With the local industry under pressure, South African mining houses are expanding further into Africa, reports Lynda Loxton
SOUTH AFRICAN mining houses continue their march into Africa as local mines become more marginal and costs continue escalating.
Several speakers this week told the second annual Investing in Mining Conference that local mining companies were increasingly taking their expertise to neighbouring countries, many of which remained under-explored, with minimal development of their vast and diverse mineral and metal deposits.
According to Fleming Martin Securities mining research director Dennis Tucker, major South African mining companies could be investing up to $100-million in Africa this year.
And, according to one of those companies, the benefits for Africa could be considerable. Randgold Resources has improved productivity at Mali’s Syama mine by 25% in the past month and expects to be able to extend its life beyond the currently projected nine years.
Managing director Mark Bristow said that the prospects for Syama were exciting. “Having managed the operation for four months now, we are happy that our due diligence identified all the critical issues, none of which is unsolvable.
“It will take some time and money to realise the full benefit of the re-engineering process. However, I have confidence that the plan in place will result in the optimum exploitation of the ore body.”
Randgold Resources acquired management control and 65% of the share capital of Syama gold mine in Mali as part of its acquisition of BHP Mali Inc last October. The mine had been dogged by poor technical decisions and tensions between management and workers.
“Over the past month we have seen up to a 25% improvement in mining productivity which can be attributed to the improvement in drill and blast practices, an increase in bench heights and changed operating shifts from two 12-hour shifts to three eight-hour shifts.
“This accords with our South African experience, which tended to show that poor results are more frequently the result of poor management than poor and unproductive labour.”
When Randgold took over the mine, says Bristow, “industrial relations could not have been any worse”. Now the mine has recognised worker representatives and reached agreement on a new shift roster.
“We have also made good progress on negotiations towards a mine-based labour agreement, which addresses a comprehensive training strategy.”
In addition, Randgold had acquired extensive mineral interests in west, central and east Africa. Tucker said Randgold Resources had budgeted $15-million for exploration, most of which was destined for east and west Africa, particularly Mali, Burkina Faso and Tanzania.
Anglo American would spend about $45-million in Africa in 1996/97 compared with $100,000 in 1991. Most of this would be for grass-roots expenditure with about two- thirds concentrated in gold. About 80 geotechnicians and 600 support staff were involved in exploration.
JCI is actively pursuing Lega Dembi in Ethiopia and has the Prestea mine in Ghana, where a “decent resource both underground and on the surface is in the process of being delineated”, Tucker said.
Net exploration expenditure in 1996 was $13-million “and this is expected to double in 1997”, he said.
Gencor was most active in Ghana, Ivory Coast and Burkina Faso while activities were likely to grow in Zambia and Mozambique.
“Gencor’s exploration budget of $43-million in 1997 should see around 30% spent in Africa,” Tucker said.
GFSA had mainly concentrated on Ghana, where it controlled the Tarkwa underground mine, which produced about 50,000 ounces a year.
Tucker said these examples showed that “South African mining houses are not obsessed with deep-level, hard-rock mining at home nor are they bound to operating in any specific country.”
He said the main reasons why South African mining companies were looking north included shrinking margins, tougher operating conditions and a host of potentially deadly threats.
“The glorious days of announcing a new gold mining discovery [in South Africa] every other year have long gone,” Tucker said.
Instead, lower grades were being mined and volumes squeezed as mining activity moved deeper and further away from existing and often old infrastructure.
Management has tried to take corrective action to halt the decline in gold production but employee productivity “has failed to move off its low base”, Tucker said.
Last year’s depreciation of the rand increased mine revenues by 25%, but this was almost wiped out by an average increase in production costs of about 20%.
“Clearly a margin squeeze is in the making yet again,” he said.
Other problem areas included suggestions that mines should be made to amortise capital spending. If this happened “then the deep-level gold mining industry in South Africa is already history”.
The new Health and Safety Act would also make managing a deep-level mine “very difficult”, he says, while a range of new labour regulations could put further pressure on costs.
These were already under pressure because of the need to mine “deeper by the day”.
“Last year’s wage increase of some 2% above the ruling inflation rate sets the scene for an interesting wage battle this year, with inflation on the increase,” Tucker said.