Twilight of a gold champion

For the third consecutive year, the appearance of a South African Deputy Mines Minister at the Africa DownUnder Conference in Perth, Western Australia, failed to convince Australian investors and explorers that South Africa’s Thabo Mbeki government fully comprehends that there are major problems for foreign companies doing business there.

The annual event has served to establish a strong link between Australian explorers and service companies looking for prospects, and African governments seeking to promote streamlined exploration and taxation laws in an effort to lure investment.

However, while mines ministers and departmental heads from places like Tanzania, Botswana, Zambia and Namibia in recent years have painted pictures of opportunity, their counterparts from South Africa have created pictures of confusion and ignorance.

The conference was opened by Rick Yeates, principal of West Perth-based RSG Global, a major technical services provider to companies in Africa. Yeates singled out South Africa as having growing problems, noting that he had previously commended the country for its new mineral rights legislation.

“Sadly, this [new legislation] has fallen significantly short of expectations . . . It would appear that an unacceptably low number of applications are being granted, and many are taking a considerable time to process,” explained Yeates. “Whether there is a lack of communication by government or the inability of mining companies to deal with the new application process, perceptions of incompetence and expropriation are plaguing the procedure.”

These problems, he said, had caused an increasing proportion of investment to bypass South Africa in favour of neighbouring countries.

South Africa’s Deputy Mines Minister Lulu Xingwana’s presentation in the next session failed to address Yeates’ criticism. She glossed over the issue, saying that there had been sweeping changes that had brought about the need for extra training and adjustments.

When asked what her government was doing to rescue the country’s once-great gold mining industry from a progressive collapse, the answer was that the government had foreseen that the gold mines would close (even though gold reserves are thought to be in the tens of thousands of tonnes and mines like Gold Fields’ Driefontein are performing well, despite a stronger rand against the U.S. dollar) and that social engineering was being put in place to create new careers and to help workers reclaim their homelands. The future of mining, she said, was in platinum.

Was this real or was Xingwana showing serious navety about the problem of what the high rand currency was doing to mining gold from the depths of the Witwatersrand basin? We suspect the latter, but the lack of comprehension by this deputy minister was also reflected in comments made by predecessor Susan Shubango three years earlier.

Perhaps deputy mines ministers don’t get into the mainstream issues as do the country’s mines ministers. Nevertheless, these comments have proved too perplexing for Australian bankers, miners and fund managers.

The reality must be that there are senior government officials talking with mining companies and unions about finding solutions to the problems of an industry that has underpinned the South African economy for most of the previous one hundred years.

Gold production in South Africa dropped to 342.7 tonnes in 2004 from over 1,000 tonnes in the 1970s, or 67.7% of global output. By June 2005, gold production was showing signs of dipping another 18%, bringing it close to production levels in the United States, Australia and China.

What can be argued is that the 1980s saw mineral processing transformations that introduced carbon-in-pulp and heap-leach processing for oxide gold, and bacterial leaching and hydrometallurgical processes for complex sulphides. This saw Australian and U.S. gold production soar, but when South Africa sees a two-thirds drop in production with gold reserves no other country can match, then that country has a serious problem.

Last year, Xingwana devoted most of her presentation to women’s rights when the audience wanted some clarity on black empowerment (BEE) issues. At the time, she implied there were no problems.

The issues of BEE have not gone away, as branches of the country’s Mines Department have provided differing interpretations to Australian companies as to where they stand. For example, if the land involved was at some recent stage deemed to be Crown land, then the BEE involvement might have to be above 51% (a figure no one seems willing to accept, thus most of these deals remain in limbo).

At recent conferences in Africa, several independent speakers have criticized the BEE as not an exercise in democracy but rather financial “gold mines” for an elite few. Indeed, there have been senior government officials and high commissioners who have quit their posts to join or set up BEE operations. But that’s not all bad. Some companies — including a few Australian operators in South Africa — are pleased with the forged BEE relationships as they have received good value for their equity and greater clout in the government and communities as a result of their new partners. One of those expressing such an opinion at this year’s Africa DownUnder was Stuart Murray, chief executive of Aquarius Platinum.

However, Xingwana did herself no favours when she criticized some of the Australian media. Her sights were no doubt aimed squarely at Barry Avery, editor of Australia’s Paydirt, who has been a critic of the BEE process as well as the bureaucratic performance of the South African government and its inaction on saving jobs in the gold industry.

Xingwana, like her President Thabo Mbeki, is thin-skinned where media criticism is concerned so she would likely have been more upset landing back in Johannesburg to read some local stories from the conference.

While in Perth, Xingwana told journalists that South Africa was talking to other countries about the introduction of a BEE. We’re told Botswana wants little to do with this and other value-added impositions on exploration and mining that South Africa embraces. Zimbabwe, however, was reportedly considering the issue. But what explorer would venture into Zimbabwe — a once-fabulous country that is now the subject of President Robert Mugabe’s inhumane and scorched-earth policies?