Julius Malema and the ANC Youth League are on a mission to get the parent organisation to implement mining nationalisation. Because, in spite of its decline in recent years, mining still contributes a whopping chunk to the economy — money the youth league says will go to things like service delivery and mine workers once nationalisation moves ahead.
According to the Chamber of Mines, the industry accounts for about 8% of the gross domestic product, generates 18% of total investment in the country, paid R32-billion in direct taxes and employs more than 500 000 people.
Peter Leon, the co-head of mining, natural resources and environmental law at Webber Wentzel, said the South African mining industry is the fifth-largest in the world. “And South Africa’s in situ mineral resources are estimated at $2,5-trillion — the largest amount in the world,” he said.
But as South African mines battle increasing downturns and rising costs, analysts say becoming the owner of a brand new state enterprise to manage the industry might bring more headaches than cash-flush smiles.
A state mining company
Nationalisation would be expensive. The estimated cost would be a cool R2-trillion at least, the South African Mining Development Association (Samda) has estimated.
The youth league believes the investment would be worth it because of the social benefits it would bring. But the track record of South Africa’s state enterprises doesn’t show that the government is up to the management task.
Said Peter Major, who spearheads Cadiz Corporate Solutions’s Mining & Resources division: “I suspect that, deep down, the ANC doesn’t want to be left holding the baby. It is much easier to legislate and say ‘these things must be done’ than to actually run the mine.”
Declining mining
In spite of its huge inheritance the South African mining industry is not what it used to be. The industry has declined in size, showing a 1% decline in growth between 2001 and 2008 measured in value add to GDP, said Leon.
“The mining industry was smaller in 2009 than at the outset of democracy in 1994,” he said. “This is in stark contrast to the rest of the world. Between 2001 and 2008 the global mining industry grew by just less than 5% a year.”
Major agreed. “Just look at the volumes produced,” he said. “Platinum and coal mining is flat. Diamond and gold production is dramatically down.”
Major said that only Ferro-minerals — manganese, chrome and iron ore — had shown increases.
Nedbank economist Isaac Matshego said gold had been in a downward trend since the 1990s, slipping from number one to four with a high mining cost attached to it.
“Even with a high gold price it remains a challenge for the gold mines to keep afloat,” Matshego said.
National Union of Mineworkers spokesperson Lesiba Seshoka said the government should invest only “in strategic minerals, such as platinum, coal, uranium, iron ore, not ones like gold, which are in the sunset stage”.
Rising input costs: labour and energy
Major said one of the main reasons for the decline was the rising input cost of mining, with the largest on the list the cost of labour, which took up about 50% to 55% of mining costs.
“The unions have grown very powerful and labour costs are huge,” he said. “At the same time, productivity has decreased.”
He said power, for which the price had also dramatically increased, was the second-biggest cost to mining companies.
Ownership
“The owners of these mines don’t even know where their mines are,” Malema told the crowd at the recent Mining for Change conference. “After playing golf, they check their bank balances. And when they don’t see the money going in that’s when they call South Africa to ask if there has been a strike.”
Malema has a point. Though no exact figures exist on the foreign ownership of mines, analysts believe it is significant (though they say it is not as high as in neighbouring countries).
But the issue runs deeper than foreign ownership.
This week Minerals Resources Minister Susan Shabangu announced that only 8,9% of mines were black owned, far short of the 15% target. This is a statistic that irks Mining for Change organiser, Samda.
“We believe the key is not nationalisation. We have come up with laws to transform business in South Africa, which have not worked and the call for nationalisation is a reaction to it,” Samda chairperson Nchakha Moloi told the Financial Mail last week.