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Often it’s those who have the most to lose who care greatest. We’re certainly seeing that in South Africa’s battered mining sector which could blame politics and bureaucratic bungling for missing out on the commodities boom – and is now being threatened with extinction during the bust. Neal Froneman, CEO of the company created when GoldFields Ltd split off all but one of its SA mines, broke with tradition last week by publicly criticising ignorant Government policy. He is slowly being joined by other leaders of an industry that too often chose discretion over valour, continuously granting wage increases that bore no resemblance to productivity. Mine owners are the ultimate long-term optimists. Their investment takes decades to recoup. Recent developments show they have finally stopped caving in to even the slightest pressure. Probably because they now realise unless there is a u-turn on the basics, the mining sector, quite literally, stands to lose everything. – Alec Hogg
(Bloomberg) — Relations between South Africa’s government and the mining industry are unraveling as a commodity price rout derails plans by President Jacob Zuma’s administration to create millions of jobs and pare a 25 percent jobless rate.
Mining companies in South Africa, the world’s largest platinum and manganese producer, plan to fire as many as 10,000 workers at a time when the economy is struggling to rebound from the slowest expansion since a 2009 recession.
A public slanging match has ensued between senior politicians opposed to the layoffs and executives who say their stance, together with prolonged uncertainty over mining laws and an unreliable power supply, threatens their companies’ survival. Gwede Mantashe, secretary general of the ruling African National Congress, last month branded companies as “lazy” for firing staff rather than considering alternatives.
“I don’t think the government understands the gravity of the challenges in the industry,” Mzukisi Qobo, a politics lecturer at the University of Pretoria, said by phone on Wednesday. “What happens in this industry sends signals to foreign investors across a range of other sectors on how government treats big business.”
The chief executive officers of Anglo American Plc and Sibanye Gold Ltd., the largest miner of gold in South Africa, have pushed back against the government in a rare display of public criticism by businesses.
Sibanye CEO Neal Froneman said on Aug. 6 that mining companies are “tired of political comment instead of concrete actions,” and that the government didn’t understand the economic realities of running a business.
Zuma, who has pledged to create 6 million jobs by 2019, said in a speech on Aug. 9 that companies must avoid retrenching “at the first possible opportunity.”
Commodity prices have plunged near to a 13-year low because of a global oversupply and a slowdown in China, placing further pressure on an industry already grappling with rising labor and power costs. This year’s 18 percent plunge in the Bloomberg World Mining Index has wiped almost $200 billion off the market value of the biggest producers.
South Africa’s mining industry employs about 440,000 people and accounts for more than half of the nation’s exports. Built on the back of cheap black labor under apartheid, the industry has faced repeated criticism from unions and some politicians for seeking to entrench economic privileges whites enjoyed under minority rule, which ended in 1994.
The ANC is under pressure to placate its labor union allies and stem a loss of support to opposition groups such as the Economic Freedom Fighters, which has campaigned on promises to nationalize mines. Less than a year after it was created, the EFF won 6.4 percent support in the 2014 election to become the country’s second-largest opposition party.
“The EFF has publicly accused the government of abandoning the working class,” Dirk Kotze, a politics professor at the University of South Africa, said by phone from Pretoria. “The ANC is trying to win back lost ground.”
The government denies that its relationship with the industry is overly antagonistic.
“At times people agree with one another and at some other times they don’t really drink from the same well,” Mahlodi Muofhe, adviser to Mineral Resources Minister Ngoako Ramatlhodi, said by phone on Wednesday. “We don’t think that translates into serious tensions.”
Anglo American CEO Mark Cutifani urged the government to focus on turning around ineffective state companies, such as power utility Eskom Holdings SOC Ltd., which is disrupting operations as it curbs electricity supplies to mines.
“A government that supports uncompetitive state enterprises cannot criticize private enterprise for taking the necessary action to survive in these tough times,” Cutifani said at a July 30 presentation in Johannesburg.
Anglo American derives about 35 percent of its revenue from South Africa, where it controls the world’s largest platinum producer and owns Africa’s biggest iron ore asset. Both Anglo’s platinum and iron ore units are cutting jobs.
Speaking out against the government may be necessary to ensure mining companies have a future in South Africa, according to Ian Cruickshanks, chief economist of the South African Institute of Race Relations, a policy research group.
“Quiet diplomacy is not working,” he said by phone on Wednesday. “Government has simply taken it as a sign of weakness.”
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.