Opinionista Kalim Rajab 20 May 2013

Platinum: Paying the price of missing the boat of mechanised mining

We are all aware of the cast of villains at play in the tragedy that is the failing platinum industry. But for a more nuanced view of where the problem lies it is vital to consider how much better placed the industry, and the country, would be now if only mining companies had had the courage and vision, more than 10 years ago, to stand up to government and switched their focus to automated, mechanised mining.

In the early 2000s, more than a decade ago now, Anglo American first began thinking that its subsidiary platinum unit might be missing the boat when it came to thinking about mechanised mining. Many of its units at the time – gold, copper, iron ore, platinum – were traditionally labour intensive. But in mining, as mines become older, and miners have to go ever deeper – and narrower – in search of ever diminishing returns of product, so it becomes safer and potentially more profitable to move to an automated environment in which more machines, and thus fewer people, are going into the ground.

Platinum also occurs in narrow veins within some of the hardest rock reefs known – so that the mined product first has to be dynamited, and then drilled from areas which are incredibly claustrophobic and hot. (A platinum miner will often be hemmed into an area the size of a car boot, for hours at a time.) Of all its units, Anglo’s platinum unit, Amplats, was also the most exposed to South Africa – for whereas other minerals and precious metals are found in clusters around the globe, platinum deposits are almost exclusively found in Southern Africa. Consequently, Amplats was the one most exposed to any fallout from escalations in labour disputes. With our history of labour relations, one would’ve thought that the move to having automated machinery doing the blasting and digging would consequently have been a no-brainer for Anglo executives.

Of course, life is never as clear-cut as that; and unfortunately the introduction of mechanised mining came with significant operational and financial risks. For a start, how to build machines to fit into such confined spaces? And if you could, how then to deal with the problem of making sure they didn’t “dilute” – mining-speak for ensuring they didn’t pick up too much ordinary, worthless rock compared to the platinum-bearing rock? And even if management could achieve these two things, how would it possibly convince South Africa’s labour-friendly government that the greater tax collections it would receive (on the back of better profits for Anglo) along with much fewer, but now more skilled workers to operate and maintain the mechanised machines, would be a better long-term outcome for the country?

In the end, Anglo dithered and bumbled along, implementing automation in parts but not definitively having the courage to take the great leap forward into the unknown. Other platinum miners failed along the way in transitioning to mechanised mining and Anglo no doubt felt vindicated. By the time I became employed in the mining industry, a few years before Marikana, the idea was more or else off the table.

How Anglo must be regretting its indecision to be less labour-intensive now, what with developments over the last year. As Amplats has become engulfed in the tailwinds of Marikana and tried, and so far failed, to retrench workers in order to survive, it must be looking back with regret. How much better placed it may have now been, had it had the courage at the time to stand up to government; and the vision to invent and implement innovative technology.

As we stare into the abyss of strike-related deaths, job losses and a lost generation for our mining industry, it’s easy to dismiss such speculative thoughts as unhelpful navel gazing. But actually, I think that it is a very valuable line of thinking to re-explore. We’re all aware of the host of villains at play in this entire sorry tale of first Lonmin and then Amplats attempting to save their respective ships – from the intransigent and vengeful union officials on the one hand, through to restrictive bargaining structures, to overly militant and violent workers with woeful productivity, to a sclerotic minister who doesn’t understand the real world, and to top it off a brutal police force. All of this cast, to a greater rather than lesser extent, deserve our full scorn. But if we agree about there being no angels within this ensemble, then we should be honest enough as well about also asking some searching questions of the mining companies’ historical decisions.

A well received article, “Thinking in the same old way will not rescue the platinum industry”, by Brian Kantor and David Holland, two of the foremost industry analysts, in Business Day last week, argues that for much of the decade from 1999 onwards, the platinum industry’s capital return was an incredibly profitable 20%, compared to other industrial sectors’ returns of around 6%. The boom ended with the onset of the Great Recession in 2009, and since then platinum miners have seen their return on capital drop to a miserly 1%. The writers conclude that the platinum industry is in a dire state, and to survive, costs have to be reduced. Their argument seems to pinpoint the increase in costs – wages, electricity – as well as the months’ long labour dispute as the reasons for the recent underperformance of the industry: “Demands for wage increases that far exceed inflation cannot be fulfilled. These demands are anchored to a past that no longer exists. The tragedy for the workers, who are bound to lose their jobs, is that there is no alternative employment.”

Such arguments, now quite widespread in the media, are very, very real. But by implication, they argue that the platinum sector would be on very firm ground were it not for these two important factors. By focusing solely on these to the detriment of other, historical issues at play, such arguments run the risk of letting mining companies off the hook. By doing so, they will do little to convince unions and the Department of Mineral Resources that they need to alter their stance. If this continues, we’ll probably never move closer to consensus from all stakeholders – because all sides will still view others as being the reason for the current quagmire. We will still have leaders like Chris Griffiths and the minister talking completely at cross purposes to each other because of this other elephant in the room.

To help inform the debate, we need to examine the other, deeper reasons for the underperformance besides this very real reason of the escalation in wage and electricity costs.

To what extent was it exacerbated by executives allowing capital expenditure (which is just as burdensome a contribution to costs as the wage bill) to balloon during the “boom years” associated with those 20% returns? And was this the result of either mismanagement or executive hubris to imprudently commit to expenditure when they should have foreseen what could be happening to the industry further down the line? Mining is a very long-term industry, and executives in part are paid for their ability to take decisions affecting the next five to 10 years hence. Such large expenditures, once committed, are difficult to suddenly reverse, and so should only be committed if executives are fully alive to all the potential risks which could arise in the future, and feel that the benefits still outweigh these risks. Was all the historic expenditure warranted if it perpetuated the old way of mining, and did nothing to transition to the new frontier of mechanisation?

And to what extent was it exacerbated by either poor mining techniques, management not mining to plan (it’s not only in the platinum sector that we find management mining the rich grade areas too quickly during the boom years, to be left with less attractive areas to mine at exactly the wrong time immediately afterwards) or management not investing in the proper maintenance when it should have been? Quite simply, were the platinum companies in as sound a position before the labour unrest (which they should have been after years of spectacular returns) as they should have been to be able to survive the extreme shock?

And focusing purely on Amplats, to what extent has its parent Anglo’s historically aggressive attitude to repatriating the majority of profits back to it rather than retaining them within Amplats, meant than Amplats was more vulnerable than it should have been to downturns? Would a more cash-rich Amplats have been better placed to ride out the escalation in costs and thus not have to resort to slashing 14,000 jobs so quickly?

All of these questions, and more, need to be answered, because only then can we arrive at a more nuanced view of how much of the industry’s problem lies at the feet of workers, and how much at the feet of management.

I’m pretty sure the intransigent unions are clever enough to have thought long and hard about such questions before. From my experiences of negotiations with them, they have long memories. They have a good awareness about the level of historical management hubris and of management’s previous decisions, the long term effects of which we are living with at the present time. Without dialogue around such questions, labour will still likely cling to the belief that management is trying to obscure the real issues – thus inviting labour to resist restructuring plans all the more, and become more violent in the process. As I mentioned before, there really are no angels here. DM


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