Mining companies: victims or villains?

Mining companies are facing escalating production costs and weak commodity prices, which have eaten into the mining industry's profits. Photo: Finweek

Africa’s mining industry is caught between a rock and a hard place. It’s rarely been under greater scrutiny and it’s rarely faced a tougher existential crisis.

The world’s mining behemoths are being buffeted by escalating demands from unions and lobby groups, on the one hand, and the vagaries of the global commodities cycle, on the other. Not to mention a policy environment that has often proved confounding.

“As commodity prices continue to hit historically low levels, mining companies are struggling to recalibrate. It doesn’t help that the industry faces a host of unresolved challenges – from tumbling demand and declining grades to mounting stakeholder expectations and a lack of financing,” consultancy firm Deloitte wrote in a recent report.

Those expectations were on bloody display on 16 August 2012, when South African police gunned down 34 miners who had embarked on a wildcat strike at platinum miner Lonmin in Marikana, Rustenburg, in the country’s North West Province.

The incident followed a week-long stand-off between management and workers affiliated to the newly formed Association of Mineworkers and Construction Union (AMCU), which was founded amid growing dissatisfaction with the National Union of Mineworkers (NUM) an organisation founded in 1982 at the height of apartheid.

The killings became widely known as the Marikana massacre and raised uncomfortable questions about whether the mining industry had shed its apartheid mantel, 18 years after the advent of democracy in South Africa.

The rest of the region is not faring much better in the post-colonial era, says researcher Claude Kabemba. The end of the Cold War and the demise of communism prompted a wave of democratisation across the continent. With that came privatisation, which of itself wasn’t bad.

“The biggest problem with privatisation is that it has created enclave economies. Companies are reluctant to beneficiate minerals on the continent, preferring to export the raw materials and add value elsewhere”

Mining output jumped tenfold in Zambia between the late 1990s and 2014, Kabemba says. In the DRC production tripled over the same period. “But many countries – including the DRC and Zambia – were misled into thinking that the foreign purchase of existing capital goods was the same as foreign direct investment,” Kabemba writes in a 2014 report for the Open Society Initiative for Southern Africa.

“In reality, many investors who bought into the mining sector were solely interested in asset stripping the mines, not wealth and job creation. And the result – in the long run, the countries, especially the DRC, became poorer.

“The biggest problem with privatisation is that it has created enclave economies. Companies are reluctant to beneficiate minerals on the continent, preferring to export the raw materials and add value elsewhere. Across Africa, mining economies are not really linked to the broader local economies. Equally, because of increased automation in the mining sector, it is unable to contribute significantly to job creation.”

Kabemba’s analysis emphasises the intractable dilemma facing investors, policymakers and communities alike: how to create a business environment that spreads the benefits equally. Everyone understands the depth of the quandary, but solutions appear harder to come by.

Even Africa’s most sophisticated economy has yet to come to grips with mining’s complex past. Mining boss Neal Froneman admitted as much earlier in October. “We need to critically and honestly acknowledge the role of our industry where it acted against the interests of the vast majority of South Africans if we wish to secure full reconciliation with our broader society,” said Froneman, the CEO of Sibanye Gold and deputy chairman of the Chamber of Mines.  

But mines still have an awful lot of convincing to do. Four years after Marikana, Lonmin has remained in the news for failing to live up to promises made to workers. In August rights group Amnesty International released a report titled Smoke and Mirrors: Lonmin’s Failure, which criticised the global miner for not delivering houses for its employees.

In recent years the South African mining industry has also faced off with workers in a number of legal battles, including a class action suit in which workers with the deadly lung disease silicosis want to sue companies for allowing them to work in a toxic environment.

“I think the mining industry’s response has been totally inadequate. Some have done more than others,” said economics professor Francis Wilson from the University of Cape Town.

“They’ve provided family housing, they’ve provided a living-out allowance. But given the way the system was embedded, the response since 1994 has been far from adequate.” 

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