Harsh realities dampen renewed mining hope
Underlying the cautious optimism creeping into the mining sector are the realities of how difficult it is to mine in SA, with thousands of miners laid off adding to the already burgeoning unemployment crisis.
Numerous mining executives have spoken in recent days of a sense of renewed hope and optimism stemming from the tone of the investment conference, the direction President Cyril Ramaphosa wants to take the country and the nature of engagements with Gwede Mantashe, the mineral resources minister since early this year.
Last week’s investment conference was notable for the vote of confidence in Ramaphosa from major mining companies.
But still, the 13,000 and 1,500 job cuts announced by Impala Platinum and Gold Fields respectively in August and the 12,600 announced by Lonmin at the end of 2017 are proceeding, swelling SA’s unemployment numbers, which grew to 27.5% in the third quarter of 2018.
Gold Fields faces a strike at its South Deep mine, where it wants to cut its workforce to 3,500 to address continued losses, while Impala Platinum CEO Nico Muller said earlier this week the company was busy cutting 1,500 jobs and remained steadfast in its resolve to shut or sell five shafts and take a total of 13,000 people off its payroll.
Anglo American underpinned its continued presence in SA, committing to an investment of $6bn, after wanting to sell a number of mines in SA, including iron ore and manganese ones, and warning at the end of 2017 it would seriously reconsider its capital allocation in SA if Jacob Zuma and then mineral resources minister Mosebenzi Zwane remained in charge.
One of the most remarkable public comments by a CEO came on Thursday from the bluntly spoken Neal Froneman, of Sibanye-Stillwater, SA’s largest producer of gold and a major platinum group metals miner, who gave Ramaphosa and Mantashe ringing endorsements, a far cry from his brutally frank assessments of the shortcomings of their predecessors.
“We have an ethical leader as our president and he has our full support,” Froneman said. “We have a new mining minister, who I have to say is the best minister we’ve ever had. His heart’s in the right place. He’s addressed regulatory uncertainty. Relationships with the government and particularly our minister are really very good and we can start building.”
While that view appears to be representative of other CEOs of major mining companies, Froneman had to deal with the cold reality of investors demanding to know why Sibanye was still invested in its gold assets at which 24 people have been killed so far in 2018.
Froneman was forced into defending Sibanye’s continued presence in SA gold, something that would have been unthinkable shortly after the company listed in 2013 on the back of three gold assets unbundled into the newly formed company by Gold Fields. Sibanye was a leading dividend payer and flush with cash for five years, using it to create a thriving platinum group metals business.
The safety issues compounded the difficulties of operating technically complex mines in a tough mining environment in which gold and platinum companies are cutting more than 26,000 jobs at high-cost, ageing mines, and investment is scarce because of regulatory
and political concerns in SA.
The safety problems forced Sibanye to knock more than 100,000oz of gold off its fullyear 2018 production target, resulting in ballooning costs that in the third quarter eclipsed the price it received for its metal, prompting frustration from some shareholders.
“As an investor, those numbers are very discouraging… There’s nothing encouraging about your South African gold production at all. It just seems like it’s barely worth having,” said one North American investor on a conference call with management to discuss Sibanye’s third-quarter results.
Froneman said the gold business would turn around after the “trauma” stemming from the anomalous safety failures and that gold production in 2019 would be profitable.
“I’m a shareholder ... traumatised as well because of the share-price performance,” the investor said, referring to the 42% drop in Sibanye’s shares so far this year to R9.25.
Another shareholder asked whether Sibanye was considering or had thought about disposing of its gold assets, which contributed just 15% towards adjusted earnings before interest, tax, depreciation and amortisation during the September quarter.
“We are not active huggers,” said Froneman.
“We have given serious consideration to our underperforming gold business, primarily due to safety issues.
“We had a long, hard look at those issues and whether they can be solved. If they can’t then we shouldn’t be operating, but we believe they can be solved and there is real value in our gold business.”
One of the problems in SA’s mining industry was that many companies had been “bullied into wage settlements way above inflation”, said Froneman.
This had eroded profit margins and, in some cases, hastened the closure of marginal mines, causing thousands of job losses.
42% the drop in Sibanye’s share price so far in 2018 to R9.25