Iron ore takes Kathu from boom to bust in five years

Hematite iron ore derives its name from haima, the Greek word for blood. And it’s the unearthing of this rock at Kumba’s massive open-pit Sishen mine that is responsible for the dark red dust that drifts for kilometres, shading everything it touches.

The Sishen mine is the heart of the Kathu community and the only reason for the existence of this rural Northern Cape town. But as the global iron ore price ebbs and flows, so does the lifeblood of this town and the people who live there.

A mere five years ago, 2011 was a golden year in this mining community’s history. A soaring iron ore price meant that an employee share scheme – dubbed Envision – paid out a lump sum of R500 000 to each and every employee involved, totalling about R2.7-billion.

That November, when the money came through, hundreds of cars were brought in and rapidly sold off for cash. Local furniture stores such as Joshua Doore stood empty. Many who didn’t splurge on partying or fancy cars bought, built or extended their homes in the surrounding area.

Two new malls sprung up, bringing the number of KFC outlets in town to three, catering for the population of 11 500. With the increased spending power, inflation rose, goods began costing more and property values and rental prices increased.

Today, Joshua Doore stands empty again, but this time it’s because it has closed its doors along with many other businesses that could not sustain the losses that came with a plummeting metal price. Guesthouse vacancies are easier to come by now than four years ago, because the frequency of flights into the town has also slowed.

One car dealership disappeared overnight, even though at one time it would sell up to 40 cars on some days, locals say. To let and for sale signs continue to go up. Sales at the local Build It have nose-dived in the past three months.

Some hope the worst is over, though others fear it’s only the beginning as a retrenchment process at the Sishen mine will see almost a third of its permanent workforce exiting over the coming months.

Cash cow
Once Anglo American’s cash cow, Kumba Iron Ore’s fortunes have turned recently.

The slowdown in Chinese growth, which in turn affects the demand for steel, has hit iron ore prices hard – a key component in the manufacture of steel. The metal reached an all-time high of $187 a tonne in 2011 but has since dropped to below $40 a tonne in December 2015.

It has recovered somewhat, trading at between $60 and $70 a tonne currently – a welcome ray of hope for many Northern Cape communities.

The astronomical price saw Kumba’s employee share scheme, Envision I, considered the most successful empowerment transaction in South Africa, pay out R280-million in dividends to participants. At the time of unwinding in November 2011, it made a capital payout of R576 000 to each one.

The second phase of the scheme, Envision II, began in December 2011 and to date has paid R536-million in dividends – but the lump sum due at the end of this year is expected to be nothing. Kumba said it is evaluating various options for the period after Envision II matures.

Any musings about another windfall are pipe dreams now that the downscaling of operations – accompanied by the ending of contracts and retrenchments – is the new reality this mining town is faced with.

“People ask: ‘What must we pray for?’” says Adele Rossouw, organiser for trade union Solidarity in Kathu. “I said: ‘Pray China starts building again and uses a lot more steel.’ I said: ‘Don’t be mad at the mine; be mad at China.’?”

Retrenchment numbers
Sishen is the largest employer in the area, but not the only one to retrench. Rossouw says more than 7 000 section 189 notices have come through her office since June last year, although the number of workers actually retrenched was lower.

National Union of Mineworkers (NUM) retrenchment numbers for 2016 in the Kimberley region show that, of the more than 8 700 members who were served with retrenchment notices, more than 2 500 of those jobs have been saved to date – not counting companies such as Sishen, where retrenchments are not yet finalised.

With resource prices, such as for iron ore, in the doldrums, unions have very little bargaining power. “All you can do is to try to negotiate the best package,” says Rossouw. “You cannot always get blood out of a rock, you see.”

Organised labour has, however, managed to negotiate a “voluntary separation package” at Sishen that is so attractive 1 500 workers have already opted for it.

NUM Kimberley regional co-ordinator Lucas Phiri said the union had fought to improve the packages, resulting in many employees choosing to leave the mine. “For NUM that means less income in terms of subscriptions, and that weakens us.”

Workers who accept the package will receive two-and-a-half weeks’ pay for each year of service to the company. They will be able to stay in mine accommodation until the end of the school year and will receive the company’s contribution to medical aid for three months after exiting.

Phiri said the original retrenchment notice, targeting close to 4 000 permanent and temporary employees, was shocking, considering that each black worker is estimated to support 10 people. “If you multiply this, it was a blow. At that number, how would people survive in the area? The Northern Cape is a big province and has rich resources, but its people are very poor, with lots of rural and undeveloped areas.”

The Sishen package is particularly attractive to older employees, such as Chris de Beer (see “From braai packs and Coke to the bitter gall of reality”), who are nearing retirement and would be eligible for a large payout, having worked at the mine for decades.

“People talk about voluntary process as if people have a choice, but people don’t really have a choice if you see the new structure and see you are in a redundant position,” Rossouw says. “It is a very difficult time; people are trying to apply for jobs elsewhere … and they have to relocate because there is no work in the Northern Cape. People don’t really have a plan.”

Thapelo Makatong, however, believes the retrenchment package presents him with an opportunity. The 40-year-old drill operator has worked at Sishen since 1999.

“It was a difficult decision to make. I had to consult my wife as she is not working, and I have three kids.” The first-born, his son, is 12 and his two daughters are seven and three. “The only income we depend on is my salary.”

They decided to take the money and use it to pursue his dream of owning a business in Mapoteng, 20km from Kuruman. He believes his business can overcome the depressed economy and deliver a much-needed service (details of which he did not wish to disclose for competition reasons) at a cheaper price.

Further study
Other younger employees have taken the money with the intention of studying further. Some grew concerned they would not make it through a forced retrenchment process and opted to leave voluntarily.

Makatong says the Envision scheme money had been beneficial to those who used it wisely.

“I used to have a three-bedroom house, so I decided to build a nice big house in front of that – that three-bedroom is now my back room,” he says. “I’m very happy that today I can point and say this is the Envision payout of 2011. The package will now help me to pursue my dream of owning my own business.”

Thapelo Monaba, a NUM shop steward, has been working on the mine for four years and five months. At the Sishen mine, in a four-by-four-metre prefabricated office with a burgundy carpet (no doubt to assume the same shade as the hematite dust), he explains that there were various reasons he didn’t take the severance package. “As a labour representative, I could not abandon people … That would be an easy way out.

“There was this mutual understanding, especially from the older guys, saying they would rather sacrifice themselves for the sake of the younger ones,” said Monaba.

“For me, there’s hope. This is a perfect opportunity to transform this mine to become something that is more reflective of the previously disadvantaged, largely black, communities.”

Closing up shop
Magrietha Spangenberg and Marianne Pienaar, the co-owners of a local sports clothing and equipment store, Eysele & Fouche, are seen loading boxes on to a bakkie. This shop was one of the first businesses to be established in the town. But after 40 years of trading, on Saturday it will close its doors for good.

“We are closing down because the customers haven’t paid us,” says Spangenberg, who has worked there for 26 years. “It’s been coming for a while now.”

The store is a bare shell, with just a few lonely items on rails and some shoes on display on the floor. Even the furniture is for sale, says Spangenberg. A sticker asking R450 is stuck to her desk.

Sheryl-Lee Murphy (26) is the last of four other employees at the store. After Saturday she will be out of a job. Her father has also taken the mine’s voluntary package.

He and her mother will move to Cape Town and Murphy will stay with her seven-year-old daughter in her modest home in Olifantshoek, which her father bought her after the first lump sum Envision paid out. She might try her hand at hairdressing, she says.

“It’s heartbreaking to see how the town used to look and how it looks now. All these shops sprung up, and now they are disappearing again,” says Pienaar.

Pienaar is job-hunting. “But there isn’t work in this town. So you maybe have to move, but you sit with a house that you have to sell – and market prices are low now. I could sell my house but I want to make a profit; I don’t want to give it away.”

She moved to Kathu 29 years ago; her husband has lived there 34 years. He took the package and is finishing at the mine at the end of the month. “He took it because of the uncertainty. We can’t make long-term plans because you don’t know what is going to happen tomorrow,” says Pienaar. “I’m not feeling good. But I’m in the deep end, so now I must swim.”

The depressed metal price has already seen the closure of Kumba’s Thabazimbi operation, which had more than 400 employees. And though restructuring is taking place at Sishen and the nearby Kolomela iron ore mine, it may not be the end of the workers’ troubles: Anglo American has said it is looking at its options for its 70% stake in Kumba Iron Ore. Any potential buyers are yet to make themselves known.

It is speculated that Exxaro, a 19.98% shareholder in the Sishen Iron Ore Company (a subsidiary of Kumba Iron Ore), may increase its stake. Names such as Patrice Motsepe are also being bandied about as potential investors, even though his nearby African Rainbow Minerals Black Rock project has also experienced job cuts. The idea of a Chinese investor is being happily circulated by the local rumour mill, but is as yet unsourced and unsubstantiated.

Luthando Brukwe, NUM’s head of transformation, believes there will be buyers. A minority stake sold to Chinese investors would not be unthinkable, he said. “It’s great-quality ore, with the rand-dollar exchange working in the mine’s favour.”

Some relief after real estate bubble bursts

The newly built Heritage Mall on the road to Kuruman has a multicoloured, seemingly cheerful exterior, but inside it stands half-empty. Many stores with the windows papered over have closed down. Even a John Dory’s franchise has gone out of business.

Adjacent to the mall, Re/max estate agent Maree Ras recalls how just a few years ago a R1.6-million property in the Kathu area would be rented out for R25 000 a month, attracting property investors from all over the country. “People had no choice but to pay it – there was not enough stock out there.”

Solidarity’s Adele Rossouw says one person had bought a property for R1.5-million last year, only to have the bank value it at R500 000 now. “So he’s stuck with that house. There is no rental market at this stage; he wouldn’t be able to rent it out to cover his bond.”

Ras, however, considers plummeting rental prices and property valuations as just part of a natural correction in the local property market. “There was a shortage and that increased property values, then there was an oversupply and so values have come down.”

The demand led to new developments; now, with fewer people (such as contractors) in the town, there is an oversupply of property.

And that same R1.6-million property is being rented out for R10 000 a month, Ras says, noting that this is a reasonable rate.

The property market, as Ras sees it, is stabilising, along with the iron ore price. “Iron ore has improved 100% since December, and so have property values. Our rental book has also grown a lot in the past month,” he says. “I think we have been through the worst. Things are getting better.”

Bringing new life into the town could be a new 100MW solar park complex to be established by Sener and Acciona. Ras expects that a few hundred people from Spain will soon descend on the town and move into rental properties.

But solar projects are known to be low maintenance and are not big employers, whereas Kumba has been a major contributor to the Northern Cape tax base.

Few crumbs left after cookie crumbles

“Where are you from?” asks Dennis Dituku, chief executive of the GamaGara Development Forum (GDF). Johannesburg is the answer. “At least there are still some cars on the highways there,” he says.

“You know, you see it on TV or read it in the papers – but when someone sits down in front of you and you see it, it breaks your heart.”

He is referring to the life force of the town leaving, and the fortunes of the many people that go with it.

Sishen’s community development trust was part of Kumba Iron Ore’s black economic empowerment deal and chose to fund five established development organisations around its operations to empower and benefit communities beyond the life of mine.

The GDF was among them, and has implemented a number of projects identified by the trust. But its funding is derived from the trust’s shareholding and the shares have done so poorly that the last time the GDF received money was two years ago, Dituku says.

The GDF itself has retrenched staff, reducing its complement from 18 to four in recent months. Its vast, empty offices serve as a stark reminder of this.

“When the cookie crumbles, there are a lot of fights … and the cookie is crumbling,” Dituku notes.

Infrastructure projects such as the community halls may be equipped with computers, but there is not necessarily going to be wi-fi, he says.

He displays a picture of a brand-new youth centre in Olifantshoek that now stands empty and unused – “a white elephant”, he says – and one that’s vulnerable to vandalism.

The trust used to award 10 bursaries each year, but this has come to an end as it struggles to service those it is responsible for. There are no funds for a soup kitchen that costs R25 000 a month to operate.

The overreliance on Kumba is plain to see now, Dituku says, noting that there was never a directive for any of the funds to be invested so that the trust could eventually fund itself. “[In future] there needs to be responsible sustainability.”

The forum now has to carry out its commitments and look after its projects. It is seeking donor partners for selected projects, he says.

From braai packs and Coke to the bitter gall of reality

Chris de Beer moved to Kathu in 1973. “My folks moved here. There were two houses and 10 foundations. That was Kathu. We were here less than six months when the first person, with the first house in Kathu, moved and left the mine. And I’ve been here ever since.”

His father worked on the original site, and died in an accident there. De Beer has worked at Sishen for more than 37 years, most recently in procurement.

The day the Mail & Guardian speaks to him is his very last day at the mine. He’s just arrived home and ushers four little dogs – two Pekingese and two black Scotties – into the garden before reclining in a plush armchair in the lounge.

“I’m happy,” he insists. He decided that, with three years to go until retirement, it was the right time to call it quits and take the package. “The biggest thing is – you know, you become a bit paranoid, and there’s this devil on your shoulder telling you not to do certain things because of the future … I don’t have that fear any more.”

De Beer plans to relax before he and “the Mrs” start with their bucket list: “Before this commodity thing we lived a rich-mine syndrome, man. We lived like kings,” says De Beer, recalling how reaching one million man-hours without incident saw every single employee rewarded with a braai pack and a two-litre Coke. Every subsequent million hours reached was met with gift vouchers. “I don’t think there is another company that spoils its workers like this.”

So what went wrong?

“We expanded far too quickly,” says De Beer. “Anglo wanted mega-mining, and bought millions and millions worth of equipment.

“In the past we used to do these same tonnages – like the 26-million targeted for Kumba this year – with a lot less.”

The people were more dedicated, he believes. “The youngsters today – it’s all about the money and the less you work for it, the better.”

Says his wife, Ria: “I don’t want to see this town go down; that would be very sad. I don’t think it will go that far. But everyone must learn from this. It’s not milk and honey any more. You must work for your money, like we always did.”

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