| CAPE TOWN
CAPE TOWN Feb 5 South Africa hosts the annual
Africa mining conference but the country is a hard sell at its
Outside investors are increasingly wary of South Africa's
mining sector and extra salt is being rubbed into its
reputational wound as the conference coincides with a massive
strike in its platinum shafts.
Foreign flight is a huge concern, not least because the
industry needs outside investment to sustain itself.
"Because of the capital-intensive nature of the mining
industry and the fact that South Africa doesn't have sufficient
domestic savings, the industry relies heavily on foreign
investment," said Paul Miller, investment banker for mining and
metals at Nedbank Capital.
"In order to attract that investment we need to provide a
competitive return," he said.
The hardening perception is that the returns in South
Africa's mines are too low and the risks too high. Around 45
percent of the country's platinum operations are losing money,
according to the industry.
Bankers and executives interviewed by Reuters at the
conference all said foreign investors uniformly raised a number
of concerns about South Africa, starting with labour.
South Africa's over century-old mining industry has always
needed not only huge amounts of capital but has also been highly
And labour right now is scaring the wits out of capital.
The hardline Association of Mineworkers and Construction
Union (AMCU) has been on strike for almost two weeks at the
world's top three platinum producers, Anglo American Platinum
, Impala Platinum and Lonmin, hitting
over 40 percent of global output.
The two sides remain poles apart over wages, with no
resolution in sight.
AMCU's rise on the platinum belt has also been marked by
violence as it poached tens of thousands of members from the
once-unrivalled National Union of Mineworkers in a bloody turf
war that killed dozens of people.
MARIKANA TIPPING POINT
This included 34 striking miners shot dead by police outside
Lonmin's Marikana mine in August 2012. Bankers and mining
executives say that incident was a "tipping point" that sparked
an exodus of foreign capital from South Africa's mines.
Lonmin's chief executive Ben Magara told Reuters that before
the Marikana shootings, Lonmin, which has its primary listing in
London, had 30 percent South African ownership, but it is now
50/50 South African/foreign.
Sibanye Gold, a spinoff from Gold Fields
that has all of its operations in South Africa, was around 24
percent domestically owned when launched last year and that
ratio has risen to 48 percent, company officials say.
Rajat Kohli, London-based global head of mining and metals
at Standard Bank, described the situation as "dramatic"
and said some investors he spoke to said they would put money
anywhere else in the continent "but not here".
Some bankers said South African investors understood the
local mining industry and were not as jittery about sinking
money into it as their offshore counterparts - but
foreign-exchange controls mean they often have little choice
about where to park their cash.
Neal Froneman, Sibanye's chief executive, said South African
mining had a lot going for it, including the skills required to
extract resources in tough environments. The country had
produced about a third of the bullion ever mined and still has
vast quantities beneath the ground.
"This is elephant country when it comes to the gold
business. There are still more resources to mine than have been
mined. We have 100 years of knowledge," he told Reuters.
But he added that "we cannot operate in isolation of the
capital markets. We are fooling ourselves if we think we can."
South Africa, which produced almost 80 percent of the
world's gold in 1979 and is now only the sixth-largest producer
of the precious metal, is also challenged by its geology. The
country's mines are the world's deepest, which makes them
dangerous and costly to operate.
Investors at the Cape Town conference have been reminded of
these challenges by news on Wednesday that emergency workers
rescued eight miners trapped a mile underground by a fire and
rock-fall at Harmony Gold's Doornkop mine near
Johannesburg, but nine other workers remained unaccounted for.
Harmony's chief executive Graham Briggs hastily left Cape
Town, where he was to give a presentation at the conference, to
attend to the drama unfolding underground.
Investors here have also been put off by the mixed signals
given by mines minister Susan Shabangu, who on Tuesday
reiterated that discussions were under way that could lead the
state to declare minerals such as coal "strategic", which could
curb exports. She gave no time frame for such a policy.
This has added a layer of policy and political uncertainty
as well as risk to an industry already reeling from the woes of
labour strife and tough geology.
"Investors are concerned that given the rise of labour
unrest and policy uncertainty within the ANC (African National
Congress) government, risks in South Africa are on the increase
and margins are getting squeezed," said Tom Wilson, director of
consultancy Africa Practice.
"The margins are squeezed so effectively that the
risk/reward curve doesn't look as appetizing as perhaps it