Let’s use coal to power up empowerment

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Mineral Resources Minister Gwede Mantashe has thrown two challenges at the mining industry recently. The first was a general call to all sectors of mining to facilitate the entry of young black entrepreneurs who are prepared work hard to create value. Speaking at the opening of Khanye Colliery late last year, Mantashe said South Africa’s mining needed more, not a few black millionaires. I could not help but agree quietly as he lectured about the importance of diversifying ownership of the South African economy.

Mantashe made another call specifically to the coal mining sector in January in Cape Town this year. He said the industry needed to respond factually to the negativity about coal. He was concerned that if left unchallenged some false pronouncements by lobby groups could become universal truths. Once again, he hit the nail in the head.

The two calls by Mantashe clearly summarize what are among the biggest challenges facing mining in South Africa. Coming from a mineral resources minister, these remarks cannot be dismissed especially because he has committed to play his part in growing the industry and fostering positive investor sentiments. He is an ally, not an enemy of mining.

So, what can we do as an industry with the challenge thrown at us?

On the entry of young black entrepreneurs in the sector, many mining companies have focused on getting their black economic empowerment credentials right from a compliance point of view. Indeed, many are empowered. That, in itself, is a huge achievement given the ugly economic history of our country when it comes to race relations.

Some of the deals could have been structured better to yield value for empowerment players. Empowerment policies could be facing less criticism had empowerment deals been structured in such a way that many black people actually became entrepreneurs.

Industry leaders must not rest on their laurels when it comes to empowerment. They must continuously work on ensuring that empowerment policies are instruments for inclusive growth in reality. It is largely accepted that the more wealth is shared in a way that there isn’t a single dominant wealthy group – racial or otherwise – there more likely society will be stable.

One of the strategies companies could adopt is that beyond the legislated empowerment targets, they could give young people, who already have some knowledge and experience in different specialties of mining, small stakes in new projects and restructured entities.

Multiplication of a few stakes could become solid portfolios in the long run. Another advantage of this strategy is that it could be relatively easy and less risky to vendor-finance small stakes than big ones. This is crucial because access to finance is often the biggest barrier to entry, and could be the reason why big companies prefer to do deals with established empowerment players who, owing to their prominent names, get access to finance. Over time, we should see more experienced black people organically growing their shareholding in mining and managing their businesses.

In the coal sector, it should be relatively easier to introduce junior black miners. For example, Eskom implemented a good procurement programme for the benefit of junior miners. However, it could have been better managed to avoid accusations that it was responsible for pushing up the costs of coal procurement.

Besides Eskom, there is an export avenue that could lift black junior miners. Big companies with bigger share at the Richards Bay Coal Terminal should grow their support to small miners to boost their exports earnings especially when international commodity prices show an upswing. But the big opportunities to make a significant contribution to black economic empowerment in an inclusive way is when big companies restructure or sell some of their assets. Such opportunities arose in the past and may once again emerge in future.

On the second challenge posed by Mantashe regarding the negativity about coal, the coal sector can do better by not only strictly complying with environmental laws, but also making it publicly known how they subscribe to the regulatory prescripts. Of course, regulations have to be sound enough to incentivize investments and create jobs.

The mining industry can also do better by making sure one or two cases of noncompliance does not tarnish the entire mining industry in the eyes of the public. We should also follow international compliance standards as pioneered by organisations like BetterCoal, a global body that promotes responsible mining and ethical sourcing of coal.

 It’s important that we regain public trust where it had been lost and earn it where it doesn’t exist. As Mantashe remarked at the coal conference, there is no mining that doesn’t harm the environment one way or the other. What is important, however, is to make sure that the economic, social and other benefits of mining outweigh the negative?

When coal companies craft and implement social labour plans, consult meaningfully with communities, creating jobs for local communities and are generally good corporate citizens, it will soon become apparent that the coal industry is a national treasure. Coal will remain our primary source of energy for many years. While we mine it, let it be a boon and not a cause for concern regarding wealth distribution and the environment.

 

Rudzani Mudogwa is a director at Sibambene Coal and Kalyana Resources. He is also an environmental management specialist.