Every Friday, SAfm’s radio anchor Sakina Kamwendo speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:
Kamwendo: South African mining companies are entering an exciting new era of close collaboration with the governments of South Africa and Zimbabwe.
Creamer: This is completely opposite to what we have been experiencing in this region for the last few years. It is a complete change of heart. We now see that there is huge collaboration going on between government and Impala Platinum. Now, Impala in Rustenburg is on its last legs, if something doesn’t happen there, there could be 40 000 people out of work.
The government is working very closely to try and preserve jobs. They want to close five shafts there and the idea is that they would just put them on care and maintenance. They are now looking to commercialise those and they are getting an overwhelming response from interested parties to actually take over those assets, which they want to dispose of. In Zimbabwe, that same company has spent a whole day with the President and five Cabinet Ministers.
That is the sort of time that Zimbabwe is now giving to investors like Impala Platinum, which has done so well in their country. They have come to an arrangement where Impala Platinum now will be paying infinitely less tax, because the situation where they are allowing mining activity to take place near their Zimplats mine and they will help whoever participates there, because they have got capacity to process whatever is mined there. So, a complete change of mindset and we know that if South Africa and Zimbabwe work together in certain metals and minerals, it can be fantastic for both countries.
Kamwendo: Gold mining, which was once the darling of the investor community, is now battling to raise even low levels of capital.
Creamer: This is incredible, because where we sit here was built on gold. Our Stock Exchanges here used to go crazy, people used to fall over themselves to get gold shares, because they knew that those shares would always trade at a price premium.
That premium has disappeared. We see now Gold Fields went to Australia and complained bitterly that these days you can’t raise capital for gold mining. People will go into exchange traded funds, that is the physical gold, they will buy there. They have spent R84-billion on doing that, but they will not readily go into equity. What I mean by equity is that people buy shares in mining companies and that is the best finance you can get, because people believe in you so they give you their money.
They don’t say that they want an interest rate at this point, they give you that money and you invest it. That is why we have had such a thrust of gold mining here. Today, they don't want to do that. Mining companies are having to go to the banks and raise debt and pay interest. They are even having to stream, that means that they sell the gold in the ground before they actually mine it. It is quite a change and they are saying that this is going to slow down mining activity the world over.
This complaint was brought forward by Gold Fields. If you look at Gold Fields, it has just won the top ranking by the Dow Jones Sustainability Index, it has been benchmarked as the top South African mining company. If the top South African mining company can’t raise capital, what hope is there for the rest? We see that they have also got the third best global gold company. They are still saying that you have to possibly sell the gold in the ground before you can actually get any cash or go to the banks to get debt. There is so much passive investing now, especially in the United States, 36% of funds are passively managed, which means that when you come to raise money, those passive investors don’t come to your aid.
People used to follow their rights in the past, if they held shares, they wanted more shares, as you are raising capital they will actually buy more shares. That used to provide the money for this expansion and that is just not happening at the moment. I am sure it might have an impact where there is so little investment in gold that eventually everything will come back, but that is not how it is at the moment.
Kamwendo: Australia is proving to the world that the mining industry has the wherewithal to drive a country’s economy to great heights.
Creamer: The Australian Treasurer Josh Freydenburg is over the moon about mining. You can see the comments of the country, the leaders are saying what a fantastic thing. Mining has just grown at the fastest rate since the last boom. They are talking about 5,1% in the last quarter and people are saying the economy as a whole grew by 3,4% through the year term.
That is great in itself, but what drove that? It has been driven by mining investment. We could knock the socks off the Australians. We have got more value in the ground than they have. Our metals and minerals in the ground are valued conservatively at $2.5-trillion, but of course, they are worth nothing if you don’t get them out economically.
The Australians have got less, but they get it out economically. If you look at what it has done to their GDP, it has grown by 4,7% on the back of mining. Commodity prices are higher, all the budgets that have been done now by the Australians are being exceeded, whereas South Africa is going into a recession. There is no need for this if we focus our mind.
There is big talk in Australia that the next election will see the Labor government come in. That is now pushing up share prices, because everybody is now saying buy in these big companies, because if the Labor Party gets elected, it is going to be even better for mining. We have got the opposite here and we needn’t have it. If we could really focus our mind at this time where the commodity prices are starting to lift, we won’t miss the next boom as we missed the last one.
Kamwendo: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly.