Aug 31, 2012
Engineering|Gold|Rustenburg|CoAL|Copper|Engineering News|Harmony Gold|Housing|Lonmin|Mining|Mining Weekly|Northam Platinum|Platinum|PROJECT|System|Systems|Canada|Papua New Guinea|USD|Systems|Bernard Swanepoel|Glyn Lewis|Kinross|Martin Creamer|Newcrest|Patrice Motsepe|Power|Operations|Engineering News
© Reuse this
Gwala: The government of Papua New Guinea has the right to take up 30% ownership of a gold project South Africans are developing on the South East Asian island.
Creamer: Harmony Gold is developing the Golpu project with its Australian partner Newcrest in Papua New Guinea. It is a dripping roast. It is a copper gold deposit and just the copper alone would pay for the gold, so you’d get the gold free virtually.
That is a very existing project, but one of the issues is that the government of Papua New Guinea could take a 30% interest in it. It is said to be fully paid, but analysts with a little bit of scepticism look upon all the government interventions, because they can change the rules, they can move the goalposts.
Analysts are now saying to Harmony Gold don’t go to Papua New Guinea, you’ve got a ‘tiger by the tail’, rather swing back and look inward again at your South African operations, because we want to get some return on our investments, we don’t want to wait another seven years for you to get some gold out of the ground in Papua New Guinea at what we see is high-risk and high-cost and massive ore-bodies, which should be done by bigger companies.
The cost of the first initial stage would be $5-billion. Harmony is saying that it is up to their shareholders. Ten shareholders control 65% of the shares and they can tell them that they don’t want them to go that route. One of the biggest shareholders is Patrice Motsepe’s African Rainbow Minerals, which has the biggest single stake in Harmony, Gold.
It is going to be interesting to see how the company reacts to this local demand that you must start looking inward again. There was a time when analysts said look outward to reduce your risk, now they are saying look inward to reduce your risk and get the best value for shareholders.
So that's how things change in the industry and in the world, and, of course, mining companies have to adapt and perhaps Harmony will have to adapt with its ambitions with Papua New Guinea, where analysts see high-risks.
Gwala: The labour-ravaged platinum sector is talking about ditching its decentralised bargaining system and replacing it with centralised bargaining.
Creamer: This is the word along the corridors of power in the mining industry at the moment that the decentralised bargaining approach that was up taken by the platinum industry has not worked well. That means that individual companies do their own wage negotiations and bargaining systems and each company goes its own way.
With the coal and gold companies, they allow the Chamber of Mines to do centralised bargaining for them and they arrive at longer-term wage agreements. There is a track record of people of sticking to these agreements for the period. Both from a union point of view it seems to have been a better deal and from an employer point of view.
They are saying let’s try and put this context into the platinum section, let them go from decentralised bargaining to centralised bargaining, which at this point in time may not be a sliver bullet, but at least it will provide a better structure. That is what is happening and again one of the protagonists of this who came out outspokenly in favour of it was the fourth biggest platinum company Northam Platinum, in which the Tokyo Sexwale family has quite a big interest.
That was CEO Glyn Lewis and he was saying that there are very definite benefits to centralised bargaining, so he wants to move to that. He also revealed what he pays his rock-drill operators and that was interesting. He said that rock-drill operators get R11 000 a month, but if you look at the cost-to-company of a rock-drill operator, working for Northam Platinum, which is the fourth biggest just after Lonmin, which is the third biggest, the cost-to-company of a rock-drill operator working for Northam Platinum is R12 500 to R13 000 a month, depending if the person gets a living-in allowance.
Living-out allowances have also come about as a result of this decentralisation of bargaining within the platinum industry and they are turning up to be an issue. People going to Rustenburg area are complaining about the speed of which the informal settlements are developing.
This is one of the factors that has helped this is the living-out allowance. Mining companies are now rethinking this and they are going to keep their living-out allowance small and increase the living-in allowance to try and encourage people to take up some of the houses.
There are housing schemes and some of these companies have got hundreds of houses available to miners. There is also now a conversion with Implats, they have converted totally from the hostel system to single rooms and then to double rooms and things like that. There is a possibility of people taking up that accommodation. It seems to now be swinging back to living-in being the better option.
Gwala: The loss-making Buffelsfontein gold mine is facing possible closure.
Creamer: With the gold price flying we think that the gold mines are going to do really well, but one of them, Buffelsfontein gold mine in North West, has been making losses. In the first three months to the March quarter it lost R20-million and now they just reported that in the second three months to the June quarter doubled that loss to R41-million.
If things don’t happen they are going to take a decision to fix, close or dispose not later then the second week of September. When you think that one of our best underground brains, Bernard Swanepoel, who built Harmony Gold company, is on this to try and see.
He is part of Village, which is now owns Buffels, and they can’t get it right, it is continuing to haemorrhage and you start to wonder about some of our ageing gold mines, whether we can keep them going. In the gold sector, there are many demanding shareholders at the moment.
We started this by showing the Harmony shareholders are making demands, but demands are growing all round. Particularly we notice abroad in Canada the demands of the shareholders are so great that we’ve seen five CEOs heads roll of the top 20 Canadian gold producers.
Even the top one Barrick has changed CEO, Kinross, Centerra Gold have changed CEOs and closer to home we’ve had Ferdi Dippenaar at Great Basin Gold resign. So the pressure is on these CEOs to say look the gold price is doing well but your equities aren’t doing well, so you better get your equities up to what the gold price is.
People are saying now that they have got to set out, and particularly Gold Fields is adopting a new private-equity type of approach and saying that they must set out to provide returns that beat the exchange traded funds. People are now finding it easier to not try and measure a company and look at the promises of a company, but rather go to a non-gold mining company and buy an exchange traded fund, which means you are buying physical gold.
You then get the full benefit of price. So the equity companies like Gold Fields are saying that they must set out to provide returns that beat the exchange traded funds.
Gwala: 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© Reuse this Comment Guidelines (150 word limit)
Updated 6 hours ago Agri SA is calling for urgent clarification of the correct wording and interpretation of the governing party’s decision, whereby the 50/50 proposal, which requires farmers to hand over half their land to their workers, has been accepted as African National Congress...
Updated 6 hours ago South Africa should not be allowed to create new coal-fired power stations if it is to tackle its carbon emissions and meet the global goal of keeping temperature increases below 2 °C, says South African environmental and antinuclear organisation Earthlife Africa...
Updated 6 hours ago Integrated information and communications technology (ICT) systems provider Datacentrix has lifted earnings attributable to shareholders for the six months ended August 31, by 15.4% to R54.5-million and headline earnings per share (HEPS) by 14% to 27.7c, benefitting...
Recent Research Reports
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
Real Economy Insight: Automotive 2015 (PDF Report)
Creamer Media’s Real Economy Year Book comprises separate reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, gold, iron-ore and platinum sectors.
This Week's Magazine
Engen Driver Wellness, the mobile health awareness initiative, continues to make a tangible difference to the lives of the country’s bulk truck operators with increased driver participation in voluntary screenings and improved health scores. Now in its fifth year,...
At the sixth IQ Business conference held in Sandton last month, a panel of business leaders and academics advocated that business reclaims the initiative to spur growth in South Africa amid fragmented and haphazard political direction. Management consulting firm IQ...
The building industry is an essential component of the South African economy as it contributes about 15% to the gross fixed investment that drives the economy. However, with the country’s economy going through a tough time currently, this, in turn, reflects on the...
The recipients of the 2015 South African National Energy Association (Sanea)/South African National Energy Development Institute Energy (Sanedi) Awards were announced at a ceremony and banquet in Sandton last month. Sanea chairperson Brian Statham named Exxaro CEO...
As South African information technology (IT) firm EOH posted another full year of strong growth, CEO Asher Bohbot, known for his frank words, people-centric management style and stoic humanism, attributed the company’s continued South African and African growth to...