S. Africa Mines Plagued by Mismanagement

MinesMawethu Mguli and hundreds of other workers at the gold mine in Orkney have gone months without pay at a time when gold is going for around $1,400 an ounce.

After the mine’s previous owners went bankrupt, the workers expected that a new partnership ? headed by relatives of Nelson Mandela and President Jacob Zuma ? would get operations back on track when it took over last year.

“Unfortunately, it didn’t turn out that way,” Mguli said softly as he sat in his dimly lit room in the mine dormitory.

The mine northwest of Johannesburg remains idle and the workers are getting by on food handouts and odd jobs.

South Africa sees getting its vast mineral wealth out of the ground as vital to creating desperately needed jobs, fueling growth and redressing the economic ravages of apartheid. But a toxic combination of a crumbling infrastructure, mismanagement and the specter of nationalization is frustrating the drive to improve and expand the country’s mines. Some are asking whether political connections mean more than competence in an industry that is a pillar of South Africa’s economy.

South Africa is the world’s richest mining country in terms of its reserves, according to a Citibank estimate that valued its mineral resources at $2.5 trillion. It is a major producer of diamonds and gold, and has major reserves of less sexy but still lucrative minerals like platinum.

Mining has accounted for an average of 7.7 percent of South Africa’s gross domestic product over the last decade, according to the Chamber of Mines, an industry trade group.

Half the country’s merchandise exports were mining products in 2009, when the industry employed half a million people. Another half million worked in fields dependent on the mines in this country with a population of 50 million where at least a quarter of the work force is unemployed.

Yet, during a global boom in commodities prices from 2001 to 2008, other countries with major mining operations outperformed South Africa, according to the chamber, whose members include such industry giants as Anglo American and DeBeers. The world’s top 20 mining countries saw mining GDP grow at an average of 5 percent a year during the period, while South Africa’s mining sector GDP dropped by 1 percent a year.

“How come, sitting on the largest mineral resource base in the world, we are not doing better?” said Sipho Nkosi, a former chamber president who now also heads the Exxaro coal mining company.

The answers are not hard to find.

The country’s mining infrastructure ? from the power plants needed to get the ore to the surface, to the roads and rail lines to get it to market ? is tattered. Talk of nationalizing mines in some political circles has spooked foreign investors. And questions about corruption among the civil servants became so heated that in August the country’s mining minister imposed a six-month ban on the issuing of prospecting licenses.

“All of that is quite worrying if you’re an investor who’s invested or is going to continue to invest billions in this sector,” said Alison Turner, an analyst with the British firm Panmure Gordon.

Mining Minister Susan Shabangu told reporters recently she is working with other government departments to address infrastructure problems, including an energy shortfall that just a few years ago forced gold and platinum mines to suspend production because of lack of power. Eskom, the state-owned electricity company, blamed years of under-investment and rising demand.

Now, ambitious plans include a six-unit, coal-fired power station in northern South Africa that will be the first of its kind to be built in the country in more than 20 years.

South Africa has special challenges, including the extraordinary depth of many of its gold mines. According to the Metals Economics Group, which compiles information on the mining industry, the cost per ounce of mining gold in South Africa is $539, about 12 percent higher than a comparable group of North American mines, and 4 percent higher than a comparable group in Australia.

Shabangu said a comprehensive, multi-department plan that looks at power, transportation and other issues will be ready next year.

“We think we are on track,” she said.

Shabangu says that while nationalization is not government policy, her African National Congress party is studying its feasibility. The issue is being pushed by Julius Malema, the vocal and populist leader of the ANC’s youth league.

Key industry leaders have ridiculed Malema’s suggestion. Frans Baleni, general secretary of the National Union of Mineworkers, is also on the central committee of the South African Communist Party, yet he suspects the calls to nationalize are backed by businessmen who want to shift money-losing mines to the state and reap profits in any transfer. Baleni says that could endanger miners’ pension plans established by private companies ? and that workers would fight anything they saw as endangering their future.

Nkosi, the former Chamber of Mines head, calls nationalization an “antiquated and discredited practice” that has impoverished African and other countries.

Yet, the issue won’t die. Turner, the British analyst, said investors will be anxiously awaiting a final decision expected to be made at an ANC policy conference in 2012.

In the short term, investors are watching Shabangu’s efforts to clean up a bureaucracy seen as inefficient at best, corrupt at worst.

In an attempt to find out why companies like the two involved in the Orkney mine managed to get into the industry, Shabangu launched an audit of her department’s operations. Pending the audit, she put in place the six-month moratorium on prospecting licenses.

Early results from the audit, expected to be completed in February, are not encouraging.

Shabangu said inspectors found some companies had fraudulently claimed significant black ownership to qualify for licenses under so-called black economic empowerment rules established to give opportunities to South Africans discriminated against under apartheid. Other companies got licenses even though they were bankrupt.

Inspectors conducting the audit were threatened or offered bribes ? when they could find company officials to speak with at all.

Shabangu said black economic empowerment companies are a special concern, and that some are “clueless” about mining. She said the most widespread problem is companies never embarking on the search for minerals for which they have been granted licenses.

Mining is closely associated with apartheid ? it was the industry, after all, of the migrant labor system that tore men from their families across southern Africa, creating a legacy of broken homes that persists today. For many, mining still epitomizes the apartheid equation of white power and black poverty.

Sandile Nogxina, the top civil servant in Shabangu’s department, told The Associated Press that the government is pursuing two goals: ensuring the industry grows, and ensuring blacks benefit from that growth.

In Orkney, Solly Phetoe, a union organizer in the region, said that after the bankruptcy of one black economic empowerment company, and the disappointing debut of the Mandela-Zuma partnership, all workers want is competent management, whether black- or white-led.

At Aurora Empowerment Systems ? whose chairman is Khulubuse Zuma, the president’s nephew, and whose managing director is Zondwa Mandela, the former president’s grandson ? officials referred questions about the Orkney mine to a prominent lawyer, Michael Hulley. Hulley, listed as a non-executive director of Aurora, did not return repeated calls seeking comment.

Mguli, a 51-year-old with four children far away on South Africa’s southern coast, had been a cook in the mine cafeteria. He said younger workers had left in search of other jobs, but he believed chances were slim at his age.

Mguli said he could not afford to make his usual trip home for Christmas.

“I’m surviving by borrowing, just to get something to eat.”

Source: The Associated Press