By Nompu Siziba
October 4, 2018 - Minerals Council of South Africa CEO Roger Baxter spoke at the Johannesburg Mining Indaba, where he shared with delegates that the mining industry is operating under possibly one of the harshest environments in its experience in decades. But, in spite of that, he suggested that South Africa could be beginning to see the first rays of a new dawn.
NOMPU SIZIBA: We have Roger Baxter on the line to further share the council’s sentiments. Thanks very for joining us, Roger.
ROGER BAXTER: Thank you.
NOMPU SIZIBA: You are welcome. The third installment of the Mining Charter was finalized last month. With some bits the industry strongly protested against being taken out and the confirmation that once empowered, always empowered would remain there, are there still some bits that you are set to contest against, or is the industry resolved to working with what they have now?
ROGER BAXTER: First of all, thanks very much for the opportunity to be on your show – I always enjoy it. And to your audience good evening.
This third iteration of the Mining Charter is the product of significant engagement and negotiation that has taken place. Minister [Gwede] Mantashe certainly opened up to engage with all different constituents and stakeholders and partners, and he’s taken on board the views of everyone. I think this charter is the product of significant engagement, and we are certainly broadly supportive of the charter. We think it’s a policy instrument that will help continue the journey of transformation that we’ve been on in a positive way, like you said with your earlier speaker, about promoting community developments, and involving workers in new mining rights, for example, in terms of their carried interests. So we are broadly supportive.
There obviously are a couple of areas where we do have concerns in terms of the continuing consequences also applying to issues around renewals, around some of the procurement targets, particularly the very – still – local content requirements etc. But we are looking forward to engaging with the minister and his team on those, because we think that those are unfinished. But broadly this is a charter which takes the industry and the country forward, and promotes competitiveness and transformation at the same time.
NOMPU SIZIBA: Just sticking to that procurement issue, I think they are asking for you guys to procure 70% of whatever you procure from the country, from the local businesspeople. But of course a lot of the stuff that you procure is capital equipment and things that we just don’t produce. So, in your engagement so far with government, have you any sense that there may be a possibility to get exemption in this regard – because how can you procure something from someone who doesn’t produce it?
ROGER BAXTER: I think that’s absolutely right. There are two things to separate. The first one is that the BEE targets in terms of buying from black-owned, black-controlled, black-influenced companies in South Africa, the 70% target there we don’t have a concern with. It’s more the local-content requirement, for example, where on capital goods they are saying that 60% of that needs to be fabricated in South Africa. We are talking about mines that have capital equipment where you’ve got 300-tonne dump trucks, which are imported from companies like Komatsu, from Caterpillar, from Liebherr etc – and they don’t make those in South Africa. Caterpillar does have a 20% local content level already in South Africa, where they are bringing in and assembling.
So all we are saying to government is let’s look and make sure that we are being absolutely practical on what we can do now and how we can upscale that local content requirement over time. We are fully supportive of encouraging local content, because that is obviously going to help the re-industrialization of South Africa. We are just concerned that the target that’s been set isn’t based necessarily on sound science. We need to do some further work there.
NOMPU SIZIBA: From your point of view, what are the implications of the scrapping of the amendments to the Minerals and Petroleum Resources Development Act [MPRDA]? And with the Mining Charter now in place, is there now the necessary policy certainty that the sector has been demanding?
ROGER BAXTER: I think the Mining Charter is a key positive change, no doubt about that. I think the withdrawal of the MPRDA amendment bill is also very positive. Let me just highlight that we have for some time been indicating that there are parts of that legislation which are unconstitutional, and the president cannot assent to a bill which is unconstitutional. I think the minister has taken those specific comments on board, which I think is very positive. But there are parts of the MPRDA itself which do require reform, and I think that will be part of a conversation that will take place between the different role players in due course.
I think we are definitely in a very different environment to where we were last year – with a different minister we had a different nefarious agenda. We now have a minister who is engaging with all the stakeholders. Those engagements are robust. They are tough. Minister Mantashe is a tough negotiator from all his years in the union and obviously heading up as SG [secretary-general] of the ANC.
But we are working much better towards what is in the national interest to grow and transform this industry. So I think we definitely are seeing the green shoots of a new dawn, and I think all of us have a role to play in making sure that this great industry can get out of the intensive care unit and back on track for the benefit of this country.
NOMPU SIZIBA: When policy is certain in the South African environment, what then are some of the practical impediments facing the industry that the Minerals Council and government are set to speak about in order to help spur the sector going forward?
ROGER BAXTER: There are some very practical issues. Obviously in 2008 Eskom pulled the plug on the mining sector. We basically were allowed only 90% [of our electricity needs], so effectively 10% of our normal supply was switched off as the industry bailed out the rest of the economy. That led to a downscaling of the gold sector, for example, a premature downscaling, which was a bit unfortunate.
So in areas like energy, where costs have risen far too quickly, we need to have a lot more sanity on the rate of increase in electricity prices, for example. We need to look at how we can expand our transport networks, for example. There is a very vibrant global or Pacific Rim market for thermal coal. Companies like India, China and others are very big markets, and we can export those opportunities and earn export revenue, create more jobs in the coal mining sector. But obviously we need to expand our rail capacity, which is the current inhibiting factor, along with developing new mines.
So what we are doing is we are engaging with government on a commodity-by-commodity basis. There are some industries which are in the intensive-care unit, like the gold and the platinum sector, but there are other components of the mining sector which are doing well or which have the potential to growth further manganese, chrome, iron ore and those sort of examples – and the coal sector. So it has to be commodity by commodity. And I think we are looking at what the practical issues are that we can unlock, as both industry and government, which are going to grow this industry. I think the key point here is that mining very much is the flywheel of the economy, and the flywheel hasn’t greased enough and is not spinning nicely. It certainly does affect the rest of the economy.
NOMPU SIZIBA: And especially as there is quite a relationship between mining and manufacturing. If there is a pickup in mining then there will be an automatic pickup in manufacturing, right?
ROGER BAXTER: Agreed. I think what’s interesting to me is that there is a huge manufacturing capability that’s been developed, not only to supply into the mining industry, but on the mining industry gates. If you think about it, 99% of South Africa’s cement is fabricated locally from locally mined minerals; 50% of our chemicals, plastics, polymers, fertilisers etc, are fabricated from our coal industry through the synthetic downstream chemical sector. So there are very good examples of where you’ve got lots of downstream linkages, as much as you’ve got for the upstream procurement linkages.
What’s a real shame is that most of the growth in our upstream supplier contractor industries has actually been growth outside of South Africa, because the mining industry in South Africa has been shrinking over the course of the last decade. And so growth in the mining sector will definitely spur not only the contracting and services sector, the consulting engineers etc, but also have a big impact on our supplier base – that’s steel, that’s explosives, that’s timber, that’s all the different materials that go into mining on a day-to-day basis.
NOMPU SIZIBA: And assuming that negotiations work out and you get the kind of conducive environment that you are looking for, do you think that we could get about double the investment in the mining sector over the next four years? And presumably that will be positive for jobs.
ROGER BAXTER: In our particular perspective, those are the numbers that we put out. We did a survey last year where we said that if South Africa could get back into the top 25% of investment destinations globally for the mining sector, what would be the impact of investment from our mining company members. They responded and said we would probably spend another R125 billion extra over the next four to five years if we were in the top 25% on capital projects that we have on board, that we could invest in, if we had the right environment to get our investment committees to approve them and to get shareholders on board. Now that would create another 50 000 jobs directly in mining, probably 200 000 in the rest of the economy. But what’s most important is the multiplier effect into the upstream and downstream industries, and in the stabilisation of some of the sectors which are under duress at the moment.
And so I think it’s critically important that in working together as stakeholders it’s Team South Africa. We have to play the game together. It can’t be just about what business does or what government does or what labour does. That’s also one of our views going now to the Jobs Summit. It’s about a team approach to how we resolve these issues together as South Africa.
NOMPU SIZIBA: Alright, Roger, step by step. Let’s hope for the best and thank you very much for your time.