Priced for Armageddon, after the Joburg Indaba mining has deep value investors licking lips

Right now, South Africa’s mining sector is a deep value investor’s dream. Apart from its shared exposure to falling commodity prices, local miners have had to absorb soaring energy costs, turbulent labour and uncertain legislation. So one might have expected a subdued mood at the 2013 Joburg Mining Indaba which ended today. Not so. While it wasn’t exactly boisterous, there were enough glimmers of optimism to get the value guys excited. I facilitated a session on junior mining – the area most exposed during pessimistic periods – and left feeling upbeat. Valuations are discounting Armageddon. You’re sure to draw similar conclusions from this overview of the two and a half day conference with its chairman, mining entrepreneur Bernard Swanepoel. Whereas stocks were priced for perfection a few years back, now they’re discounting disaster. It’s always better to buy when everyone else is selling.Or when the proverbial blood is in the streets. – AH 

Bernard
Bernard Swanepoel

To watch this CNBC Power Lunch Interview click here 

ALEC HOGG:  A junior mining conference called the Johannesburg Indaba, took place this week in Johannesburg.  Chief Executives, industry experts and government got together to discuss challenges and issues in a sector that has plenty of them.  Joining us now to explain what happened there, is the Chairman of the conference, Bernard Swanepoel.  Bernard thanks for coming through.  In fact, your conference hasn’t quite finished yet.

BERNARD SWANEPOEL:  Well, it’s about to finish.

ALEC HOGG:  I guess having been on for two and a half days, you can sneak away.

BERNARD SWANEPOEL:  Yes, I was only the Chairman.  We had 70 speakers, well facilitators, in panels and presentations and we really tried to deal with the issues because you have to discuss what’s wrong.  We were, unashamedly also attempting to start to talk about ‘can things be different?’  If so, what do we do today, to have a different industry five years from now?

ALEC HOGG:  Planting seeds…

BERNARD SWANEPOEL:  Yes, and I know you were there for some of it, but we had people like Bobby Godsell really challenging us.  We spent a day blaming government – mainly in their absence.  We spent a day badmouthing the unions – mainly in their absence.  We had Fund managers pointing fingers at mining companies.  We had all of that and then Bobby said, “There’s a third leg to this chair.  You need institutions to work.  Nobody in our country is too worried yet.  We’re worried, but it’s not falling over.  You need strong leadership”.  We were critical of that.  “Then you need the citizen, the person who makes a difference there where he can: the mine manager who addresses the issue of a garnishee order.  That singlehandedly changed the tone of the conversation.  From there on we all accepted what’s my role/our role, how do we do things differently, and I thought it was a very interesting discussion – good feedback.  I would hope that – post the talk – because the big cynicism in a conference like this that 300 people sit there and they say, “Yes, good talk but is anything going to happen?”  That’s really the next challenge.

ALEC HOGG:  It was unusual when Bobby Godsell spoke, that he put on every chair a membership form to become an active citizen.  Did you fill one in?

BERNARD SWANEPOEL:  Of course I did.

ALEC HOGG:  Did you hand it in?

BERNARD SWANEPOEL:  I can’t categorically state that it’s in their hands, but it definitely will be.

ALEC HOGG:  What is he trying to achieve with it?

BERNARD SWANEPOEL:  Well, it sort of forces you as an individual to deal with our Constitution.  It starts with the same preamble, and then it goes on to say what you, as a citizen of the country would pledge to do.  There’s not a word in there that one individual in this country could or should object against.  If you do, then you should leave.  For me, I think of myself as a born and bred South African and I’m here by choice, but I never stopped and though ‘am I prepared to sign a pledge which says I’ll be a good citizen’, and I’m now a good citizen.

ALEC HOGG:  Rebooting?

BERNARD SWANEPOEL:  Yes – exactly.

ALEC HOGG:  It was interesting in his talk as well – we asked Bobby…  where he said that the Constitution of South Africa is one of the best in the word, yet not too many people have read it.  Similarly, the NDP – the National Development Program – is a fabulous document.  Of course, he was involved in that as the deputy Chairman to Cyril Ramaphosa and he said we haven’t read that one either, so we are failing as active citizens by not reading it.

BERNARD SWANEPOEL:  Exactly, and I think if we knew what our rights were in terms of the Constitution, we would probably act more empowered.  We’d know what fits within our Constitution and what does not.  I’m guilty.  I’ve always treated that document as some nice, legal document that’s not for me.  I’ve spent more time in the NDP, because as a miner and a businessman, that has more direct impact on me.  Perhaps the next thing we need to do is read our Constitution.

ALEC HOGG:  You received pretty good media coverage: the banner headlines about particularly Robert Friedland’s Ivanhoe, which is apparently going to be transforming the platinum sector.

BERNARD SWANEPOEL:  Yes, Robert is a good promoter.  He’s done this for his entire life.  He’s discovered mines.  He’s taken misinterpreted geological information and he’s made himself a fortune.  He’s obviously made many other people a lot of money too.  It was a big draw card.  We unashamedly thought that having him on day one, as the lunchtime speaker, was going to help us sell out the conference.  It did – amongst other things.  Around that, some really serious South African conversations took place. Robert was talking about a mining industry five years from now.  He put some harsh realities on the table, for example, we will employ a few people and not many like a conventional mine.  They will be well paid but the impact will be a lot fewer jobs etcetera.  That was a really good draw card around which we could then have the discussion about the more typical South African mining industry issues.

ALEC HOGG:  The thing that I was wondering about afterwards – and there is going to be a massive platinum mine up in the north in Limpopo province – and it will come about.  Certainly, from what he was saying, it is going to happen.  Won’t that affect the supply and demand equation for platinum?

BERNARD SWANEPOEL:  Alec, I must say if all the projects that are promoted come online, there’s an oversupply of all commodities.  I think platinum has been very guilty of over promoting projects.

ALEC HOGG:  You have one – have you not – in the village?

BERNARD SWANEPOEL:  I wish it were mine.  Unfortunately in Village – and I’m the Chairman of Village, we have a very nice Platinum Project.  One of the projects, in the hands of earlier promoters, would already have been a big mine.  Obviously, in order to build a mine you need an ore-body and certainly, I would think that Platinum Project has an ore-body like ours has, but you need a couple of other things to come together as well.  You need the infrastructure.  We discussed that at length at the conference.  Where is the electricity coming from?  Where is the water coming from?  Ultimately, you need capital and right now, funding is extremely difficult.

ALEC HOGG:  So he’s looking for about $1Bn.  Is he likely to get it?

BERNARD SWANEPOEL:  $1Bn for phase one: he’s the most likely candidate to get it.  I have to say that if Robert Friedland can’t raise $1Bn…I wouldn’t’ back anybody else to do it for a Platinum Project in South Africa.  Part of the reason he was keen to speak to the audience I think. He softly announced that he plans to come and do a JSE listing and so he’s obviously preparing the providers of capital for coming to the market.

ALEC HOGG:  Interesting, and government was….Enoch Ngodwana was an interesting choice to represent government at your conference.

BERNARD SWANEPOEL:  Well, he unashamedly represented the ANC. I think we could not have done better, quite honestly. You could get a cabinet minister.  Well, we couldn’t, quite honestly, so we had a long discussion about mining without our minister present.  I must say that I think Enoch was good value for money: the first panel where he, and Michael Spicer and Valli Moosa really gave excellent value for money in the debate.  The discussions – it was not all agreement.  Out of that, for me, came a critical… one of those things, which could go beyond talk…  Enoch says, “But guys, how can we be busy tampering with regulations which everybody seems to be fighting about?  Shouldn’t you people go and close the door for two days and when you come out, we can write the new Regulations or the Amendments to that, together.  All 300 people would have voted for that at that point in time.

ALEC HOGG:  Is it likely to happen?

BERNARD SWANEPOEL:  That’s the big challenge, so now it’s over to all the stakeholders to try to make it work.  Obviously, Valley Moosa could immediately see the benefits of that, being a politician and the Chairman of Anglo-Platinum, which he is.  Michael Spicer, the representative of  Big Business, immediately said, “That’s a brilliant idea” and we little people will all try to assist to do that because it is the type of noise that gives our industry a bad name.  It’s the type of noise where the ANC said this and they said that.  We don’t go forward.  We’ve had that conversation for a long time.  We’re going to end up with bad legislation unless we literally lock the door and when we come out, we have a new Constitution.  It’s one of those moments for the industry.

ALEC HOGG:  Bernard Swanepoel, entrepreneur, Chairman of Village and the Chairman of the Johannesburg Indaba: thank you for coming into the studio.  Now you can go back and say goodbye to all your guests – all 300 of them.  That was Bernard Swanepoel.  He is the non-executive Chairman at Village Main Reef.

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