15/11/2013 (On-The-Air)

15th November 2013

By: Martin Creamer

Creamer Media Editor

  

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

Moodley: Martin, I have to ask you before we start, every week you give me this page and at the top it has a number and this week it is 845. Is this the 845th edition?

Creamer: This is my 845th show.

Moodley: That is amazing. And you have given us quite amazing analysis.

Huge global demand is building up for platinum at a time when South Africa is unable to grow its supply.

Creamer: Isn’t it sad that huge global demand is building up for platinum at a time when South Africa is unable to grow its supply. Why are we unable to grow our supply? Because, we cut back on capital a few years back, so it is not just the labour issue. Capital decided we must really reduce the number of ounces hoping it will help with the price of platinum.

Now, of course, we have got the labour issue, which lost us from a productivity point of view about 300 000 ounces. Just as that is happening, in the global market, in Europe, which has always been such an important market for us.

We see the Euro Six legislation coming through, in other words the standards that they introduce into Europe to stop the dirty emissions going from cars and trucks into the air is being stepped up to a point where they are now taking out the nitrogen oxide. That means that our platinum and rhodium is going to be in bigger demand.

In China they are already at the Euro Four level, so Thailand Euro Four, Russia Euro Four and Europe will go, in time, to Euro Seven. It shows you that the demand is just building exponentially. We now have not prepared ourselves for supply, both through what you can say is a capital strike and a labour strike.

So, we sit here between a rock and a hard place. What does that do to the market? It angers them, because coming through now this week Johnson Matthey made it clear that security of supply issues are concerning.

Those people who make those catalytic converters and catalysts, is not an industry that can just do things quickly. It needs time, it needs to know what the prices are and the certainty is. We are annoying our maket, which is not a good thing to do.

The engineers look for substitutes. They are hunting for substitutes because platinum is a very expensive metal anyway, and if there is a shortage of supply, it is going to make it even more expensive. South Africans are shooting themselves in the foot, dangerously.

Moodley: PwC came out with a report this week and in the next 30 years they are forecasting the end of the mining industry if we don’t deal with what you already mentioned. The labour problems but also the earnings that shareholders and government want from mining.

Creamer: Hopefully we will turn it around, they are putting their heads together now with the new legislation. We are seeing people say to them make sure there is stability in that legislation and warning them otherwise there will be serious cutbacks.

Moodley: You talked about carbon emissions and Australia is looking at this. They have had one of their warmer summers, yet they are not going to implement the carbon emissions tax on their mining industry. Is this a good move?

Creamer: I think they realise that they are so dependent on that mining industry and they mustn’t really hurt it. With the new government there you can see all the legislation that they were planning to introduce that would have been punitive they are just pulling back on.

Moodley: The mining industry is a global industry, now the Chinese are coming in, they are looking at rescuing on.

Creamer: The Chinese have agreed to invest R600-million to bring a liquidated mine called Orkney Gold Mine out at West Wits, back to life. Why this has been dormant for five years is another story for South Africa. This is a good mine, it is the Orkney Gold Mine, it should be producing gold.

It hasn’t been producing gold because it was part of the Pamodzi liquidation saga that became a marathon. It also points to us needing to look at our liquidation laws, because here they are only talking now about coming out of the care and maintenance mode and a crucial meeting is taking place only next week with the government to allow them to go back underground.

The Chinese are saying we bought this for R150-million, but that is not the issue. Where you really need deep pockets is when you start operating it again. They agreed in Shanghai last week to put another R600-million in, but that is just for two shafts. The other four shafts are not going to be resuscitated at this stage. South Africa is hurting, jobs are hurting.

They have come with a labour recall and one of the conditions was that they will recall labour once they get going, but that is going to be a slow place, because they are only going to get back slowly, so you will have 300 people then another 200 people coming in to make up that previous 2 000 to 3 000 people.

But, at least it is coming back and the Chinese are prepared to dig deep in their pockets and to say the gold price isn’t good at the moment, but that is when you invest and they are climbing in heavily and apparently with great enthusiasm, I hear from their BEE partner Elias Khumalo.

Moodley: So is this not a case of a company mothballing a mine waiting for that gold price as you say to pick up, because government has been saying we don’t want that, we want to employ people in these sectors regardless of the price.

Creamer: You should go through the cycle because look at our balance of payments and look at our current account, we need exports, we haven’t got that gold going out, but we have still got to pay for the oil coming in, and that hurts us.

Moodley: South Africans have snapped up R3-billion worth of shares in the massive GlencoreXstrata, which listed in Johannesburg this week.

Creamer: South Africans have snapped up more the R3-billion worth of shares in the massive GlencoreXstrata, which listed in Johannesburg this week. It was a tremendous occasion, because the top brass of this big company, which is now the third biggest on the Johannesburg Stock Exchange after our tobacco and beer. It was quite good the way they interfaced with the journalists and quite refreshing.

Of course, a lot of them are South African born. Ivan Glasenberg was particularly impressive with the balance that he restored about investing, because he has got this global view. The business logic in his investing was refreshing. It was interesting to see as a mining company they are the biggest investors in Africa at the moment. They are in 17 countries.

We need to be the springboard. The Johannesburg Stock Exchange it is on needs to be the springboard to take us into Africa. We said to him as journalists you are in oil and gas, is there any oil and gas opportunity in South Africa and he said they are doing very well in West Africa that is where the focus is, but if something crops up they will obviously look at it.

What about the 20% free carry that the government wants and in a balanced way he said they can have a 10% free carry, 20% free carry, 30% free carry, they are not interested, they will do their sums and if it still pays them to invest, they will do that. He praised the government for being full frontal and coming out early and saying, ‘we want 20% in anything you do in gas and particularly shale-gas’.

He says please government, once you have made those decisions, don’t change midstream, because that is when it really hurts us and our shareholders. He promised to look at the coal situation because already they produce 45-million tons and export 20 million tons from South Africa and they are saying that they can double that with rail.

On the ferrochrome, they were also very good and said they actually are doing very well and expanding even though there is a power shortage and they are expanding their Lion Two Project, because they have introduced new technology that uses far less electricity.

Moodley: It has been talked about, but this deal really very small exposure to the South African market.

Creamer:  They are hoping to get beyond the 5% mark, but you look at BHP Billiton also big investments here, our pension funds, our provident funds are going in there. It is the same with Glencore, the 54 million shares changed hands and a lot of it coming through from our investment funds, our top investment funds. So the people of South Africa are going into this business.

Moodley: 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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