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Minister moves to reassure investors: Minister Ngoako Ramathlodi, David Shapiro, Peter Major (Cadiz)

The door for business is open, but do bats and sticks wait behind it? – Peter Major

SIKI MGABADELI: We are coming to you live from Cape Town, where the Investing in African Mining Indaba is taking place. It’s the 21st one being held. And, having attended a number of these, I find it interesting how things have evolved, depending on where we are in the commodity cycle. You can always almost gauge the mood.
   The Minister of Mineral Resources, Ngoako Ramathlodi, delivered the official welcome at the Indaba this morning. His main message seemed to be that South African mining is open for business. He says that he wants to provide both current and prospective investors with regulatory certainty.
   We caught up with him at the Indaba today. We apologise for the background noise. At a conference such as this one, you literally door-stop people as they rush between meetings and you start to feel like a bit of a stalker, the way you chase people down.
   So let’s listen to than conversation with the minister.

SIKI MGABADELI: I suppose [you are] represented by your ministry in the mining sector, labour and business. When I’ve spoken to business and union leaders they seem to think that you have a vision for the industry. Could you ell us what that vision is?

MINISTER NGOAKO RAMATHLODI: Well, I want to establish the tripartite partnership which works, which is able to resolve contradictions as they present – and they are bound to arise from time to time. And that’s the way I want to structure the future of this industry, because I want it to be characterised by peaceful co-existence so that we get to more investments that will protect the jobs, that will create new jobs. That’s really where I want to go.

SIKI MGABADELI: When you started, you started in the middle of a really significant strike in the platinum mining industry, and that of course had a big impact on the performance of our sector last year – at a really terrible time for prices, as well. How do you see yourself wading through those labour relations?

MINISTER NGOAKO RAMATHLODI: Well, I think the good thing we were able to stop it, …within four weeks of the new …administration. And, going forward, one is not waiting for a crisis to develop. We are talking on an ongoing basis with the industry. I’ve met almost all the …divisions except gold, and I think diamonds, which I’m still to meet. But for the rest I’ve met their chief executives. Besides, we are also meeting a tripartite ministers’ forum where business, the industry, the Chamber, ourselves, labour participate. So we are in that space.
   The other initiative has to do with the presidential-led intervention programmes, particularly in mining areas, because we want to stabilise those communities so that the social issues that exacerbate the contradictions are managed and addressed effectively.

SIKI MGABADELI: Regulation is a big issue that you want to provide certainty around – could you just tell us where your concerns are?

MINISTER NGOAKO RAMATHLODI: I think issues that hinge on ownership – and they have to do with the right of companies to export what they produce here, in what quantities, as competing against the national needs for development.
   For instance, Eskom needs coal to generate power. So if Eskom cannot get coal then we’ve got a big problem. So we are dealing with those issues. And legislation has to address those sorts of things.

SIKI MGABADELI: One of the things in the legislation is around pricing, and we are talking about a developmental price. What’s your thinking on a developmental price?

MINISTER NGOAKO RAMATHLODI: Well, the draft as it exists talks about the gate price. In other words, minus transportation, what has been spent by the producer to extract. Now the current draft says the beneficiator will then buy that mineral at the gate price. I have indicated in my speech that there is a very strong view that we must go beyond the gate price, but go into something called the developmental price, which means a discount price in essence. I’m saying those elements might want to be resolved legally once and for all, so that as you process the legislation we are sure that we are on the same grounds.

SIKI MGABADELI: That was Minister Ngoako Ramathlodi. Joining us now is Peter Major, head of mining at Cadiz Corporate Solutions, as well as David Shapiro in our Johannesburg studio.
   Peter, do you think the minister has said enough to allay fears? I think the thrust of what they’ve been saying since he came into office eight months ago was “we are open for business,” but is that message coming through?

PETER MAJOR: Ja, you have to say a lot more than that. Everybody in government has been saying South Africa’s open for business for 20 years now, and there is a difference between putting a sign on the door that says “open for business” and then having a nice, investor-friendly environment when you walk through the door, or having a bunch of muggers or regulators ready to hit you with baseball bats and hockey sticks.
   So yes, it’s good to start out saying “we are open for business,” and then say “here’s why we want all the world’s business,” or “here’s why we think you should bring your business to us instead of the 199 other destinations”.

SIKI MGABADELI: And isn’t that the point – that, compared to the past, say the pre-1990s, South Africa now has many more competitors in this mineral field and this resources field. Investors have other places that they can go to.

PETER MAJOR: You are so right. There has been a compounding effect from different angles. Yes, with the whole of the Iron Curtain, that more than doubled the amount of mining destinations literally in one year. And then other countries that were very … in Africa and Asia have jacked themselves up. So maybe they were communist before, but they are a lot more jacked up – Tanzania, Kenya, Uganda, DRC and Zambia are very different from what they were even 10 years ago.
   So it’s good you are open for business, but you have to show why you are more open for business now than before.
   He did start addressing those issues. He came out very clearly and succinctly on how we have a Constitutional democracy here and everybody must abide by it. We have rules and regulations to follow, and the unions are no different, and the employees are no different. Anyone caught breaking the law will be apprehended, he will be charged, he will be tried, and he will be sent to jail. It was just categorical.
   He talked about BEE. The era of individual empowerment has gone. It’s one for the history books. He said it’s broad-based empowerment. There are no more oligarchs. I think that’s good news. You know, there is a lot that government can do to help that. We often said a decade, two decades ago, in 1994 we were saying it would make sense for government to set up some kind of empowerment percentage that went into a general funds . So you would have five or ten or 15%, like they do in the Congo, 15% ownership, and the government will handle how that is spent. So you won’t have to go knocking on doors and find your particular BEE partner. I think that would still simplify things so much, and it would do the country better and it would really help the companies.

SIKI MGABADELI: And David, that’s important, right – having simplification in your legislation and regulation? You don’t want investors having to jump through hoops to figure out what’s going on in the country’s legislation.

DAVID SHAPIRO: …You have to put the welcome mat out. And also, if you are going to lay down legislation, then make sure that you stick to it for at least ten years, because one thing South Africa does is it keeps changing the goalposts every year, so that investors come in here and don’t know where they stand.
   One thing that troubled me with your interview – and I’m not sure that I picked it up correctly, because it was difficult to understand the minister – is when he started talking about pricing. You can’t go to a mine and say listen, we are open for business, but this is the price you are going to sell it to us at, which is not going to be a world price. I don’t think you can dictate that in today’s world. It is already dictated on the market – I don’t think you can impose those kind of barriers on anybody who wants to open a mine as well. I might be misinterpreting – you’ve got to move away from that kind of regulation and control.

SIKI MGABADELI: Let’s clarify that. Currently in the amendments there is the gate price that the minister was talking about. That was one of the concessions that the Chamber of Mines actually won in the negotiations.
   But he is looking at the developmental price, and he kind of likes that idea, but we’ll have to see what happens.
   Peter Major, you also today focused on how private equity is going to impact on the mining sector. I understand that estimates are something like as much as US$10bn available in private equity to come into the sector, but it’s sitting on the sidelines. Why is that?

PETER MAJOR: Boy, you summed it up. You must have been sitting right next to the panel.

SIKI MGABADELI: Of course I was.

PETER MAJOR: You are spot-on. There is $10bn, and it’s with people who know South Africa, people who’ve worked for Billiton, people who right today own mining companies in South Africa and our risky neighbours next door, like DRC. So very experienced private equity funds. But they are dead honest, right up front. They say: “Our main priority is to our clients, and we have high-profile, very dependent clients, teachers’ unions, pension funds, and we have to show why we are investing everywhere, we have to show exactly how we chose this investment.” So the bottom line was: “It has to be a very competitive rate of return and we are not the Salvation Army and we are not an Aids foundation or charity foundation. We are here seeking returns and we are looking for the cream, we are looking for the deals.” And so yes, the money is there.
   We can learn a lot from them because they say: “We never look at commodity prices, Anybody who brings us an investment that’s dependent on a commodity price going up, we show him out.” They say: “We are old-fashioned investors, like the world has known for hundreds of years. You invest in a mine because they are going to have low costs and they are going to pay a good dividend and they are going to generate free cash at a very low commodity price, which means lower quartile.” And that’s how … were for hundreds of years. That’s how Anglo American, Western Deep Levels, built all their gold mines when gold was $35/oz for 40 years. They didn’t bank on gold going up, they didn’t bank on a weak rand. They banked on innovation, modernisation. So they said: “That’s we are looking for. We know they are out there, we start here, because South Africa has the best ore bodies, the best reserves, very good mining expertise.”
   I think government could learn a lot in writing the rules and regulations. Don’t put in things like super tax, don’t write regulations based on high metal prices, because they are unsustainable. Build you regulations around normalised metal prices, so you don’t have to change them.

SIKI MGABADELI: Thanks to David Shapiro and Peter Major.
   Unfortunately there is not enough time to bring you that interview with Norman Mbazima of Kumba, But we are going to put it on our website where you’ll be able to pick up the sound clips as well as a transcript there.
     Tomorrow lots of very interesting sessions here at the Mining Indaba. In fact, the day starts with “Why Africa – Why now?” I’m very interested in that particular session.
   We’ll also be looking at issues such as the power of mining to transform development in Africa. So if you are keen on mining and you want to hear what potential investors are saying about investing, not only in South Africa but also in other countries on the continent in the mining sector, this is the place to be.
   Also check out our website – lots of Mining Indaba content there.

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