Alec Hogg is at the Mining Indaba 2015 with the President of ICMM, Tony Hodge – who also happens to be a Davos veteran. Hodge gives some insight into short-sighted versus long-term thinking in the East and West, why mining is a huge driver in emerging nations’ political decision making and cautious optimism at the Indaba.
Tell us about this gathering here. It seems that the Mining Indaba itself is gaining momentum. It’s not quite Davos yet, but it’s gaining momentum in attracting the powerful in mining from around the world.
Well, it’s attracting the powerful because of the importance of mining, of Africa rather to mining from a worldwide perspective. There’s no doubt about that and even though we’re in a commodities crash right now, anyone who looks further ahead is seeing the geographic shift of the centre of gravity of the mining industry and you cannot help but see that it’s coming in this direction.
The Chinese seem to see that.
Listen, anyone who looks ahead will see that. I’m cautious about commenting on any particular culture or nation because we attach innuendoes to that and I know, from a fact that looking around the world, that every country, my country where I’m from, Canada, China, the United States and every country has strong clears and not so strong clears. They don’t know any different and I don’t want to attach any innuendo to that.
Maybe I’m being influenced by a discussion with the Local Industrial Development Corporation, who say that the Chinese come here because they see and they culturally look 10/15/20 years ahead. Whereas Western capital sometimes not as long-term in their focus, excepting in mining, where you’ve got to be.Â
Well, actually your point about the long-term capacity of the Chinese is it’s true culturally. They see their civilisation. They see a perspective, that is longer-term and they are prepared to wait and see the way forward to doing that. Where we are driven, in our society, by much more short-termism, which I think is, at the moment, quite detrimental. There’s no doubt.
Mining you have to look long-term.
Mining you have to look long-term and in fact, much more so than people realise. Mining is an activity. You take a 20 or 30 year mine, you are actually dealing with a process, that stretches at least over seven generations and people don’t realise that because there is ten or 20 years upfront, in exploration. There might be a three-year construction period, and then a 20 or 30 year operating mine, into recommendation and then sometimes a long tail of closure, in which the community remains very important, in terms of the process itself. Really, a 30-year mine translates to seven generations, 100 years inevitably of relationship, between the mining company, and the host community in the country.
You’ve done some research recently, into the importance of mining in countries around the world and Africa, it is particularly important.Â
It is. We did a piece of research, which we released two weeks ago, in which we look at all 214 national jurisdictions around the world to understand the role of mining in the national economies, because we’re trying to understand the role that it plays, in national decision making. I heard in a meeting just now, that Chile is number one in copper, or some other country is number six in zinc or whatever it is. Really, what we are trying to understand is how mining plays in the national decision making. In the top 75 countries of the world, we are seeing a vast majority of them, in terms of the direct importance of mining as a contributor to the national economy. We are finding that the vast majority of those countries are emerging nations, low and middle income, so the importance is massive in terms of how those countries can achieve their social goals.
What about beneficiation? That’s a topic that is being raised increasingly in South Africa, as part of its mining future.Â
Sure, it’s a hot debate in a number of countries around the world. I think of Indonesia, right now, as we talk. The reality is that there’s the longer-term thinking which also needs to have a broader spatial perspective. It doesn’t make sense when there is an over capacity of being able to process and refine certain materials, to build yet more capacity, because that’s actually going to pull the rug out, from the effectiveness of what’s going on in that country. There needs to be an understanding of where downstream processing facilities are placed in the world and the role that that country can play, in participating in that. Sometimes it makes sense and sometimes it doesn’t make sense.
A very good example came up recently, in terms of titanium group minerals, which are used in taking pollutions out of cars. Right now, the biggest user of that is Europe. Now, in a given catalytic converter, three grams of platinum that big, to manufacture this vast box of a catalytic converter here that weighs quite a bit, so do you try and send that all to Europe or do you ship off the three grams of platinum and let the box be manufactured in Europe? It doesn’t make sense to do that.
What does make sense, however, is to increase the use of catalytic converters used in vehicles here, in Africa, and then manufacture those catalytic converters, and use the platinum from Africa and do it here.
So there’s not ‘one size fits all’? It’s complex.
No, there is no ‘one size fits all’, I think what we see, and listen, this is on all sides of the equation. What we see is simplistic solutions being grasped at, when there is greater complexity, and we have to think longer term. We have to think broader, spatially.
A large number of African countries came up high in your list, on the relevance of mining, including Botswana, which topped the list entirely, 90 percent of the economy. Just explain how that number is derived.
What we’ve looked at and we are a bit cautious about this because what we have done, or what we consider as ‘first step’. We will need, in the future, to look at more details also, and try to really, begin to understand this. We looked more at the generation of export earnings and we looked at the production value of mining, indexed against the GDP. Not as a proportion of GDP but indexed against GDP and we looked at the change in that indexing over the last five years, so there is a sense of whether it is growing. We’re trying to capture whether this seems to be growing or reducing.
In this particular report, we looked very much, at the peaking and the dropping of the commodity cycle, and the next time around we’ll have more to do with that because of what’s happened in the last six to eight months. Those are the factors we consider, in coming up with the assessment of the role of mining in a national economy. It doesn’t capture something like employment. It doesn’t capture a full value, in terms of the portion of the GDP and the reason is we can’t get data for that. It doesn’t exist in the world and we wanted to include all 214 jurisdictions, so that we could get the full picture.
Do the politicians, the leaders of the countries that are so reliant on mining, get what is required to expand mining in their countries?
Listen, I think that the leaders of the countries are learning. I think the leaders of industry are learning. It’s a two edge. There’s no doubt about it. There’s more than one dimension of this. I think that there is a propensity to reach to short-term gains, when you see a rapid rise of prices and if you develop public policy at the peak of the price cycle, and it drops you can find unintended consequences.
Like Zambia?
Zambia is an example. Our disappointment with Zambia is not simply the decision that is being vetted, because I don’t think it is quite final yet. It is that we worked hard to generate a conversation with all of the players, so that the industry, the Government, the communities, could all participate in understanding what would be fair for that country. In fact, what has happened is a pronouncement from on high, and I think that when that happens, it’s a kneejerk, and people are frightened of that.
In mining companies, which have to be responsible for the investments, your securities for your pension, the elderly people in who knows what country, have invested in there. They are responsible for that. When they see that kneejerk reaction, without the thoughtfulness, it leads them to feel insecure and if they feel insecure, they’re not going to go there.
Just as a more parochial thing, we had the Mining Minister from South Africa, Ramatlhodi, who was making some pronouncements this morning. The feedback seems to be fairly positive, after absorbing his message. Do you think this country is moving in the right direction, when it comes to mining, given that it is also a very important part here?
There is no doubt that it is moving in the right direction but what gives me enthusiasm, about South Africa, is two things. One, the quality of the people here and, two, the commitment to make it work right, and that’s exceptional, and that’s a broader comment that it applies in the mining industry. I think it is special and I think, in that sense, South Africa is a model that the rest of the world is looking at.
Just as a broad feeling of the Mining Indaba this year, the sentiment towards mining from investors. Are they looking for bargains because, things are real cheap now or are we bumping along the bottom for quite some time?
I think people are cautiously optimistic. I don’t think anyone will make a prediction, whether we’re bumping along the bottom or on the way up. Gold seems to be curving up and I think the other day I even got the sense that oil was beginning to curve up again, but what can come up today can go down tomorrow. I think that what people are really doing is standing back and saying, when you look at the population of the world, which is irrevocably growing. When you look at the urbanisation of the world, which is irrevocably growing, the need for the materials, produced by mining, is also going to irrevocably grow and South Africa has a real role to play in the provision of those needs.
Tony Hodge is the President of ICMM.Â