Shabangu stands fast

Outsiders looking in could easily have formed the impression that the department of mineral resources is there to take mining rights from established companies and transfer them to politically connected cronies.

One day Kumba and Arcelor-Mittal are sharing mining production at Sishen (one of the world’s largest iron ore mines), the next a consortium—of which President Jacob Zuma’s son, Duduzane Zuma, is a prominent benefi ciary—is in a multibillion-rand deal with Arcelor-Mittal as it tries to claw back rights it previously held. But the outsiders’ view is entirely at odds with the view of insiders, who see themselves as reformers fixing a previously iniquitous system while attempting to secure better prices for local manufacturing to create jobs .

At the centre of this clash of perceptions is Minister of Mineral Resources Susan Shabangu, who has the political responsibility for managing the industry and the general fallout that surrounds it at present. Shabangu acknowledged at a press conference this week that there is growing negative sentiment about the mining sector and, specifically, its regulatory framework.

She noted that Citibank had valued the country’s mineral reserves at R2.5-trillion, which was evidence that mining was ‘an important cog in the wheel to drive the war against poverty and underdevelopment in our country”. But outsiders now view the department in such deleterious terms that Shabangu has moved to shake it up. Her method includes a promise of greater transparency and a six-month moratorium on new prospecting licences to allow for an audit of all 25 000 licences issued to date.

The overhaul is being welcomed, but not without reservation—delays in issuing mining licences in the first case were seen to have contributed to the country missing out on the last commodity boom. At close quarters, Shabangu appears more of a bureaucrat than a politician. Her job is to implement the new law, the Mineral and Petroleum Resources Development Act .

Although it was developed with the industry and over some time, it has numerous shortcomings, which Shabangu said would be addressed. These include the fact that when ArcelorMittal failed to convert its 21% mining right at Sishen and the right reverted to the state, it came up for grabs literally on a first-come, first-served basis, even though it was worth billions of rands.

You’d have thought that other legislation, say the Public Finance Management Act, would override all other laws in cases like this to stop the state giving stuff away for nothing, but apparently not. Shabangu and the director general, Sandile Nogxina, say that, should this happen again, the revised law would provide for the right to be auctioned off .

Shabangu was asked about Aurora Mining, which has been in the news because workers at its Orkney mine have not been paid and suspected illegal miners have been killed underground in shoot-outs. Aurora has had a high profile, in part because Zuma’s nephew, Khulubuse Zuma, and Nelson Mandela’s grandson, Zondwa Mandela, are co-owners. Shabangu was very clear: the company has no right to mine; it only has the right to conduct maintenance operations.

Aurora’s Thulani Ngubane said that this was the case—no gold extraction was taking place. High-profile cases, such as awarding prospecting rights at Sishen to Imperial Crown Trading (ICT) and the continuing fallout over Arcelor-Mittal and Aurora, are creating an image problem for mining regulation in South Africa. But Shabangu has a down-to-earth approach to the issues.

She said she did not know the ICT people who have been granted the right to prospect at the Sishen mine. “I don’t know these people. Do you see me eating with them?” She said she “doesn’t know who ICT is. Our responsibility is to look at the application.”

She said she did not even socialise for fear of being linked to other people. “I go home and sleep.” “I am not in social gatherings with Julius [Malema, the ANC Youth League president]. If you see me with Julius, you’ll say we are in cahoots”. Her pitch was largely that the department was doing what it was supposed to do—implementing the Act. Now that shortcomings in it and its administration had been identified, they would be addressed and rectified.

There was just one point of real pain in her presentation and that was limited to remarks about Kumba—it had increased its profits, which “had doubled and doubled again”. But there had been no added value for the state. “Kumba benefited but the value-add has not happened. The country has benefi ted nothing.”

The government is sore that its plans to add value domestically through its deal with ArcelorMittal that enabled it to source its steel from Sishen at about $30 a tonne while the international price was several times that, have been frustrated, because Arcelor did not pass the benefit on, and instead engaged in aggressive import-parity pricing.

Kumba’s financials for the past six months show that the company is doing nicely from continuing demand, mostly from China, for its ore. Last month it posted record profits for the six months to June, with headline earnings up 90% year on year. It expects to earn R1-billion more next year from its new deal to supply ArcelorMittal with iron ore at between $50 and $80 a tonne.

In the past six months Kumba has generated R9.5-billion in cash, and paid R3-billion in dividends and R2.6-billion in tax—so Shabangu’s statement that the country gained nothing is hyperbole. She said the department “had just granted Kumba some of the rights it had applied for”, but there is deep anger in the government over some of the players in this drama.

Zav Rustomjee, a former director general of the department of trade and industry and a BHP Billiton director, wrote in Business Day that the interim pricing agreement between Kumba and ArcelorMittal means they share “iron ore rents” at the expense of the manufacturing industry. He noted, and other sources concur, that Kumba’s move not to apply on ArcelorMittal’s behalf to extend its rights at Sishen followed a similar move by ArcelorMittal against Kumba over iron ore deposits in Senegal.

So South Africa appears to have found itself unwittingly embroiled in a dispute between these two multinationals that has implications for both steel pricing and supply. Rob Davies, the minister of trade and industry, said last week that the ministry still intended to ensure a competitive steel price and a local manufacturing industry.

He said the department would continue the work of an interdepartmental task team set up during interim-price negotiations between ArcelorMittal and Kumba. Its mandate would include the departments of trade and industry, mineral resources, and economic development, and it would work to determine the impact of the agreement on the state’s long-term developmental objectives.

Davies said the task team wanted to ensure that some of the iron ore from Sishen was “made available at concessionary prices” for local steel manufacturing, and that the beneficiaries of that ore would ensure that the downstream manufacturing industry would benefit from “a competitive steel price”.—Additional reporting Lynley Donnelly

Kevin Davie

Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote. Read more from Kevin Davie


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