Currently, South African mining news has been dominated by the unresolved and ongoing strike in the platinum sector, forming a negative perception of the country’s mining industry. Warren Beech, partner and head of mining at Hogan Lovells discusses the impact of the strike on the country.

This year alone, the industry has been pitched against numerous challenges, not the least of which are the ongoing strikes. “Infrastructure challenges, the regulatory challenges and the constant changes on the regulatory side, and of course the slowdown – whether realistically or perceived – of the investment out of China particularly in the South African market… These challenges are ongoing, it’s impacting on the mining industry,” says Beech.

It’s not just impacting the industry itself, however. Beech has noticed a knock-on effect on parallel communities, demonstrating how South Africans as a whole are being impacted. “The usual hustle and bustle that you see in the North West mining communities is gone. The food vendors that supply people on their way to work are quiet. The little spaza shops are quiet. So that entire parallel community industry is quiet.

“And that’s where you see the reality of where the strike component is impacting on industry – it’s terribly, terribly sad that we’ve got to that point. It’s not just the individual miners that are not receiving their money. The theory is that every single mineworker can support up to ten people, and that’s also where we’re seeing the impact. Over 100 days of the strike and those parallel communities are being impacted,” he adds.

Police and army presence have returned to those communities again, as protests and road blocks start flaring up, as law enforcement aims to maintain peace, with the memory of the 2012 Marikana tragedy still haunting the mining industry. “It’s terribly, terribly sad from that perspective,” says Beech.

If the impact is so dramatic, however, then why is the strike dragging out for so long?

After a debate with Association of Mineworkers and Construction Union (Amcu) President Joseph Mathunjwa, Beech provides some insight that may answer that question. “In one of his responses to one of my questions, he said to me ‘but why, Warren, is the share price not being impacted? Why is the platinum price not going up? The stockpiles must be gone. Why is the demand locally and globally not driving a resolution to the strike?’

“And that for me gave some insight into what Amcu’s thinking was: keep the strike going, deplete the stockpiles, drive up the platinum prices, and get local and international demand pressure on the mining companies to accept the R12 500 per month number. This is the thinking and this is the dynamic unfortunately which the industry is facing at the moment.”

On an international level, however, Beech believes that turbulence in South Africa’s mining industry is driving investors away. “What we’ve particularly seen over the last two years is a level of extreme caution from the traditional investors, which is now creeping in to the typical Chinese investors as well.”

This is evidenced in the different types of questions that investors have begun asking. “Typically, two years ago, investors asked: have you got a mine, how much is it, and when can I get it? Those questions have changed now: tell me about empowerment, I’m committed to it but tell me how to do it. Environmentally, I know there are a lot of things I’m meant to comply with – tell me how that’s going to impact on me. And finally, how am I going to protect my investment? Look at the labour situation, look at the regulatory situation, and tell me how I can protect my investment.

This change, particularly from the international perspective, demonstrates the significant impact on the South African mining industry, Beech concludes. “Business rescue has unfortunately become a reality. There are many positives that can come out of a business rescue: it’s a structured environment that gives an opportunity to an objective third party to see if it is viable and if it can be rescued. But we need to focus on whether the mining industry, with its unique set of challenges, is a good environment for business rescue.”

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