The mining industry has, from a historical perspective, played an inherently complex and contradictory role within South Africa’s sociopolitical economy. While the industry has, for more than a century, been the main driver of phenomenal economic growth and industrialisation, it was also partly responsible for institutionalising racial discrimination and the exploitation of cheap labour.

Therefore, it stands to reason that, of all South Africa’s pillar industries, the mining sector has had the longest path to walk in addressing its historical legacy and adapting itself to operate under a radically different dispensation.

On the eve of South Africa’s twentieth anniversary, commemorating the advent of a nonracial democracy, there is little question that the character of the mining industry has radically changed from what it was in the early 1990s.

“The mining industry has experienced an accelerated rate of transformation post-1994 in comparison to several other key industries,” Chamber of Mines president Mike Teke tells Mining Weekly.

“I believe that transformation has happened in a voluntary fashion, with the recognition by the industry itself that we are in a new democratic South Africa and we need to transform positively.”

This milestone in the country’s history provides an ideal opportunity to take stock of the changes that have been effected and to analyse the extent to which the mining sector has transformed and successfully addressed its historical legacy.

While the seemingly obvious starting point in examining the mining sector’s transformative journey over the last two decades would be the promulgation of the Mineral and Petroleum Development Resources Act (MPRDA) in 2004, which ushered in a completely new regulatory environment, the metamorphosis of the industry actually started in the early 1990s, with the unbundling of the powerful mining finance houses.

RESTRUCTURING OF THE INDUSTRY

Before the 1990s, the mining sector was owned and operated by six very large and powerful mining finance houses, including JCI, Rand Mines, Gencor, Anglo American/De Beers, Gold Fields and Anglovaal.

These were essentially multiresource-focused conglomerates that controlled the bulk of the country’s gold, platinum, chrome, coal and base metal assets, and operated according to a group finance model that was essentially introduced at the turn of the twentieth century.

However, when the transition to a new demo- cratic dispensation started, international investors who came flocking back to South Africa soon began to bemoan the lack of commodity speciali- sation, the complex and opaque shareholding structures and the poor systems of corporate governance that were characteristic of those traditional mining finance houses.

It became clear that, to attract much-needed capital investment, the companies would have to undergo significant restructuring. Thus, from the early 1990s, a trend of unbundling and consolidating assets into smaller, resource-focused companies started and continued unabated into the early 2000s to the extent that, by 2004, none of the six traditional mining finance houses remained intact. (While Anglo American and De Beers are still in operation, they can no longer be considered mining finance houses in the traditional sense.)

That restructuring of the industry was given additional impetus by the introduction of the ‘use it or lose it’ principle in 2004. That inherent stipulation of the MPRDA essentially forced companies to relinquish their title and rights to unexploited economic mineral assets that had, in some cases, lain dormant for many decades.

Webber Wentzel mining regulatory head Peter Leon elaborates that the notion of private mineral rights disappeared under the MPRDA and was replaced by a system of State custodianship, where companies lost their property rights and were only allowed to operate a mine by means of a mining licence.

While mining companies hotly contested this development at the time, Leon believes that it did have an ultimately positive outcome. Because the State was now custodian of the country’s mineral assets and could prohibit major mining companies from sterilising mineral reserves by forcing them to ‘use or lose’ their existing mineral titles, new entrants into the industry were now able to acquire and exploit known mineral assets that, under the old system, would probably have remained dormant.

Nedbank Capital resource finances head Peter van Kerckhoven provides the example that, while before 2000, only Assmang, BHP and Anglo American were mining the Kalahari manganese field in the Northern Cape, today, as a direct result of companies being forced to relinquish old order rights through the ‘use it or lose it’ principle, there are at least three times as many players in that space.

“If you do the same analysis with coal, it is astounding how many new companies now exist in the coal space based off the back of rights that were held dormant by the large mining finance houses,” says Van Kerckhoven.

To illustrate the extent to which the unbundling of the mining finance houses and the enforcement of the ‘use it or lose it’ principle has effected a structural transformation of the industry, it need only be pointed out that, today, there are at least 40 separately listed mining companies on the JSE, not to mention the other private companies, such as De Beers and Petra Diamonds, which also operate mines within South Africa’s borders.

Leon adds that the ‘use it or lose it’ principle has also been significant in facilitating the emergence of a junior mining sector, which, before 2004, did not really exist.

“However, how successful the junior sector has been over the last decade is a different matter. It has experienced some very difficult times in the wake of the global financial crisis and the slump in commodity prices,” says Leon.

Nedbank mining and metals investment banker Paul Miller believes that the restructuring of the industry, which has occurred, to a large degree, independently of the issue of empowerment, has been a very positive development.

“You could argue that it is a better industry today than 20 years ago purely from the perspective of the increased number of companies and increased level of participation within the sector.

“Although companies and even leadership do not have the power they once wielded, South Africa certainly has a far more spirited mining sector in comparison,” insists Miller.

He adds that, because mining finance houses traditionally traded at a discount to their underlying holdings, the process of spinning off assets into new entities unlocked real economic value for both the industry and the country.

EMPOWERMENT
Before 1994, the mining industry was the preserve of the white minority and, in particular, the English-speaking white minority. The only role the black majority of South Africans assumed was that of mineworker.

However, as Leon remarks, with the radical change in the country’s political dispensation, it was no longer possible to “have a situation where only 9% of the country’s population owned all the productive mining assets”.

Therefore, the other primary objective of the MPRDA, which has been supported by the Mining Charter, has been to expand opportunities for historically disadvantaged South Africans (HDSAs), at both managerial level and ownership level, so that they may also reap benefits accruing from the exploitation of mineral resources. To drive this objective, a target of 26% black economic-empowerment (BEE) ownership by 2014 was set for the industry.

“The most important thing that happened after the introduction of the MPRDA and the Mining Charter was that large mining companies were willing to do deals with quite a number of histori- cally disadvantaged people,” Exxaro Resources CEO Sipho Nkosi tells Mining Weekly.

“Close to R400-billion worth of BEE deals have been concluded in the wake of the implementation of that legislation. So there has been significant progress made in enabling historically disadvantaged people to participate in the industry at ownership level.”

Nkosi elaborates that the empowerment transactions undertaken so far have largely been based on two models. The first concerns HDSA investors who negotiated empowerment contracts with existing mining companies purely for invest- ment purposes, while the second concerns people who negotiated deals or established their own empowerment companies with the intention of committing themselves to a long-term career as operators in the industry.

Affiliated with this more notable second model, one finds empowerment stalwarts such as Patrice Motsepe, founder and chairperson of African Rainbow Minerals; Cyril Ramaphosa, founder and executive chairperson of Shanduka Resources; Tokyo Sexwale, founder and executive chairperson of Mvelaphanda Group; and Nkosi, CEO of Exxaro Resources.

While no one can argue that the MPRDA aided in changing racial ownership patterns, Nkosi nevertheless believes that the way in which certain empowerment deals have been transacted has left the process of transforming the industry wanting.

“Unfortunately, the mentality of the pure invest- ors has been to cash in their investment at the opportune moment, take their money and run. Therefore, if you take stock of who still remains of the pure investors involved in the original set of empowerment transactions, you will find that few are still in the industry,” says Nkosi.

This issue has raised considerable concerns for mining companies whose BEE partners have subsequently sold shares or pulled out of their original investment. Indeed, as the deadline of the Mining Charter approaches, many mining companies are being forced to grapple with the issue of ‘once empowered, always empowered’.

Nkosi adds that, in his view, it has only been investors who came in at operator level who have positively participated in the transformation of the mining sector.

“This has certainly been the biggest drawback of the empowerment process and this is why, when people look at the industry from the outside, they cannot see the true extent of transformation.

“This is the biggest lesson the country must learn going forward. We have to find a way of dealing more effectively with the idea of black ownership.”

In addition to driving empowerment at owner- ship level, the Mining Charter also set targets to facilitate transformation at all levels within existing organisations. Therefore, companies have been obliged to invest in developing the skills of HDSAs, procure from BEE suppliers, and encourage the promotion of black people into management positions.
The company that has embraced this process wholeheartedly and has pioneered the transformation of its business at every level is Anglo American. This is quite a significant achievement given the company’s historical legacy as the powerhouse of South Africa’s mining industry and economy. Anglo American has always had revolutionary ideas as far as transformation is concerned, believes South Africa executive director Khanyisile Kweyama.

“Even though we are not 100% transformed, if you compare Anglo American with other mining houses, even on a smaller scale, we have achieved the greatest level of transformation in terms of ownership, management, skills development, procurement and community development.

“And despite the commodity cycles and global financial crisis, we have never wavered on our commitment to transforming our own business and encouraging transformation through empowerment transactions,” says Kweyama.

She adds that the same cannot be said for other companies in the sector, many of which dropped the transformation ball following the global economic downturn in 2008.

The extent of Anglo American’s transformation is evidenced by the fact that, since 1994, the group has completed R67-billion worth of empowerment transactions and, currently, about 56% of employees at management level are HDSAs, while 21% of management positions are held by women.
Kweyama also notes that many significant BEE players in the mining sector are where they are today as a result of Anglo American’s transformation.

RISE OF THE MINEWORKER
One of the most important historical legacies that the mining industry has had to address since 1994 is the exploitation of cheap labour.

There is general consensus among industry stakeholders that the lives of mineworkers have improved significantly over the last two decades.

In terms of living conditions, many mining companies have made concerted efforts to eradi- cate the much-loathed mine hostels and replace them with single-living quarters and, in some cases, small family units.

Some companies, such as Nkosi’s Exxaro Resources, have also agreed to provide those mineworkers who wish to live off mine properties with a living-out allowance. “Of course, there is the accusation that mining companies have not done enough to meet the targets set by the Mining Charter, but I also know that there are certain companies, especially in the gold sector, that cannot comply with the [housing] targets of the charter . . . because they just do not have the money for those types of initiatives,” says Nkosi.

However, he adds that mining companies are certainly making progress in this regard and that workers are better off, overall, than they were in the past.

The Chamber of Mines president insists that, at operational level, safety levels have improved dramatically over the period.
Teke elaborates that, while there were 586 fatalities in the mining sector in 1993, by 2012, the number had reduced to 112. “However, we must continue our safety drive. Zero harm is an objective that is not negotiable,” insists Teke.
With regard to salaries, Teke elaborates that, through constant engagement and robust negotiations with the unions, companies are certainly aware of the economic hardships their employees confront on a daily basis.

“As a result, we have tried our best to consistently look at our salary increases and negotiations over the years to ensure we are paying people correctly,” states Teke.
He emphasises that salary increases have never been below inflation but have averaged between 7% and 12%.

Nkosi adds that, even though companies are paying above-inflation wages, the economy is letting people down in that the cost of living continues to spiral.

Further, while significant progress has been made in improving the living and working conditions for a large majority of the industry’s workforce, the relationship between management and labour has become increasingly strained in recent years.

This is due to the emergence of the Association of Mineworkers and Construction Union (AMCU) and the series of prolonged strikes that have crippled key commodity sectors over the last two years.

“The game has changed for us and the strained labour situation, in terms of the prolonged strikes and salary demands, has put enormous challenges on the table,” says Teke. “This is in addition to spiralling cost pressures and debilitating margin squeezes.”

SOCIAL LICENCE TO OPERATE
While having to restructure, adjust to operating within a new regulatory framework, comply with transformation objectives and address the living and working conditions of their workforces, mining companies have had to become far more socially responsible over the last two decades.
Teke elaborates that, with the transformation of the industry, there is an expectation from various stakeholders that the lives of the communities that live both on the fringes of mines and in labour- sending areas will improve. Indeed, having a ‘social licence to operate’ is becoming an increasingly entrenched feature of mining on a global scale.
In South Africa, this social licence includes providing basic services, such as housing, education and healthcare, to the communities living in the shadow of the industry, as well as supporting skills development and creating employment opportunities.

While investigations conducted in the wake of the Marikana massacre of August 2012 revealed the very poor state of living conditions endured by both workers and fringe communities, Teke insists that the industry as a whole has not reneged on its social licence to operate.

“We have never reneged on our social licence to operate by saying that it is the government’s and not our obligation to provide these basic services. We have consistently provided.

“Further, we have not reached the stage where we can sit back and congratulate ourselves on having done enough. There is still a lot to be done to improve the lives of our communities,” he says.

MINING PRODUCTION
While these have all been noteworthy developments, the most pertinent question is: How has the industry fared from a production point of view over the last two decades?

Unfortunately, the industry has contracted considerably. This is evidenced by the fact that, in 1994, the industry’s direct contribution to the South Africa’s gross domestic product was 11%, but, by 2012, it had fallen to 5,5%.

Similarly, while South Africa was still the world’s largest gold producer in the mid-1990s, by 2013, it had dropped in producer rankings to seventh position. Another telling sign is that, although the JSE index has grown by about 60% over the last 20 years, mining stocks have remained relatively flat.

“There has not been growth in the mining sector and we have probably seen more mining companies closing shop than new ones starting in the last 20 years,” states Kweyama.

“That is the biggest contradiction because, although the mining industry is supposed to be a signifi- cant driver of the economy, it has not performed that well. Other industries have prospered to a much greater extent than mining.”

The contraction of the industry can largely be put down to several factors, including the maturity of many mines, rising operating costs, the increasingly strained labour situation and an uncertain regulatory environment.

Industry leaders are also of the opinion that, because government has shifted the goal posts by introducing various amendments to the MPRDA, the regulatory conditions under which mining companies have to operate have not been clear. This has had a significant impact on foreign investment, with many investors choosing to invest in countries with a better risk-reward ratio.

FUTURE OUTLOOK

Teke insists that paradigms have shifted since 1994. “The mining industry has always been global and continues to gain more global emphasis. It is no longer the preserve of male mineworkers, mineworkers are increasingly recruited locally, safety has improved, mineworkers have far better living arrangements, in general, and companies are no longer run solely by white men.”

However, it is clear that the last two decades have been a period of significant contradictions for South Africa’s mining sector. While the industry has been restructured, allowing new entrants to exploit mining opportunities, production has contracted. While massive strides have been made in transforming the racial pattern of the industry, tensions between government, labour and business persist. And while mining companies have implemented social and labour plans, many mining areas continue to be impacted on by grinding poverty.

“Summing up the last 20 years, mining remains a very relevant sector, yet [it] has not reached its full potential because of these parallels,” says Kweyama.

However, it is certainly encouraging that, while many companies are closing shop in South Africa, Anglo American, which is one of the largest private-sector employers, remains committed to the country.

“Anglo American is fully committed to South Africa because it makes business sense. In terms of mineral resources, South Africa has among the largest endowments in the world. So, if you want to remain a prominent mining company and you are not in South Africa, it says there is something wrong with your thinking,” concludes Kweyama.