The most important support that the struggling mining industry could receive from government is policy certainty, says Northam Platinum CEO Paul Dunne.
In an interview with City Press, Dunne – whose company released its annual results on Friday – said it was important that the country understood that “the mining industry is struggling” and that the industry was not in its “heyday years”.
The industry has been pummelled by low commodity prices, higher costs and low rates
“A healthy degree of realism is very important. It’s far from the dripping roast. It’s not the golden goose any more,” said Dunne.
“We could do with a lot more support. Support can come in many ways, but policy certainty is very important. If we had a degree of policy certainty, it would go a long way towards assisting mining companies. Why is it important? Before we deploy investment monies, we must attract investment. When we have policy uncertainty, it is helluva off-putting for capital. When you have uncertainty, they would rather take the money elsewhere. Money also becomes more expensive.”
He added that the point that “the mining guys are making right now is that money is simply staying away, and that is certainly not good for the country”.
He said it was imperative that all the social partners “be cooperative and work for the good of this industry and this country” as it played a crucial role in terms of tax revenue, infrastructure development and the multiplier effect in economic development.
“Mining needs to be nurtured and protected. It is no longer as robust as it once was.”
Irresponsible talk on the side of business and labour should also be toned down.
“We are talking about company survival and the protection of jobs. It is beholden on both sides to avoid rhetoric.”
While the relationship between industry and government “has vastly improved – like night and day” – since Mineral Resources Minister Gwede Mantashe took over from Mosebenzi Zwane, this must now translate into results, he said. And the result that mining companies are looking for, says Dunne, is a “workable Mining Charter”.
“We know, we understand and we accept that government legislates and it is companies that implement. It is companies that have the responsibility to implement together with their shareholders,” he said.
An unworkable Mining Charter would put companies in conflict with shareholders, the Companies Act and the Constitution.
Dunne is optimistic that the sticking points in the charter – the free carry provision and the once empowered, always empowered principle – will be resolved by November, the deadline set by government.
“There’s been progress, but difficult obstacles still need to be overcome,” he said.
The mining sector is concerned that, if free provision goes through, “only the best projects will fly and many, many, many will not see the light of day”.
“It is Finance 101. Only the cream of the crop will go,” he said.
But the sector is also aware that expectations have been created since free carry was first introduced, and “we are going to have to manage that, both us and government”.
On the once empowered, always empowered principle, he conceded that “we are probably still far apart ... there is still a long way to go”.
He said it was crucial that certainty be achieved before the 2019 election season kicked off in earnest and before the mining indaba – which attracts the world’s top investors – takes place in February.
Fin24 reported on Friday that, despite the “continuously tough trading environment, Northam Platinum’s headline earnings grew by 5.8% to R421.5 million over R398.3 million in the 2017 financial year. This was largely influenced by the underperformance of the platinum price.”
Northam also added former deputy finance minister Mcebisi Jonas and veteran platinum miner Jean Nel to its board.
Dunne said the platinum price was being affected by “three negative sentiments”: there was a decline in jewellery demand from China because the younger population now preferred smaller and multiple pieces of jewellery and they travelled more widely; the dark cloud caused by the VW emissions scandal; and the excitement around battery-operated engines.
Turning around the sentiment against diesel – which uses platinum group metals (PGMs) to create clean air – was largely the task of the carmakers, but “there is not much we can do as PGM miners”.
Companies such as Northam had upped their contributions to platinum marketing forum’s marketing efforts in China.
Dunne also believes that the threat of the battery-operated vehicle, which has turned sentiment away from platinum, is “a little overplayed” because it will not replace internal combustion engines, whose technologies are also constantly developing.
Dunne said that, as part of government’s support for the mining sector, particulary for PGMs, government should “promote the use of platinum” by setting “our own standards for emissions”.
It should also act on the long-spoken about introduction of a platinum coin, a variation of the Krugerrand.
“It would send a very strong message” about the value of platinum, a metal of which South Africa possesses 80% of the world’s supply.
Indicating that Northam’s own confidence in the mining sector and platinum in particular was high, the company invested R3.8 billion in this past financial year and is set to buck the industry trend and up its employment by 6 000 people over the next three years.
“That’s a good news story. Our business model is countercyclical. We are swimming against the tide, we are continuing to invest,” he said.
He explained that it was a deliberate strategy to invest at the bottom of the cycle because, despite the current challenges, “we are of the view that the world still wants these metals”.
“Our strategy is to grow the company and, in growing the company, we protect the company,” he said.