Peter Major: SA mining war ending, but reconstruction will take decades

A sobering interview with mining specialist Peter Major. He explains how South Africa's mining sector has resembled a war zone since 1994, sometimes literally. With the ANC Government determined to impose its socialist dogma and a militant trade union later joined by an even more aggressive competitor, it's no surprise that capital has sought alternative geographies. Wars have no winners, illustrated in the massive destruction of wealth, jobs and the tax base. A quarter century back, South Africa accounted for 40% of the global mining pie. That is now under 5%. And while mining productivity has fallen worldwide, South Africa's substantially underperforms even that poor record. Good news came during this week's Mining Indaba where the reconciliatory approach suggested the mining warriors on all sides are tiring. Nowhere is this better illustrated than Government's unprecedented stalling on its latest raft restrictive legislation. But Major warns that even if peace were declared today, reconstruction will take decades. – AH

ALEC HOGG: Well, I spent a bit of time at the Mining Indaba, including being involved with Peter Major on one of the panels. He's a Mining Analyst at Cadiz Corporate Solutions. He joins us on the line from Cape Town. It's interesting, Pete, we still have quite a lot of space between where Government is coming from and certainly, where capital is, but they do seem to be coming a little bit closer. Certainly, that was my view. Did you get that same impression?

PETER MAJOR: Yes, I think you're 100 percent right, Alec. They've been at odds with each other for 20 years now – at least, from 1994 till now – and this is the first time I think, that we've seen them all in the same room and pretty much agreeing on things. I would say there was at least 70 percent agreement. I've never seen that before. So I'd like to think we've bottomed now and from here on, the three opposing sides can be working closer and closer together, in unison.

ALEC HOGG: We had Jim Rutherford from the Capital Group giving us the statistics and analysis he'd put together. Forty percent of the global mining industry was in South Africa 25 years ago. Now it's less than five percent – his figures (drawn from the PWC reports). It's almost a war zone that appears to have happened between Government, labour, and business. If the war is at last over, fortunately, the minerals are still in the ground. So at some point in time we will be able to get value from them?

PETER MAJOR: We will, but it won't be in our lifetime. Yes, if we can declare the war over as of this week, then we have a process of reconstruction and we know how long it took Japan and Germany to reconstruct. It took them about 15 to 20 years. We've had a 20-year war. We've had ideology and politicisation working against the mining industry, revving up the masses, demonising the mining companies, breaking up mining houses, and chasing mines and investment out of here. It is therefore a 15 to 20-year horizon for reconstruction. That's what we have to start – reconstruction of our mining industry.

GUGULETHU MFUPHI: Your analysis of South African mining companies and the management: are they on the right track then, in working toward this reconstruction?

PETER MAJOR: They're starting to get on the right track, but they're putting out so many fires and they're dealing with layer after layer of new legislation. When they think they comply with existing legislation they're told they're not even close. They ask 'Why aren't we close' and they aren't shown. That leads to uncertainty. It's constant new layers of legislation and reinterpretation of existing legislation with more proposed. And so all the mine managers and the CEOs are dealing with that instead of competing with mining industries in 200 other countries. There's no way even Steve Jobs and Bill Gates could lead world-leading IT industries if they had to deal with all the things our mining execs have to deal with.

ALEC HOGG: One of the points Rutherford made that's still been sticking with me is that much of our economic thinking comes from the University of Sussex, as he called it – the alma mater of the ANC, one of the most left-wing universities in Europe. I'm looking at my notes and he said there were many scholarships for the ANC at Sussex University and included amongst the alma mater were Thabo Mbeki, Essop Pahad and, of course, Rob Davies who's playing a big role now. Do you think he's overemphasising this, Pete?

PETER MAJOR: Maybe he is. But I'm glad he brought it up because I think the importance in the point is something is influencing our leaders who are making these types of decisions. If we look back at Nelson Mandela, I was there at the Cape Town Square when he was released. He ranted and raved about 'we will nationalise these gold mines. We talked about it and we're going to do it' and yet, it didn't take him two to three months to become informed enough to realise that nationalising isn't going to solve anything. It's going to make it worse. Now you say 'if you only took Nelson Mandela two to three months, after being in near-solitary confinement for 27 years to see the light, why is it taking 15 to 20 years for our leaders to see the light'.

They're not reversing any of this crazy legislation, but at least they're holding it back and they're relooking at it – so let's give them credit for that. Let's at least give President Zuma and our new Mining Minister credit for not signing the proposed Amendment Act but saying 'we're going to review this. We do see there are problems with it'.

ALEC HOGG: Maybe the war is over but the reconstruction is going to be long, hard, and probably focused in some of the areas that again, Jim Rutherford raised. The one he was most concerned about was productivity.

PETER MAJOR: That is the number one issue you have to address because productivity supercedes ideology and political parties. It even surpasses whatever kind of economic financial policy you're doing if we don't get our productivity back up. As I pointed out yesterday, our gold mine productivity per man, is equal to 1903. And that's with all these new machines and mechanisation – that is how far our productivity has fallen down. Yet, it's the easiest thing to turn around and make us competitive and the number one mining country again. It's easily done, if we want to.

ALEC HOGG: If it's easily done, what do we need to do to make our mines more productive?

PETER MAJOR: Well, we have to get socialisation out of the mines. We started socialising our mines. The ANC (our leaders) decided it make more sense to socialise the mines than to nationalise them, so they started socialising for the new millennium. Fourteen years of socialisation means that any kind of revenue and profit goes to the workers, management, and suppliers. We have to un-socialise the mines and say 'you have to put back, as a priority, the providers of capital'. If you don't give the providers of capital a return on their capital as you have to in a capitalist society, capital will dry up. In addition, legislation that is trying to socialise mines and say 'everybody must get R12.500 at entry level, no matter what he does. An underground mine must pay the same as an open pit. A deep mine must pay the same as a shallow. An old mine must pay the same as a poor mine does'. We have to un-socialise their minds and differentiate how capitalism works. With high productivity, people get higher pay. With lower productivity, people get lower pay.

ALEC HOGG: They need to throw away those books they got from the University of Sussex. Peter Major is a Mining Consultant at Cadiz Corporate Solutions.