Mining execs confident about the future

South African mining executives are optimistic about the future of the industry but are concerned about how to maintain its growth, given key challenges such as skills development and HIV/Aids.

These are the findings of the 2006 Deloitte Mining and Metals Executive and Analysts Survey. The survey was conducted via a series of interviews with local mining executives from the gold, platinum group metals, coal, iron-ore, manganese, copper and basemetals segments and analysts from the United States, Europe, South Africa and Australia to develop an understanding of industry sentiment on business trends and macro­economic conditions.

According to the report, industry leaders agree the future looks positive given the strong upswing in commodity prices, but they are concerned about how to maintain this growth.

‘A key concern is achieving the balance between maintaining productivity levels and achieving growth targets, as the focus is primarily on growth. Finding and developing highly skilled employees also remains a general concern across the group. Further, as expected, HIV/Aids remains a key challenge for deep level miners in Africa.”

The report says analysts tend to agree with the executives but feel that beneficiation appears to be more of a buzzword than a reality and could destroy value unless it is properly implemented.

An overwhelming number of executives, 83%, believe there are uncertainties around growth in emerging economies. Specific examples include the problem of contract enforcement in Angola and Russia.

Analysts tended to agree with execu­tives, but they disagreed on where and how the risks would mani­fest themselves. They believed the risks in emerging markets could be contained, but companies were making speculative investments in some locations. (Very few analysts cited risks in Africa. — with the exception of HIV/Aids.)

Beneficiation was specifically mentioned as an initiative that could destroy value in the short to medium term. Focused innovation programmes will ensure growth in emerging economies. Beneficiation, or value-added processing, involves the transformation of a primary material — produced by mining and extraction processes — to a more finished product, which has a higher export sales value.

Executives in labour intensive deep level mining agreed that the impact of HIV/Aids was felt throughout their business. An extreme case of 80% to 100% infection rate was cited as an example at selected mining complexes. Mining executives are highly dependent on external healthcare service providers for addressing the epidemic in terms of awareness and treatment. Further to this, there is no insurance against the loss of working hours, personnel and production.

Analysts agreed with the executives, but again disagreed on key areas. There was general consensus about the lack of transparency on infection rates and total costs. Ninety-six percent of analysts felt that not enough or the wrong initiatives were pursued to address the epidemic.

Half the executives felt that not enough was being done to prepare the business for any drop in commodity prices. Several executives agreed that China’s role as an overall supplier to the West was misunderstood as there was uncertainty about which direction China’s economy would swing.

Analysts agreed with the executives. Gold analysts were divided about how the industry could respond to lower commodity prices. A similar divergent view existed on the role of China — half agreed that China was a supplier to the West, while the other half agreed but were uncertain of the future role of the Chinese economy.

All executives mentioned it was becoming more difficult to find and retain specialised skills. Special mention was made of the costs associated with managing employees in emerging markets.

No analyst mentioned skills and employee retention as a key issue.

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Greg Gordon
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