In the month following ERPM’s liquidation announcement, an amazing rescue drama has been unfolding at the 106-year-old mine. Donna Block and Mungo Soggot report
The National Union of Mineworkers (NUM) is poised to rescue East Rand Proprietary Mines (ERPM) from extinction, having hatched a restructuring plan for the operation that could save all the mine’s 5 000 jobs.
If the rescue of the Boksburg mine goes through, it will be the first time in South African mining history that a union has masterminded such a turnaround.
A successful rescue will also pose intriguing questions about the performance of management at ERPM in particular and at South African gold mines in general.
It is now almost a month since the management at ERPM, the main source of employment in Boksburg, announced it was putting the mine into liquidation in the wake of the collapse in the gold price.
By unveiling its calamitous liquidation plans on July 6 – the day the Bank of England sold off a portion of its gold reserves – the mine became a symbol of the devastating effects of the gold price collapse.
The negative sentiment stemming from the British sale effectively knocked $30 off the bullion price this year. The price fall has jeopardised tens of thousands of jobs and led to unprecedented collaboration between business, government and labour about how to mitigate the effects of the crisis.
ERPM suffered a series of financial disasters in the 1990s, and was saved from the gallows in 1997 when the government started subsidising it, becoming the major shareholder in the mine.
The gold price fall this year appeared to be the final knockout blow, but since the liquidation announcement on July 6 the NUM has been working with the mine’s liquidator, some of its management and government officials to put together a rescue plan.
The man behind the union’s rescue bid is, ironically, a former senior member of ERPM management, Peter Camden-Smith. He is serving as a consultant to the union’s Johannesburg lawyers, Cheadle Thompson & Haysom.
Camden-Smith’s plan – which is likely to entail shutting ERPM’s deepest and costliest shaft – is based on a similar proposal that was presented to ERPM management three years ago.
In his report to the union lawyers, Camden- Smith notes ERPM’s failure to take on board the suggestions at the time. “Very few of the major recommendations made in the 1996 due diligence report were implemented,” his report says.
He also criticises the mine’s management for failing to perform basic procedures in recent months – such as sweeping up gold particles – that could have reversed some of its losses.
Camden-Smith and the union – which has been working with managers kept on to run the mine after it was put into liquidation – were expected to unveil their business plan for the mine this Friday, July 30.
It remained unclear this week what additional funding, if any, will be needed to back the rescue plan. While the mine’s liquidator this week suggested that ERPM needed R40-million immediately to sustain it through the current crisis, government and union officials have said the mine may be able to survive without such a cash lifeline. The union intended to discuss the cash requirements for its plan on Friday.
The Department of Minerals and Energy’s director in charge of ERPM, Jan Bredel, this week said he was “fully confident that we’re going to rescue the mine”, adding the mine could survive “without an investor”.
Bredel remarked:”It’s very good that it came from the unions.”
Although Bredel and his colleagues have discussed the rescue plan with the union, the government does not plan to remain a shareholder in the mine. Bredel said the state was not prepared to extend any more subsidies to the mine, which were ostensibly started in 1997 to cover the costs ERPM incurs pumping underground water.
ERPM, which has operated in various guises since 1893, is the deepest mine on the Witwatersrand, with shafts up to 3km deep. Water from neighbouring mines gravitates into the ERPM shafts, heavily increasing its pumping costs.
The rescue team’s proposals hinge on shutting the mine’s oldest and deepest shaft, allowing it to become a repository for much of the water in the sprawling underground operation, thus cutting pumping costs.
The union has signalled that the various permutations of the plan will not involve laying off any of the mine’s 5 000 workers, more than half of whom come from Mozambique.
A pivotal part of the plan is that the mine work on Sundays – a concession NUM is willing to make. Miners from the shaft earmarked for closure would be transferred to the more profitable, newer shaft that would then be worked for a full calendar month.
While the union has been probing various options, there has been some intrigue surrounding the role played by some of the mine’s boardroom heavyweights in the run-up to its liquidation.
It emerged recently that the former chair of the mine, John Cockroft, wrote to the mine’s liquidators four days before the liquidation announcement detailing his plans to take over the liquidated operation.
After the liquidators moved in, Cockroft offered his services as mine manager free of charge. He replaced former MD Ivan Vidulich, who has a solid reputation in the mining investment community and is regarded as competent if conservative by the union.
But Cockroft did not survive long. The union reacted angrily to his July 2 letter offering to buy back the mine, prompting Cockroft to withdraw his acquisition proposals and step down as mine manager. Another senior member of ERPM’s former management team, Pat Mitchell, replaced Cockroft.
Although officially off the mine, Vidulich appears to have been working behind the scenes with the liquidator, analysing the rescue team’s proposals.
There have been suggestions by some players in the mine’s rescue that management precipitated the mine’s demise to obviate a massive retrenchment bill – a rumour fuelled by the revelation that the mine had not picked up gold “sweepings” in the months running up to its liquidation.
Analysts have scoffed at the suggestion, noting that inconsistent sweeping is an endemic problem on South African mines, partly because miner bonuses are linked to the amount of ore mined – not swept.
The minerals and energy department’s Bredel said some of his officials had picked up the sweepings problem in recent months, but added this did not make him at all suspicious. Bredel said one could “speculate” about such theories, but they would be impossible to “prove in a court of law”.
He added that the mine’s management had asked the government to increase its subsidies in the run-up to the mine’s July 6 liquidation announcement, which proved its bona fides.
For the moment, the NUM is not gunning for management on the basis of the rumours about its performance in the run-up to liquidation, but is instead concentrating on its rescue plan.
The NUM’s national legal officer, Molefe Molefe, said the union “will look at the behaviour and attitude of the directors of the mine after the rescue plan is put in place”.
He said earlier this week that the “mine is not rescued yet. But we are working on it.”