5
08.13
MODERN
M I N I N G
Cover
Volvo F-series articulated
dump trucks (ADTs) in action.
As we report on page 20,
Volvo ADTs, marketed and
supported by Babcock, have
made big inroads into the
Southern African market.
Publisher
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Editor
Arthur Tassell
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W
ith the first anniver-
sary of the Marika-
na tragedy upon us,
I considered devoting my column this month
to the state of the platinum industry one year
on from the incident. But I notice the pages
of newspapers and websites are awash with
comment on Marikana and I’m not sure I can
add anything useful to what has already been
said. So instead I’m going to give readers a
summary of a very thought-provoking presen-
tation which Gold Fields CEO Nick Holland
delivered at the Gordon Institute of Business
Studies in Johannesburg in mid-August.
Holland’s presentation was on ‘Resource
Nationalism’ and was sub-titled ‘How to grow,
not shrink, the pie’. He said he would be mak-
ing the same presentation at the Down Under
conference in Australia (which will have been
held by the time this magazine is in print), and
also at two events in September – the Perumin
Mining Convention in Peru and a World Gold
Council meeting in Denver, Colorado. As he
said, “we’re going to be doing this around the
world to spark as much interest and debate as
we can.”
Holland argued that resource nationalism
– which he defined as the efforts by govern-
ments to extract maximum value and devel-
opmental impact from finite natural resources
on behalf of their citizens – was an entirely
rational philosophy. He went further, saying
that not only was it a legitimate policy but one
which governments were almost duty bound
to pursue.
If resource nationalism is in fact a rational
philosophy, why then do so many people –
particularly mining investors – object to it? In
attempting to answer this question, Holland
referred to a ‘disconnect’ between the various
parties to the debate. “We have to try and ex-
plore this disconnect,” he told his audience.
“And what we believe is the problem here is
that we’re focusing on the wrong pie. We’re
focusing on a pie that is made up of mining
profits, where everybody wants to have a big-
ger slice of a declining pie. Because that’s what
you see every day when you pick up the news-
papers. Mining profits. Look at how much
money these guys are making. We need to get
more of it.
“So when you’ve got more and more people
trying to get a bigger piece of this pie, then
you find that the pie gets smaller. Instead we
should be focusing on growing a different pie,
which is the mining resources economy. And
that pie can help fuel growth in the overall
world economy.”
Holland made the point that the mining in-
dustry had to shoulder much of the blame for
the ‘disconnect’ by talking up its profits. As he
said, “we stand on podiums around the world
telling people how much operating profit we
make and how low our cash costs are. And
then we don’t make any cash. And you say,
where is all the money? All the money has in
fact been capitalised. Over the years we have
just capitalised more and more so that we can
make the balance sheet look better, so that we
can borrow more from the banks.”
According to Holland, the inflation of profit
figures by the industry resulted in govern-
ments – quite reasonably – targeting the large-
ly illusory ‘profits pie’. Illustrating just how
tight margins were in the mining industry, he
said “Let’s take a mine that operates continu-
ously. It operates for 30 days in the month. For
the first 27 days that mine is working for every-
body. It is working for paying the employees,
it is working for paying the suppliers, it is pay-
ing the tax man royalties and taxes. It is only
in the last three days where the owners of the
mine, the investors who have put up all the
risk capital, make money – amid the vagaries
of the gold price markets, long lead times and
delays in projects.”
Holland suggested that the industry needed
to start reporting its true costs, using the con-
cept of notional cost expenditure or all-in
costs, as advocated by Gold Fields. “Eventu-
ally now people are starting to listen,” he said.
“And finally we’ve got the World Gold Coun-
cil, which represents around 16 gold compa-
nies and about 50 % of the gold industry, to
redefine their cost statement. … it is essential
that we start reporting what it really costs us to
produce an ounce of gold, a pound of copper
or a ton of coal.”
The true all-in cost of gold production was
currently about US$1 500 per ounce, said Hol-
land. “As of today, gold is US$1 300 and the
gold industry is under water.”
Holland said that once everyone accepted
that the profits pie was largely non-existent,
attention could be given to the real task at
hand – growing the mining sector to satisfy the
demands of both mining investors and govern-
ments seeking to maximise benefits to their
peoples. “If we can grow the mining economy,
we’re going to grow the global economy,” he
said. “ We’re going to create jobs and we’re go-
ing to improve everybody’s lives and put more
money into everybody’s pockets, the fiscus,
our employees, our shareholders and our com-
munities. A win-win pie is what we’re looking
to achieve.”
Illustrating what can be achieved when all
stakeholders collaborate in growing a coun-
try’s mining sector rather than focusing on
the ‘wrong pie’, Holland pointed to the suc-
cess achieved in mining nations such as Peru,
Botswana (where the partnership between the
government and De Beers has resulted in de-
cades of robust growth) and Zambia (where
copper mining is now resurgent).
In the space I have available here, I have
probably not been able to do justice to Hol-
land’s carefully crafted presentation. I recom-
mend that readers go through it themselves – it
can be downloaded from the Gold Fields web-
site at
Arthur Tassell
Resource nationalism
is it a rational policy?
