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Johannesburg - Minister of Mineral Resources Ngoako Ramatlhodi has a very different style to that of his predecessor and a very strong personal view around the future shape of the mining sector, according to emerging markets economist Peter Attard Montalto of Nomura.
The minister's views include the need for a major local black mining company, the vital importance of black economic empowerment (BEE) to the long-run stability of the mining sector and the strong need for the department of mineral resources (DMR) - and the minister personally - to act as a facilitator within the industry through its process of labour disputes, restructuring and mining charter audit.
These views were expressed at a roundtable discussion between investors, Ramatlhodi and the DMR's director general Thibedi Ramontja.
"The minister is seeking to balance carefully the restructuring and exit of foreign companies over time with the rapid promotion of a domestic champion and strengthened state mining company," according to Montalto.
"Longstanding regulatory uncertainty should be resolved this year – both with further steps taken on the Mining Charter Audit from March and the mineral and petroleum resources Development."
Cost issues
Nomura thought that, while cost issues and competitiveness are more on the minister’s mind now than maybe in the past, they are being balanced by so many other issues like long-term sustainability of the sector from an empowerment perspective, need for beneficiation and desire to shape the restructuring of existing companies into a new local champion that something gets lost in the mix.
"A more collaborative style, less confrontational may help the industry through though clearly very deep challenges remain that cannot be ignored," said Montalto.
"However, the risk we must closely monitor going forwards will be if an enhanced facilitation role of the DMR translates, with the aid of the Mineral and Petroleum Resources Development Act (MPRDA) amendments, which give the minister much greater discretion, into something more onerous or detrimental - as, for instance, we have seen with DTI involvement."
For now, Nomura is willing to give these the benefit of the doubt.
Policy drivers
When asked where the policy drivers are coming from, the minister made it clear that sometimes he makes decisions away from his political party, and principally sees his role as facilitating, not negotiating or directing.
He said he cannot be micro-managed, and he will not sign anything that is forced upon him – it will be his decision. He stated that he knows the country and the politics well – and what the ANC’s views are, and is fully capable of making his own informed analysis to develop policy.
"That said, it was clear he sought and received President Jacob Zuma’s agreement for the way he handled the strikes last year," said Montalto.
Strikes and Marikana
Since assuming the role of mining minister, Ramatlhodi has been very focused on resolving last year’s strikes in a diplomatic manner rather than using aggressive tactics. He mentioned that it is not suitable to "wave a stick around" and dictate the process, but to bring minds together in order to solve issues proactively.
He said there is a need to prevent the issues and not wait for chaos and then address. There needs to be a constant and regular approach.
The unions that operate in the industry want openness. If there is transparency, there is a lot more cooperation, for example, should prices be rocked in this climate, potential scenarios should be communicated.
He mentioned that the strikes, although a massive inconvenience, were a very useful way to see what is happening in the industry, and where the problems lie – allowing all sides to learn. He sees what happened last year as a one-off, an aberration.
The DMR sees it is impossible to ignore that there are other unions in that space, and that if a particular union has majority representation, it is harder for smaller unions to be heard, according to the minister.
They, therefore, aim to hold meetings with all key players (the industry, unions, government) several times a year. These should not be seen as negotiations, but to understand the aims and objectives, and the issues facing the industry, knowing which direction things are going in.
There have been projects of intervention to stabilise mining communities, such as supporting families that have been separated as a result of working in mining, the minister pointed out.
However, he called for changes to the methods utilised – specifically changing the sending of money directly to miners, who then use it for other purposes than intended. In light of this, he aims to try and use that money directly to subsidise miners’ housing, and trying to normalise the environment. He sees his role as stabilising the industry.
He mentioned that Amcu was certainly weakened by the strikes, though will probably continue as a very important player in the sector. Whether there will be a similar five-month strike in say ten years’ time, he mentioned that the issues are not the problem - it is the perception of the issues.
Therefore, key players should be working to establish a "family" unity in the industry, so that if you deal with issues of respect between parties, you can resolve the bigger issues at stake.
It should be a collaborative trajectory: If one company obtains good safety records, the industry should celebrate.
The Farlam Commission and Marikana report is not expected to meaningfully change the regulatory or legislative landscape though was seen as an important exercise. The minister fully admitted that the state should have acted very differently and read the signs on the ground during the strike of the ensuring danger.
The mining industry
Mining is maybe not dominant in the South African economy, but it is certainly important. There is a need to understand the importance between stability and investment, according to the minister.
He said there must be a balance between protecting the mining industry and encouraging investments and their returns - in order to see continued investment. It needs to be on a very collaborative basis with the industry.
There is an aim to evaluate whether certain targets in this respect have been met, and an official review will take place saying what the remaining issues are and how to put them in legislation.
MPRDA amendment bill
Discomfort had been previously expressed from industry and in particular investors in oil and gas due to proposed legislation that was sent for presidential assent. The minister is aiming for a separation of oil and gas from the mining sector in the bill.
There is a six-week workshop involving industry with prospective investors in oil and gas to understand what investors’ concerns are. Retaining and increasing investment in mining - as well as oil and gas - remains an urgent issue.
Black Economic Empowerment
The minister made clear that the goal of BEE is to transform the South African economy to be representative of the demographics, as required by the Mining Charter. He appealed for a recognition of the historical issues within South Africa, but also the need for long-run social stability though empowerment.
He added that the success of the BEE programme is predicated on both the BEE holders and those empowering. The government is reviewing the penetration of BEE and needs to ensure that any transfer of assets is done in manner where black ownership is retained.
The minister emphasised the need for a transparent tripartite consultation between the companies, BEE industry and the minister. Also, the minister would provide support in looking into methods of financing the transactions.
While there is scope to change the current 26% ownership when the opportunities arise, the minister is not inclined to make further legislation in the short term given the position the industry is in.
There was a spirited discussion of the issue of “once empowered always empowered”. There still seems some confusion of the exact specificities in this area, but it would seem that the principle may remain for companies, but that from a BEE holder's perspective there will be additional requirements.
Privately owned mining giant in SA
The minister mentioned his strong desire to create a company which has deep roots in communities, is broad-based empowered, and anchored around different players. It cannot be based on charity, however, was the view, and should be something that is easy for international investors and foreign companies to relate to.
The topic of BEE should not be around hitting targets for the sake of hitting targets, should there be a more sustainable approach, that there is not a sudden drop when targets are met.
The minister mentioned that to enforce this, there would be a more rigorous consultation with the department.
More constructive tone on encouraging domestic beneficiation?
The minister and his team reiterated that the government is committed to increasing the domestic beneficiation of the country’s mineral production across a number of commodities, but emphasised that they do not want this to come at the cost of disadvantaging upstream producers.
In the current version of the MPRDA, "ex-mine gate" pricing (which is aimed at securing close to export parity pricing) is codified. However, the minister was concerned that some legislators might want to revise this to force miners to sell to domestic beneficiation customers at material discounts to market prices.
This was adamantly opposed by the minister, who believed this would increase uncertainty and thus adversely impact the perception for investing in the country.
On the topic of whom the government believed should lead the charge within the private sector to begin building out downstream/beneficiating capacity in the country, they believed this could be best achieved through private partnerships of upstream producers and downstream companies.
The government would facilitate these by creating "special economic zones" where various fiscal benefits could be achieved. They are already envisaging these for the platinum industry near Rustenberg and in Limpopo.
However, they also acknowledged that increasing domestic beneficiation will need to go hand in hand with infrastructure and power development, given these will be crucial for building out beneficiation capacity as many downstream processes are extremely power intensive.
Although the minister appeared to strike a more even tone on encouraging domestic beneficiation of the country’s mineral production with their reiteration that upstream pricing must remain robust with government support for the downstream development, the underlying strategy of pushing the industry to beneficiation more onshore remains worrisome in Nomura's view.
This is as it could still force material capex requirements onto upstream producers at the same time that the country would likely struggle to cope with requirements of these new businesses - that is power, skilled labour and infrastructure requirements.
Intervention at Eskom: start of a larger energy overhaul?
Following the government’s announced (but not yet completed) recapitalisation of Eskom, they have begun a larger intervention in the power sector which has included a restructuring of the board as well as liberalising the power sector to allow for private investment.
The government has begun talks with investors interested in building the first privately owned and operated power station in the country most likely next to a coal mine, operated by or in close collaboration with such a miner.
The minister was clear on the depth of the crisis that was ongoing in Eskom and that state asset sales will have to be undertaken to fund Eskom, but he insisted that where Eskom was being a roadblock to aiding private sector coal generation, that Eskom would have to overrule them.
"This ties in interestingly with the roadblocks we identified on our last trip from Eskom pushing back on the idea and seeing a much longer timeline for such generation coming onstream," Montalto pointed out.
The minister said the government is also aiming to significantly increase power generation from renewables.
The minister said for investors there is a very strong legal regime in South Africa, and deep entrenchment of the rule of law. He emphasised that SA is a country in which even heads of state can be investigated, and this compliance with the law is a strong positive for South Africa.
