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Feb 27, 2009

27/02/2009 (On-The-Air)

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Every Friday morning, SAfm’s AMLive’s radio anchor Tsepiso Makwetla speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:

Makwetla: As you said earlier bucking the trend, South Africa’s biggest iron-ore miner Kumba is spurning cutbacks and opting instead for 2009 growth, despite the global economic crisis.

Creamer: There are too many companies just falling flat during this economic meltdown and cutting back and retrenching. It is great to see a company that is not doing that and is in fact going to grow in this adversity.

It is in an area of iron-ore and iron-ore might be special and not all commodities are like this, but Kumba are saying that, market permitting, they are going to continue growing.

How are they able to say this? While we were reclining on the beach during December and soaking up the sun, their marketers where in North Asia saying, “will you take more of this and that”. They are now selling into second- and third-tier business.

So, already they are seeing a bigger demand out of China. Already their contracts in Korea are being held and might be taking more iron-ore. That is great for South Africa. This is the sort of spirit we should have in South Africa.

Why just fall down because there is a meltdown? Why not look at the marketing opportunities, particularly if you are number four like Kumba. The big BHP Billiton cutback, the big Vale of Brazil cutback, RioTinto cutback, that gives them opportunities and they are taking them. They are going to sell 10% more iron-ore, not less.

That means jobs in South Africa. They are going ahead with their projects and are not cutting back on them. That’s what mining companies are there for. They know about cyclical business and now there are down cycles and they should be planning for those down cycles.

We see Kumba setting an example there and we also see them saying that they can feel the pull of China’s fiscal stimulus already, which was set in progress in October, and they are starting to be able to divert iron-ore, was originally destined for Europe and Japan into China.

Modise: Tell me, Martin, about South Africa’s consulting engineers who are saying that they are deeply concerned about the dysfunctional state of South Africa’s municipal water infrastructure. What do they mean by that?

Creamer: Consulting Engineers South Africa are a rebranded body. They don’t say much, but when they say something, we must listen. When they said this week that they are deeply concerned, not just “concerned” but “deeply concerned”, about the current state of disrepair, of dysfunction, of overloading of water and wastewater treatment works operated by some local authorities around the country, we have got to take note.

As you know, we are going to invite 300 000 people here for our football. We have got some fantastic sports stadiums going up, but it is no good if your sanitation is down the drain, if your sewage and water treatment systems are down the drain. It is fantastic that we are going to spend R787-billion in the next five-years on new infrastructure, but what about maintaining the old infrastructure?

The consulting engineers of South Africa are not just criticising; they are also saying that they are willing to help. Already they have put out their hand to six municipalities through the Project Development and Facilitation Alliance and already they are saying that local authorities have got to look at life-cycle management.

They are not just talking, they will set up training schedules to train people in this, but the government has also got to come to the party by not undermining the status of the municipal engineers, which Consulting Engineers South Africa hint at when they say that the municipal engineers have apparently been undermined by government-appointed processes.

Now there needs to be a meeting of the minds here. We are South Africa, and we are doing things together, let’s turn around our problems. We don’t want to hear again about disrepair and dysfunctional overloading of water systems when we are building fantastic stadiums.

Let us get the basics right and I think that government and the municipal engineers should take up the offer of Consulting Engineers South Africa to help with this.

Modise: Now, Absa Capital-Barclays is sounding a dire warning on the spectre of BEE bankruptcy in South Africa. Obviously financial problems there.

Creamer: Banks aren’t the most popular institutions in the world at the moment. In fact, at this point, one would like to say to banks, “if you have got a problem, you solve it”, seeing that it is banks that contributed so much to the global economic meltdown.

But, this is also a South African problem. This was a South African problem because we said black-economic empowerment was crucial to our future. We need to bring blacks into the business mainstream as owners. We did that thinking that certain growth would be in place and there wouldn’t be meltdowns.

Perhaps we haven’t priced the risk properly and now the risk has come back to bite us. It is not often that a bank comes out publicly with its problems. Absa Capital and Barclays of London have bared their soul over this.

They are saying that they are unable to accommodate defaulting BEE transactions. They are going to be unable to accommodate them, so they are giving notice that they are unable to accommodate them. Because of current illiquidity, and because of the new oversight of banks, you can’t just allow these things to go on.

But, what do we do as South Africans and what should we have done in the past to make BEE sustainable? They are saying that there are three things that could happen now. Maybe the BEEs could come to the party by consolidating the situation, because we have this diseconomical fragmentation, based on the fact that people said they wanted broad-based BEE.

Now you’ve got this diseconomics of fragmentation that doesn’t look good when things turn down and there is a meltdown and no cashflow.

We have also had a situation that perhaps there can be some meeting of minds between mining companies that got involved in this and also government on some sort of deal to make sure that these BEEs are sustainable. Do we want them or do we not want them? I think they are extremely important for the country.

We have put them in place and Barclays Absa are warning that to do nothing is like playing Russian roulette. They are saying that this could give rise to subprime-like banking writedowns or even worse. So, we have the warnings from the banks, we know that the BEE space is important and was all about wealth transfer.

Do we want to continue to do this? I think as South Africans we need to get together now and sort out this BEE problem and one of the issues they say is, in future, we should price the risk and manage the risk and make sure we even hedge. Although hedging is a profane word to a lot of mining companies, you need to have that insurance against risk.

Modise: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

Edited by: Creamer Media Reporter
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