Mining disruptions will destabilise SA’s economy

September 13, 2012


 

 

By Humphrey Borkum, Chairman of JSE Limited

 

When I was a young man on the JSE in the late sixties I had a friend who nagged me for weeks to buy Rustenburg Platinum at 22cents a share. Unfortunately I resisted his siren call. 

 Now, with platinum consistently trading at over a $1500 (approx R12 000) an ounce, the strike, deaths and injuries at Lonmin’s Marikana mine in Rustenburg have brought to a head simmering unrest and tensions within our mining industry as a whole and the platinum industry in particular. I believe the political, sociological and psychological effects of this tragedy are going to be felt for many years to come. 

Mining has played a pivitol role in the industrial development of South Africa. For much of the twentieth century it was gold that formed the backbone of the economy. In the last couple of decades with gold output declining, platinum, with its powerful catalytic properties, has been the rock on which we were building much of our mining future. South Africa has over 80% of the world’s platinum reserves.

Platinum was introduced to Western civilisation in the 17th century when Spanish conquerors considered it a waste product of gold mining in Columbia. They named the mysterious grey white matter ‘platina’ meaning little silver.

The history of platinum mining in South Africa began with the name of Hans Merensky, a German educated geologist who in 1924 discovered a saucer shaped ore bearing reef later to be named after him. This reef contained the largest reserves of platinum ever discovered and ran through South Africa’s bushveld region spanning our North West, Limpopo and Mphumalanga provinces.

It soon became evident that the best of these platinum bearing ores were in the Rustenburg region. After many mergers and takeovers three major companies have emerged as responsible for mining most of the platinum in SA . These are Anglo Platinum, Impala Platinum and Lonmin. All three are listed on the JSE and the first two are in our FTSE/JSE Top 40 Index. 

The events at Marikana make it quite clear that there will have to be a paradigm shift in the thinking and actions of the police force, all sectors of the mining industry plus the three tiers of government administering the mining areas.  Most important is that armed confrontation of this nature never happens again. Going forward there are any number of issues that have to be resolved and the findings of the judicial commission headed by Judge Ian Farlam will hold great implications for the mining future of our country.

I believe an important change that will have to be speedily implemented is the labour legislation which at present almost encourages the unions to fight with each other. This must be amended so that the mining company can be formally directed to sit around a table and talk to all unions on the mine – not only the one that is recognised with over 50% of the workers.

I am also of the opinion that illegal strikes are not in the miners’ long term interest. Firstly the narrow platinum reefs often make mechanical drilling more effective than hand-held rock drilling machines. More mechanisation reduces the number of miners needed at the rock face thus leading to retrenchments. Retrenchments can only be offset if new platinum mining ventures come on stream. Although considerable reserves of platinum still exist in SA, illegal and militant strikes will scare off the local and foreign investment needed to develop new mining ventures. This would be a lose-lose situation for everyone.

With all these challenges facing the mining industry at least South Africa’s financial sector can hold its head up high. The latest World Economic Forum Global Competitiveness Report shows that for the third year in a row the JSE was once again placed first in terms of market regulation and we are number two in the protection of minority shareholders’ interests. We have moved up to number three in financing through local equity market (from number four last year and number seven in 2010). Also pleasing is that in the soundness of our banks SA remains at number two.

Our highly regarded accountancy firms repeated their first place in strength of auditing and reporting standards and the efficacy of our corporate boards was also rated number one.

There were, of course, negative areas in this report which ranks South Africa in a universe of 144 countries. These include being rated 134 for the business cost of crime and violence, 143 for tuberculosis cases, 140 in the quality of the educational system and 143 for the quality of maths and science education. The burden of government regulation came in at 123.

My congratulations to all concerned in our world class financial sector including the financial departments in government.  Here, however, I would like to emphasise that most of the mining companies in SA are also world class and they must be encouraged to stay the course in our country at all costs.  The consequences of continuous disruption to production will be disastrous for employment and the on-going stability of the economy.       

Interim Results

When I came to signing off the JSE’s interim results to the end of June I mused on how for most of its existence the JSE only had one product – equities. Now it has nine operating revenue streams and the equity market contributed 29% of income. 

With regard to these results I would point out that although the JSE All Share Index  has been reaching new highs there was a slowdown in equity trading volume which resulted in a revenue growth of 2% to R682 million (2011 – R667.9 million).  Operating costs increased 34% primarily due to problems with the JSE’s Systems Replacement Project (SRP).  Our best performing division was Data Sales which grew 16% as new professional clients around the world subscribed to JSE data terminals.

I remember when orders were received from stockbrokers by telephone, then the big leap forward to the fax machine. Now the JSE is riding an ‘electronic beast’ and it is my experience that with most IT installations you have your highs and lows.

Our ‘high’ on the IT front was the recent successful move of our equity trading platform Millennium Exchange from London, where it had been situated for the last 10 years, back to Johannesburg.  Speed is the name of the game as globally the exchange industry competes with the rapid rise of automated trading. The move not only increased our speed 400 fold but also enhanced service stability and availability. This seamless migration was only made possible after extensive testing and consultation with our stakeholders. 

I’m informed that the average smartphone now has more computing power than Apollo11  when it put Neil Armstrong on the moon in 1969.  In this regard I’m sure the techno boffs will be chuffed that the JSE has embraced a new development in electronic communication from our international Index partner FTSE.  Investors can now download the new FTSE App directly from the Apple AppStore onto their iPhones.  The FTSE iPhone application puts real time values for over 60 global indices including the FTSE/JSE Top 40 Index at your fingertips.

In addition the FTSE App provides you with customisable alerts that instantly notify you of major market movements and you can see the latest gainers and losers at a glance. You can also view index performance over a variety of time periods from one day to two years. For further information contact the JSE at 011- 5207000 or e-mail ipsclients@jse.co.za.

This article first appeared in Business Report