New Tesla chair has a tough job – The Editor’s Desk

DUBLIN – In this episode, Alec Hogg and I discuss new Tesla chair Robyn Denholm and the tough task she faces. With a strong finance background, she is well-positioned to help Tesla address their reporting issues – can she also rein in outspoken CEO Elon Musk? We also look at Pravin Gordhan's leaked state capture testimony – Gordhan explicitly names Jacob Zuma as complicit, in a striking shift in the narrative. What does this testimony mean for power in South Africa. We wrap up with a look at the future of the SA mining sector. – Felicity Duncan.Hello, and welcome to this week's episode of the Editor's Desk. This is BizNews Radio and I am Felicity Duncan. With me, on the line is Alec Hogg, and we're going to be looking at some of the most important news stories of the week. .___STEADY_PAYWALL___.Alec, we're going to kick-off with a look backwards and forwards. The state capture issue obviously, continues to rage in SA and the big news last week was the leaking of Pravin Gordhan's 68-page written submission, which he was going to be sharing this week on Thursday. Before him, we're going to have Barbara Hogan. So, a big week last week and a big week to look forward to, as we learn more and as this investigation unfolds..It is, it's fascinating what's going on with the state capture enquiry and very unfortunate actually, that Pravin Gordhan's testimony had been leaked. You've got to just take a step back there for a moment. As financial journalists we quite often are given embargoed material and there's a very strict policy, knowing that the information is highly sensitive. Price sensitive for stock markets, etc. e've almost been brought up – if something is embargoed you don't touch it. You do not break that embargo and certainly if something like this had been leaked to us, we would have looked at it and said, hang on, he's only giving the talk on the 15th. That means it's embargoed until the 15th, even if you have it in your hands. I wonder about the journalistic ethics of releasing something of this nature ahead of time. .Sometimes, Felicity, people within the media because they are so busy with, first of all, the pressures of on the media on just pure survival. So, they're looking for an edge. But also, because they're so busy with so many things at the same time they forget that there is somebody behind the scenes who's actually using them. Somebody, somewhere got hold of the testimony and then leaked it for one or two of their own, nefarious needs and that's where the media starts getting played like the Sunday Times was played on the three huge stories that caused so much chaos in South Africa over the last 5 years. And similarly, whoever published this testimony, is actually in the same camp. But anyway, that's just me, as a journalist talking and as far as journalistic ethics are concerned, it really is not playing ball..But there were a couple of things. I looked at the headlines. I haven't gone into much detail because I'm sure that Pravin will now look at his testimony and perhaps change it a little bit. But one of the things that did come out to me was that he used the figure of R500 billion. Now, you'll remember, in 2015, when the Nenegate story broke we used a figure of R500 billion. The reason we used that was I took the stock market losses and I took the bond market losses and added them together. In fact, it was more than R500bn, but it was a nice, round figure. And we were heavily criticised by the Zuma administration and by fact check organisations. In fact, I had quite a toing and froing with one of those organisations, until they finally had a look at the information, how it had been calculated and then agreed – presumably because they didn't take me on – that it was right. But it's nice to see that now we have a number for Nenegate and the cost of Nenegate and it is the one that is the most rational and logical when you work out the physical figures..The second thing of Pravin Gordhan, on the testimony, is clearly he's implicating Jacob Zuma and how the world has changed. If you go back to pre-December, at that point in time, you were talking about a corrupt in-situ president who really had the state apparatus completely under his control and people were making deals within the perception that this was going to continue indefinitely. Pravin Gordhan was one of those who didn't, as similarly as Barbara Hogan, who in fact, is going to be talking on Monday at the state capture inquiry. So, it's nice to see those who stood up against the corruption, coming out now and having their opportunity to tell the truth and to put on the table all of the information that they had, at the time, that in fact would have been impossible when they were ejected from the government structures to disclose. It's fascinating stuff and it's a continuation of the watershed in SA's history..Certainly, it's a real sea change because, I think, even after the elective conference, the ANC's conference in December, even after that there was still a lot of power in the Zuma camp, Zuma and his associates still held a lot of political capital, still held a lot of crucial positions, and still held a lot of sway in South Africa politics. .I think the fact that we are now seeing Zuma explicitly named by a very high-profile member of the new administration – right, he's Public Enterprises Minister – it's an important role. The fact that we're seeing that really shows how the underlying power within the ANC has really shifted. And I think that's important because that's something that everybody was talking about, saying, look, Ramaphosa is not going to be able to do what he wants to do until he has a strong mandate. Until he is able to wrestle power away from the remnants of the Zuma Administration. And I think this kind of thing, where you see Zuma explicitly being named – and again, I also have not looked fully through the testimony but that is the impression that I got – when you see that happening, it really shows that that power is shifting. It's taken the better part of the year to make it happen. But it is happening. And that, I think, is very important from both the functioning of our democracy, the perspective of the functioning of our democracy, and the perspective of how effectively Ramaphosa is going to be able to implement changes. .One of the great advantages of being based in London is that you see the world. You don't get too caught up in the noise and the chaos that is SA right now, particularly with the transition from one administration to another. If you look at it from this external perspective then you can see the parallel of what's going on in South Africa, with what is occurring in Brazil. Now, remember, the Operation Carwash investigations have been going on for four years now. There, they've put a President in jail. They've impeached another President. They've put the richest man in Brazil in jail, well certainly the richest man in the construction sector in jail, plus another three dozen other corrupt politician. You can describe it, if you take it from an American sense, as the Head of the House of Representatives and the Head of the Senate both landing up in jail. That's how thorough-going their investigation has been. .South Africa is at the early stages of its version of Operation Carwash and you might remember, right in the worst of these times, it was something that South Africans who did have hope, could hold on to. If it can happen in Brazil then surely, it can happen in South Africa as well. So, I hear the naysayers, I see them all the time, Felicity. When people from South Africa, executives come through London, I get the opportunity to have off-the-record conversations with them and the feedback from them is – and I wrote about it this week – is that their level of the excrement is so high, will the country ever be able to pull itself out of it? My sense of this is that it's just because you're in the middle of the chaos you can't see what's happening, or to see it in a global perspective. .So, these are very important developments. You are spot-on when you talk about the power shift towards Ramaphosa. But that began on the 18thDecember, when you had the vote, where he won very slightly, 179 votes out of 5000, and he won the presidency. At that point you had to know that this is a man that is one of the great negotiators in South African history, and we can see his track record in that way. He's also a man of great patience, and he's a man of great intellect, and when you add those combinations into an environment where others, if you like, the opposition, his opponents, don't posses any of those three qualities then you have to be backing this guy. He's brought back the A-Team – he's got Tito back in, he's being advised by Trevor Manuel, he's got some of the members of the old Cabinet who really did play a good role, like Derek Hanekom, who's back now, Ebrahim Patel is there, Rob Davies is doing a good job. It is moving. It's all moving in the right direction and this concern that people have about Ramaphosa not having a grip on the party is really manufactured by the media. In reality, if you look at it again from an external perspective, you can see he's got his hands on the wheel and he's driving it very sensibly now..Yeah, definitely good to see South Africa slowly but surely moving in the right direction. .Now, another company that I would like to see moving in the right direction is Tesla, and we've had some news out there this week, with respect to changes and with respect to, hopefully, improvements. .So, Robyn Denholm has been appointed chair. Now, if you'll recall, as part of a settlement, a fraud settlement essentially, with the SEC, the role of chair and CEO at Tesla has been split and Elon Musk can no longer hold both positions simultaneously. He now will go on as CEO and Robyn Denholm is coming in as chair. .Now, what struck me as very interesting about this appointment – and there's been a lot of discussion around it – what struck me as interesting is her background is very much as a finance executive. She's not so much an operational person as she has been in various positions, including as the head of Toyota in Australia, she's been really, a very finance-focused executive. And it's interesting to me that that is who they chose for the chairmanship, given that they have – over the last, three or four years, there's been a lot of questions raised about Tesla's accounting, about Tesla's results, about how they present information. They've had problems with the SEC. They've been censured by the SEC for non-GAAP reporting issues. So, having somebody come in who has a very strong grasp on finance, both in the US context and abroad, to me, that's interesting. That says that that's an area that the company is now aware of and worried about and wants to focus in on. .And she's an Aussie as well, which is not going to make the South African Musk very happy, well at least when they play the Springboks. Although, who knows if he shouts for the Springboks anymore..He might be more of an NFL guy..Probably. You got it. You're actually spot-on and I didn't think of it in that way. Initially, when I saw her appointment I thought, wow, she's only been at Telstra, which was the Australian version of Telkom, for a month. What is she now doing resigning there to take over as chair of Tesla? But there are two big things about that. She said, she can't do this is as a non-executive. She can't do this, in other words, part-time. She has to do it full-time. She's pretty aware, I guess, of what she's taking on there with Elon Musk. .And the second thing is the point you make about the financial background. When you've got somebody who has a reputation in any field, they are pedantic about retaining that reputation. They know, we all know that reputations take decades to build and can be wiped out in an instant. So, the one thing is this lady is not for turning. I think you can almost underwrite that, and the next set of financials that come out of Tesla will have gone very carefully through her whole assessment and you can be sure that there'll be rather different quarterly engagements with the investment managers, which I think Elon Musk will probably be quite happy to not even be there. Let him continue as the CEO. Let him continue as the visionary of the company and let the new chairman, Robyn, carry on with her understanding of how to deal with investors and with asset managers. And we'll probably know within the next six months what the real picture is at Tesla and hopefully, from whatever base that might be, their business will then be able to build into the future. So, very smart – with reflection – a very smart appointment..I agree, and I think one of the weaknesses of Tesla has always been that people can break down its numbers. They can look at them and say, this is a problem, this is a problem, that is an accounting trick. I think that really undermines the company's credibility and it undermines its efforts to build itself up, to show that it's serious, to show that it's able to generate cash, and generate profits. I think that having somebody with a very good reputation and somebody who can help standardise and improve their reporting, is going to give the company a real foundation for the future – that's really important, and that's what we want to see for Tesla. .To wrap up, Alec, we have a piece up on BizNews right now, which makes for an interesting read, just looking at gold production in South Africa and just really, essentially, how it has just fallen off the cliff over the last decade. Really far down from peaks, and even far down from where it was not too long ago. The mining sector has taken a battering and it has long been a mainstay of the South African economy. Looking ahead, what are we going to see? What can we expect for this sector that ultimately remains very important for the country?.Yes, I've been around a long time and I remember when I first started in financial journalism in South Africa, everything was about the gold price because gold was by far the biggest earner of foreign exchange for the country. Then South Africa was by far the biggest producer of gold in the world. That's no longer the case and I haven't looked in the last couple of months, but the last time I did look at it, South Africa was struggling to stay in the top 10 producers around the world. .So, to look specifically at the gold production figures it could be a combination of decline in an ageing sector and then the other history, which is a far bigger history, and this is one that you'll pickup in all parts of mining and that is really, the massive mismanagement, government mismanagement of the minerals and the resources of the country. You see it in the energy sector far more, and the MPRDA for instance, where Zuma and Co decided that they could get away with effectively pushing up a free carry on the oil rights, that any company would acquire by investing in SA. A free carry of 50%, and then on top of that there would be an option by the government to buy another 30% of whatever business the international majors put in there, at a price the government decided. .Now, that is just ridiculous and, as a consequence of that MPRDA or the proposals thereof, Total stropped drilling off the east coast of SA, and Shell aborted an already announced $25m exportation of the Karoo to see whether fracking was possible in the country. So, it just gives you an indication of the idiocy of policy that was applied in the MPRDA, and of courses, similarly in the mining charter, where you had this back-bencher from the Free State government who was suddenly appointed as Mining Minister, Mosebenzi Zwane, and he then decided that he would put forward a mining charter, which only he and the other plunderers could see any sense in, and the international communities simply stopped spending money in SA. The miners themselves, stopped maintaining because it made no sense..The new mining charter has not yet been fully appreciated but the free carry has now gone down from a proposed figure, as we know, of 26 and higher, down to 10%. That makes a big difference if you are looking at marginal mining operations because if you've got to fund 100% and you can only get back say, 70% of it well, clearly, the asset that you're going to be investing so much money in – the break-even is a lot further out. Now, that you can get back 90%, and it is based over a long period, and that 10% doesn't go to politically influential people but it actually goes to the community and to true broad-based black empowerment, you're suddenly seeing a completely different picture from the international community..We haven't seen a flood yet because people need to still fully assess – is this for real? Is Ramaphosa, as you said earlier, is he in the driving seat? But already there are a few indications that this whole issue of divestment or an investment strike in mining is turning around. Within South Africa you will see, no doubt, the fruits of that in time to come, and the numbers that we see now from the gold sector are probably going to be an aberration from a longer-term perspective. .Of course, the gold mining sector itself needs a much higher gold price to start any new projects but in the short-term this uncertainty of regulation and legislation has now been taken off the table, with the new mining charter. The benefits of the removal of that uncertainty will start playing out in the future, much the same way as we saw the stock market in America rebounding sharply after the uncertainty about the elections that was now out of the way. We know there that the Democrats moved out of the House of Representatives, and the Republicans have continued with the Senate and of course, Trump is still in the White House. It makes it difficult for them to eject Trump from the White House, but it also stops him from being able to push through some of these crazy ideas. So, all round, that uncertainty is now off the table. Bang – back comes the stock market. In a similar way I think in South Africa, I would anticipate that the mining sector – it takes time for these things to be shown but the mining sector has been through its worst..Yes, let's hope so. With the commodity sector there's always, of course, so much uncertainty because it's global markets, so global demand matters, global prices, which South Africa obviously has no control over, they matter. As you pointed out, we need a high gold price to really encourage new development and new investments, and we're perhaps at the tail-end of a commodities boom right now. .But certainly, these things can be extracted profitably, provided there's enough capital investment, and capital investment will happen when there's certainty and when people can make a 10-year or a 15-year plan for a project, for an improvement, for a mine. And that wasn't really possible over the last 10 to 15 years. Hopefully, going forward, that becomes possible, in which case then South Africa can once again start to really fully participate in commodities markets, and participate in the next price boom, participate in the next investment boom. And get a piece of that pie, which I think it really missed out on in the run in commodity prices that started in about 2010. .Yes, and a good example of this is what's happened with cobalt. Now, as we are mostly aware, cobalt is a huge ingredient for electric cars so, there's lots of demand for cobalt, particularly coming out of China, where they're starting to build batteries, etc., and most of the cobalt, 70% – 80% of it comes from the DRC. And in the DRC, the biggest miner there is Glencore. And Glencore has had to close down one of its mines because they found that the cobalt that they're pulling out there has also got quite a bit of uranium in it as well, and this makes it dangerous from a nuclear impact. So, they've had to close that down..Yeah, you don't want your car battery to have uranium in it..Can you imagine? And the consequence of that is that the informal group – well, the price has risen obviously – which has then made it possible for the informal miners, who produce about 15% of the cobalt that comes out of the DRC. It's made them possible for them to be competitive again. So, you've got this… if you have big capital in there and you have proper production, you bring the prices down, but you jack the volumes up. If you have to stop using the capital, only then do very labour-intensive processes become worthwhile. So, the cobalt story tells us of what's possible in South Africa. Where, with the investment of capital again, efficiencies will come in, production will substantially increase, and through the higher volumes, even though the prices might be under a bit of pressure, you will find a big improvement in the impact on the country, as a whole. .You've got to look at South Africa and say, this is a country that really is bottoming out and the future, if you can see it in perspective, is a lot brighter.

New Tesla chair has a tough job – The Editor’s Desk

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