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: The iron-ore business of South Africa’s Northern Cape has put a colossal R19-billion into the hands of its black economic empowerment (BEE) partners.

Creamer: We are talking about the iron-ore business of South Africa’s rather poor Northern Cape that has put a colossal R19-billion into the hands of its BEE partners.  That must be a social dividend unmatched anywhere on the planet.  We are talking here about Kumba Iron Ore, which is part of the Anglo American group. 

The ownership there is very interesting because Exxaro, which is listed on the Johannesburg Stock Exchange is black-controlled, therefore it can confer empowerment on Kumba.  It also has 20% of Sishen Iron Ore Company (SIOC), which is the iron-ore mine.  It is a fantastic revenue stream coming into that company.

Then look at the 3% held by the community.  That community trust is now worth R7-billion. It has got 140 projects that benefit 380 000 people. Then, it goes further: the people, workers, own 3% and look what happened in November 2011, they became pre-tax half millionaires, they got R580 000 each.

Now, it just keeps going, even with Kumba not doing that well, it is 4% down in its latest interim results, the money just keeps flowing. The workers now stand to get another R12 000 coming through in their dividend, the community more than R280-million additional just in six months. The company itself has spent R2,2-billion on housing and is just putting another R77-million into early child development and entrepreneurship.

Now I’ve seen the early childhood development in action and its really impressive, but the entrepreneurship is just as impressive and you go into butchers, bakers and candlestick makers, all developed from iron-ore dividends and it is just a very important social development dividend that has come through in the Northern Cape.

Makwetla: Cash burn, tell us about that term and what it means.

Creamer: Cash burn – that’s the term being used to describe the hundreds of millions of rands that platinum miners are losing, as they bow to government pressure to avoid downsizing.  

It was January 15 this year when Anglo American Platinum came through and said that they are in serious trouble and need to restructure. They want to close two mines, mothball some shafts and it will involve an impact on 14 000 people.  They don't just want to leave these people, 6 000 of them will be redeployed and the rest will be offered alternative skills.

They will train them up and cut retrenchment to a minimum through voluntary separation and early retirement. There was such a howl of protest that they weren’t allowed to do that. In the meantime now those two mines that they wanted to close are burning cash. That means that you have a negative outflow of cash from those businesses. Rustenburg was one that they wanted to deal with, it had R1-billion burn in six months.

The other one that they wanted to sell was Union, they are still going to try and sell that, but it had a R300-million cash burn in six months.  This particular group would be up the creek without a paddle except that it has got one fantastic cash producer in Limpopo, which is the Mogalakwena mine, which is really carrying the whole business now. 

What do we do in a situation like this? You see investors in London are now complaining and saying that they are not going to invest in this company anymore and they want to start pulling out and they are looking at Anglo as a whole. 

They are saying that although nationalisation of the mines never came to South Africa, this is semi-nationalisation for the welfare of the State, because CEOs can’t actually stop the bleed when a company is in trouble.

Makwetla: Proven South African technology is on the point of becoming a major ‘game changer’ within the energy framework of the United States of America.

Creamer: That is the proven South African technology developed by Sasol. It is now being sought by the United States of America and it is all around this low price of gas. 

We had the fracking arrangement and this fracking in the United States allowed the gas prices to go down. Where does Sasol make its money? It converts that gas into oil. So along come the Americans and say what can you do for us?  Bobby Jindal is the governor of the State of Louisiana in America and he is waxing lyrical about this.

He is giving them incentives, because already Sasol have 500 people on the ground in Louisiana.  They now could become the biggest single foreign investor in manufacturing in the State of Louisiana.  They are talking at US congressional level, they have been quizzed left, right and centre, and everybody is getting more enthusiastic about what could become a R200-billion investment into the State of Louisiana with three projects that Sasol is looking at. 

We immediately think, what about our Karoo?  Why aren’t we speeding up the exploration there? Lets find out how much gas is there because there is the fracking arrangement the same formula would apply, because Sasol can turn that gas, which is low priced, into oil, which is high priced. They do it in a clean way, which the Americas are so happy about.

They give you clean low-sulphur diesel from their gas, this is because their process is different.  We have got this technology, we hopefully have got our own resources in the Karoo, can we not do something similar that the Americans are getting so enthusiastic about?

Here we have this company that has been with us since 1950, turning coal into diesel, petrol and chemicals, but now with the gas coming through there is an even greater opportunity. They say the Karoo is not going to be as great as America because you don’t have that ready-built network of gas pipelines that the Americans have got.

But, what about the electricity side? We do have a network of transmission lines and there will be an aspect of converting that gas into electricity. If we want to grow here we need a lot of electricity and hopefully it will be lower priced. Lets look to the future and try and do something with our gas.

Makwetla: 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.