spent on issues not directly related to managing the assets and just 10% on operational matters.

“The sociopolitical demands made on the SA mining sector prevent any reasonable scenario of making longer-term returns on high-risk capital,” says Esterhuizen. With fellow analyst Arnold van Graan, he has predicted a halving of SA’s gold output in the next five years.

“The net impact is a very logical conclusion: spend the capital in other countries while the SA mines die and ever more jobs are lost. Mining companies are not charities. They build mines with other people’s money and these other people invest for a return. They are not a charity either,” he says.

In the new mining charter there is an increasing obligation on companies to get involved with beneficiation as a small offset to ownership demands, as well as giving communities and employees a 10% carried stake in their shares.

With failing and failed local government structures in mining jurisdictions and where expectations are high within communities for mining companies to be a source of jobs, infrastructure and, in some cases, service delivery, the operating environment has become increasingly difficult and costly.

The concerns in these views are the negative consequences for an economy in which one in three adults is unemployed.

But SA is not without potential for large new mines, said one of the country’s foremost geologists and explorers, Anton Esterhuizen, principal of PanEx Resources. He says large deposits remain to be developed, but the uncertain regulatory environment and the poor regard of investors for SA mean raising the billions needed to develop them is unlikely.

SA IS NOT WITHOUT POTENTIAL FOR LARGE NEW MINES, SAID ONE OF THE COUNTRY’S FOREMOST GEOLOGISTS