Mining sick: Not business as usual

SHARE   |   Monday, 22 August 2016   |   By Kabelo Adamson
Walter de Wet Walter de Wet

The mining industry cannot afford to continue to run on the basis of business as usual and should adopt interventions that would make the industry to remain afloat in these challenging times. The remarks were made by Nchidzi Mmolawa, Deputy Permanent Secretary in the Ministry of Minerals, Energy and Water Resources (MMEWR) on Thursday during a Mining and Metals Conference organised by Stanbic Bank. Mmolawa said one of the interventions could be hedging production particularly where there are by-products, citing the case of Mupane Gold Mine which he said at its inception hedged gold prices which facilitated the commissioning of the mine.

Further to that Mmolawa said there has to be business renegotiations and cost containment initiatives to align the businesses to the short and long-term forecasts which might include taking difficult decisions to automate and move away from labour intensive practices. With regards to base metals whose prices are currently low Mmolawa - who has a Master’s degree in Minerals Economics – said the base metal sub sector needs to start mechanising and using low cost mining methods. He said the low prices in the base metals have been mainly driven down due to the over-supply from the industry and destocking in the form of reduction in supply will have to take place and that means some of the companies have to fall off and some have to take the pain.

Mmolawa also took time to discuss the challenges in the diamond sector’s beneficiation drive. He said the pipeline from rough to polished diamonds is very long and often exposes diamond dealers to price fluctuations and also excess to funding is more difficult with stringent conditions imposed. The industry, according to the Deputy PS, is also fragmented and volatile prices, pointing that the trend for polished index has been on a downward spiral over the last five years. Laboratory made diamonds, which are referred to as synthetics, are also said to be an emerging threat to the diamond beneficiation. Founding Chief Executive officer of Minerals Development Company Botswana (MDCB) Paul Smith said the mining sector has kind of lost it somewhere along the road, particularly during the share buy-back schemes.

He said in the mining sector started to slow down in early 2000’s and that crashed the balance sheets of several mining companies. Smith said the industry has to be more disciplined and should not produce more than it can significantly consume. Speaking at the conference, Walter de Wet, the Global Head – Commodities Research at Standard Bank said commodity prices in general are very low and expected to remain there for some time before they eventually pick up. He said when prices decline; mining companies tend to increase production to cushion the effects of lower prices but that pushes prices even lower.