Mining woes need to be attended

 The South African mining industry will continue to flounder from crisis to crisis unless key stakeholders, government, labour and business, carve a common vision for the future.

This is the view of Ursula van Eck, head of mining at business advisory, tax and auditing firm BDO. It comes to add to a barrage of exhortations that South Africa’s mining industry is in its deathbed and requires a fundamental rethink to save.

The year 2012 may pass as the year of the perfect storm for the South African mining industry. The commodities boom of the past few years started to recede and then came the Marikana massacre to display that workplace and community relations were fundamentally in the sector. A report of state of affairs released by the Bench Marks Foundation, before the Marikana tragedy, laid bare the faultlines.

The findings of the nonprofit organisation, Bench Marks Foundation can be summarized in a statement made by its executive director John Capel. “Although all of the corporations under review greatly improved their reporting as compared with what we came across in 2007, and are reporting a lot more honestly than before, they still have a long way to go to quash the negative feelings many communities have towards them. They are still very unhappy with the impact of their corporate neighbour.”

Last week results of a survey undertaken by Grant Thornton suggested that the South African mining industry was still suffering hangover of the nationalization debate. Junior miners in particular noted that it has become extremely difficult to raise finance as the debate is still fresh in the minds of funders.

“It is vital that companies are in a position to raise finance, and this is becoming increasingly difficult,” said Steven Kilfoil, mining advisory and corporate finance director at Grant Thornton Johannesburg. “Uncertainty arising from the nationalisation debate harmed the industry’s ability to raise finance and any instability going forward will have the same negative impact.

“Thankfully the nationalisation issue has now been settled and this stability will assist miners to access funding. Investors need predictability for resource exploration and development projects.  The lesson for government is that there must be certainty on all the issues over which it has control, including land claims.”

Commenting about the findings of the latest BDO survey Van Eck said the South African industry was facing a serious dilemma. Faced with tough trading and operating conditions, mining companies worldwide are seeking to boost their profitability in 2013 by improving internal business processes and introducing new production technologies. While this path might also seem logical for South Africa’s mining industry, it could face a rocky ride if innovation is seen as a threat to job creation.

“Mining houses in South Africa are caught between a rock and a hard place. They have little control over the two biggest input costs – electricity and wages – and at the same time will find it very difficult to make the internal adjustments that could improve their prospects. They will almost certainly come under intense pressure from government and organised labour to avoid anything that could jeopardise jobs.”

“Globally, more than 65% of international mining executives say they plan to improve profitability through a stronger focus on improved business processes. Investing in new technology is the second most popular strategy,” said Van Eck.

“Our survey found that, across the board, senior mining executives see greater efficiencies and technology investments as the key to addressing these challenges,” says van Eck. “The South African participants were no exception but their prospects of successfully improving internal operations and being innovative are not as cut and dried as those of their peers.”

Van Eck said “The answer lies in labour, government and employers working together towards a common vision for the mining sector. At the moment, we have three opposing camps, each with their own agenda. Until they have a sense of common purpose, the mining sector will probably continue to flounder from crisis to crisis.”

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