Peter Major: Chasing ten baggers in SA’s mining industry. And, yes, they exist.

Peter Major is one of the most recognisable of South Africa's money managers. Outspoken, articulate, forthright – the 59 year old's opinions are based on a wealth of experience and deep knowledge. We first met three decades back when he was caning his Mining & Resources fund peers, outperforming the next best by ten percentage points. Peter came over to the Biznews.com studio in the new JSE Media Hub to tell us what he's up to. For a change it was Peter Major talking about his own investments rather than offering market commentary. Straight talking as always whether it's about SA mining legislation or the controversial promoter Robert Friedland.  But we wouldn't have him any other way, would we? – AH   

ALEC HOGG:  Peter, we go back a long way.  If I remember, when you were still running the Nedbank Mining and Resources Fund and kicking everybody else's butt; do you run any mining funds, still?

PETER MAJOR:  No, not officially.  We run a private equity-mining fund that we're building from the ground up.  In other words, we're taking 5/10/15 and sometimes 75 percent stakes in mining companies that we're doing business with, but it's pretty much unlisted.

ALEC HOGG:  That's interesting.  So you're actually looking…you're fishing in different waters.

PETER MAJOR:  Very much, Alec.  I like to tell people, when they bring a supply cheque, the first thing you say is 'what's the rate of return'.  The guys will get their eyes really big with a smile and say 'hey, this thing is going to be 20/25 percent rate of return'.  I'll go 'no, you're in the wrong division.  Go downstairs with asset management'.  The JSE as we all know makes 19/20 percent per year, every year, whether you're brain-dead, in a coma or not.  I said 'don't bring me something that's going to make me 20/25 percent per year.  When you're talking off-market, private equity deals we only deal in multiples.  You're putting your money in for 2/3/4 years.  This is high risk – starting out the closed mines.

ALEC HOGG:  How much…what kind of return do you look at then?

PETER MAJOR:  I don't want to look at anything that doesn't have multiples, and multiples means it starts at 100 percent and it goes to 2/3/4…up to 10 baggers, because that's how the mining houses got going.  They bring a project in.  That's how these junior miners work.  It takes you two or three years to get a prospecting permit – there's a couple of million Rand.  You then have to do some drilling, desktop surveys and overhead flying, so there's another 10/20/30/40 million Rand.  If you however, do that and the ore body is there then it's easy to get multiples on your money, but it's a lot of work and its 2/3/4 years.

ALEC HOGG:  How many investments have you made?

PETER MAJOR:  I think we've made probably 11 or 12 and we're working on another seven or eight.

ALEC HOGG:  That sounds like good news.  Where exactly, Pete – what areas?

PETER MAJOR:  All over the country.  See, we're very lucky because this is the world's richest country in minerals and we have 6150 abandoned mines, you can really take your pick.  Now, we've been pretty choosy.  We've told Susan Shabanga 'we just want your best one percent, Susan.  You have 6100 abandoned mines.  For you it's a problem and a liability.  For us it's an opportunity', so we've tried to choose what the best one percent of those mines are.  A nice way to start choosing, is you plot metal prices for 150 years and you try and pick out the ones that closed at the 150-year lows.  A guy who was last man standing and making money when gold was 35 per ounce in 1968/1969…you know that ore body is going to make money today when gold is 7/8 times higher in real terms, just like those miners they found in Benoni.  They're not dumb.  They're picking out the mines that had the highest ore body and the highest potential to make a return – the ones that closed just before the metal price took off.

ALEC HOGG:  You mentioned gold.  Do you have any gold?

PETER MAJOR:  No, we don't.  We're really looking.  Surprisingly, it's very rare.  We had one great opportunity out at Krugersdorp I really wanted badly because I think it closed in '66.  You can imagine here's a mine that ran from 1932 to '66 – 34 years at a flat $35.00 gold price.  They only mined one reef out of six and the mine has ore starting at the surface, but they found the ore goes all the way down to one thousand metres.  On paper, it's just fantastic.  You had almost one million ounces in about 55 hectares, easy accessibility, and we were beaten out by a Swiss company that got in there.

ALEC HOGG:  Also private equity?

PETER MAJOR:  Funnily enough, it's actually a listed company that got in and took this.  It's German gold listing – run by Swiss – if you can figure that out.

ALEC HOGG:  Outside of gold?

PETER MAJOR:  Outside of gold we're putting a lot of time and work in Okiep Copper, because that was closed in 2003 and that was a hundred and fifty year low copper price and they would still break even.  Doing work on pairing: that closed in 2003, the lowest price humans have ever seen for lead and zinc and it was it was just barely breaking even in 2003, so there is zinc at thirty cents per pound.  Zinc has been a dollar per pound for the last year and it's long term average is a dollar per pound, so we're quite happy buying minerals – mines that could make money at a quarter of what their long time price is

ALEC HOGG:  But what happens to mines like that?  Do the original owners give up the mineral rights?  Do they now vest in the state again?

PETER MAJOR:  That is the biggest tragedy of all.  They are real, true orphans.  They are virtually just abandoned on the street, and we were talking with one of the large government institutions today.  What do we think about Blyvoor?  Are we interested in helping them protect Blyvoor?  I said 'you guys had better send armed guards out there because if the papers are true, if the same game that destroyed Grootvlei is now taking over Blyvoor, they are not going to pump out the shaft and mine 20 million ounces of gold.  They're going to go in there with cutting torches and angle grinders, and then you have no chance of bringing a foreigner in to get that mine going.  I have to think really hard Alec, to think of an underground mine that ever mined half its ore body.  Most mines I know have mined a quarter and third – honest.  Very few of our gold mines have even taken out half the gold in them.  Miners are like everybody else.  They're greedy, they're lazy, and they'll gouge the eyes out and move on.

ALEC HOGG:  So the opportunities do exist there, and it's something in the private equity space that you're looking at.  The majors clearly, are not interested, but what about junior miners – are there juniors from other parts of the world who see the opportunity as you do?

PETER MAJOR:  Very few – anymore.  They tried.  The juniors really tried here from the new millennium – from 2002/3/4/5, but the biggest impediment unfortunately, has been the government and the unions.  The legislation to get your prospecting permit is mindboggling and it kills you.  It's like giving blood 24/7.  They never stop.  If government had a clue how hard it was to get a mine going, how risky it was, and how many alternative investments there are for people's money, I know they would do something different but they don't seem to have a clue.  They don't seem to acknowledge, and forcing someone to embark on this complex BEE requirements – especially when you've done it two or three times and they keep selling shares and government says 'well, then you'd better do it again'.  If anything, government should be abandoning BEE for anyone who wants to go into a deep level gold mine, because it's the only way they're going to get anyone in here.  Nobody will ever sink another deep level.

ALEC HOGG:  Massive capital investment…

PETER MAJOR:  Yes – massive risk, and if they don't want 6150 abandoned sterilised mines forever, they'd better start adjusting the risk and legislation that people have to go through to get into these mines.

ALEC HOGG:  You were on a panel with Roger Baxter at the Mining Indaba and he said that there's progress being made between discussions with government.  Do you think the issues that you are raising are coming on the agenda?

PETER MAJOR:  No, I don't.  I think the Chamber of Mines is representing existing mining companies, mainly the large ones, and they're just trying…  It's as if you're holding onto a rope and you're on The Eiger your partner is sliding down and he's slowly pulling you.  I think the Chamber of Mines is digging in their heels – holding onto the rope.  They just don't want to be pulled down any further.  I think they're a million miles from saying 'how can we turn this situation around and attract people in the country'.  They're just trying to stop further additional negative legislation.

ALEC HOGG:  Well, that is a scary situation, which needs some kind of vision, which clearly is not being given by the Department at the moment.

PETER MAJOR:  Not at all.  If you say 'why can't mining have a Steven Jobs or a Sergei Brin or a Bill Gates' or if you just look at the environment here…if you even think of opening a mine, you have to have a union and MUN and AMCU are going to fight over who's going to be the union.  Why do you have to have a union? Where I came from, in America, you had multiple unions and you had no unions.  Sometimes the same mining house would have a mine that had a non-union; it would have a mine with one union, and a mine with a third union.  It's that competition and this whole nationalisation bugbear.  I've been for nationalisation forever because if you look at ISCOR, you look at SASOL, or you look at FOSKOR, those were national companies and they set the trend.  They had the highest productivity on mechanisation.  ISCOR and SASOL in the eighties, and any other mining houses we covered…so I encourage government.  You have 6 150 mines – start nationalising.  Put some money into them or at least, give them to foreigners and give them some kind of incentive to take the things over.  Here however, you hold a deep level gold mine that's high risk, has a modicum of return, you have to jump through 25 hurdles, you have to wait three years for a prospecting permit, and naturally, you have to have a 26 percent BEE.  It's just totally off-putting.

ALEC HOGG:  You mentioned Steve Jobs.  The relation to Steve Jobs is Robert Friedland, who is doing Platreefs up in the north of the country.  He wants to do things differently.  Do you think that he's (a) a charlatan or for real, and (b) is he going to get it right?  He is a foreigner, too.

PETER MAJOR:  Yes, he is a foreigner.  I think Robert drives too fast to ever till the fields and plant the seeds.  I don't know that he's even run a mine.  To run a mine takes many years.  It takes many years to start a mine.  It takes even more years to run it, especially profitably, and start repaying the cow pill.  I don't think it's in Robert Friedland's history or nature to do that, but if he's a promoter and he can get a mine started here if somebody else runs it, so what?  That's great news.  He talks a lot from the hip.  He definitely talks to media.  He talks on mechanisation and he's going to pay workers three times more.  I don't know a mine manager Alec, in my life – and I'm 59 – that won't at least talk to you about paying you two or three times more, but he says 'what can you do for me, Pete' and if you don't know what you can do for him, he'll usually even tell you what you can do for him.  That's all the unions have to do.  There's nothing wrong with saying 'we don't want anybody making less than twelve thousand per year', but when you've had 12 years of not even negotiating any kind of productivity, not interested in hearing how you can be more productive, so Robert…  If the ore body is what he says, he has to mechanise.  Will he pay workers three times more?  Only if they're three and four times more productive.  Mechanisation isn't the answer to our problems.  Most of the underground mines that are mechanised had much higher costs when they were working conventionally.  The one reason for mechanising is it's easier and you get out of the labour difficulties, but it's so much more destructive and so much more inefficient – taking four and five times as much rock as you need.  If you look at our productivity – I hear all these politicians say how much we've mechanised and how much we have to go – the productivity now is lower than it was in the sixties with this mechanisation. It means that in the sixties, when we were really mining like pseudo-cavemen we were much more efficient than with all these multi-million dollar machines that we're squandering our foreign currency on, that we're putting thousands and thousands of people out of work…  I have had many ANC people come up to me.  They'll say, "Peter, why aren't you talking to government and saying 'get this mechanisation out of your head?  We just want jobs.  We just want jobs and we know a good gold mine can have five to ten thousand jobs'".  These modern platinum mines on the Platreef are going to have five hundred jobs.  Look at Sishen.  If you say 'how much money does Sishen bring into the country for their five thousand men', we used to bring that in with fifty thousand men on an average gold mine.

ALEC HOGG:  Peter Major, we're looking at the issues that bedevil and perhaps, opportunities in the South African mining.  He's with Cadiz Solutions.