Calls for the nationalisation of mines in South Africa by Julius Malema, president of the ruling African National Congress (ANC)’s youth wing, have been a subject of much economic controversy.
Although ANC agreed last year to officially debate and consider such a state seizure of mines, it appeared not everybody in the ruling party had received the call with much enthusiasm.
South Africa’s Minister of Mineral Resources Susan Shabangu, who also belonged to ANC, rejected the idea of mining nationalisation as “not an option”, adding that the country would miss out on the commodities boom and exacerbate unemployment.
"Is nationalisation going to give us jobs? No. We have got to make sure that we become responsible and we attract more investments, because we do need investments in South Africa,” Shabangu told reporters at the African Mining Indaba early this year.
"We have a boom in the mining sector. We can't afford to miss this opportunity."
Opposition Democratic Alliance (DA) spokesman Hendrik Schmidt said the state-owned diamond company Alexkor was an example why the country should not take the “destructive” route of nationalisation.
Alexkor, which produced diamonds from marine and land mining operations situated along the West Coast and the Orange River respectively, noted in its 2010 annual report that it had shed jobs for the fifth successive year.
The state-owned diamond miner failed to return to profit between 2005 and 2009 despite being allocated R130 million ($19,5million) in state financial assistance in 2008/09 and R168 million ($25.3 million) in the three years preceding that.
It also recorded an operational loss of R6 million ($904,000) for the year to end-March (2010), a reduction of R20.6 million ($3.1 million) on the loss incurred in 2009.
However, due to non-cash items, including environmental liability, depreciation and the reduction of a post-retirement medical aid liability of R45.1 million ($6.8 million), the operating loss became a net after-tax profit of R36.1 million ($5.4 million).
Schmidt dismissed the profit as “meager”, adding that it would be swallowed immediately by debt repayment on its massive accumulated losses, which stood at R275 million ($41.4 million).
"Indeed, Alexkor's very survival as an entity appears to be at stake. In an independent audit report from auditing firm PWC, included in this year's (2010) annual report, auditors note that unless particular measures are taken urgently, there is significant doubt about the ability of the company to continue as a going concern in the longer term," Schmidt was quoted as saying by local media.
"The only conclusion one can arrive at, after reviewing Alexkor's disastrous record, is that further state intervention in this sector needs to be avoided at all costs."
Although, the DA had no kind words for the state-diamond miner, its chief executive Khetiwe McClain-Maseko appeared putting on a brave face.
She said Alexkor had plans to explore deep sea, middle sea, shallow water, beach and other land mining opportunities.
The company’s mining operations were currently conducted by small, locally based contracting mining companies.
Marine mining operations, she said, were contracted to 27 mining companies, with a total of 67 production units.
The Orange River land mining operations were contracted to two small mining companies, she said.
McClain-Maseko said all the diamonds were sold on tender at the Johannesburg Diamond Exchange with the proceeds of the diamonds shared between Alexkor and the contractors.
In 2010 Axekor’s total production increased by 28 percent, from 26,059 carats in the 2009 financial year to 33,363 carats in 2010, she said.
The average stone size remained 0.56 carats per stone.
McClain-Maseko said production from the marine area amounted to 26,050 carats, against a target of 19,800 carats, while the average stone size produced by the marine section was 0.5 carats per stone.
The marine section produced 78 percent of the total carats realised, she said.
McClain-Maseko also noted that the mainland operations produced 6,169 carats in the same year against a target of 4,600 carats while the average stone size produced from this area was 1.06 carats per stone.
Alexkor’s boss blamed the recent poor financial results to the global financial crisis, which saw the diamond market and prices declining from September 2008 until about June 2009.
“The average diamond price during this period declined from about $1,350 per carat to $292 per carat,” she said.
She said the company’s average diamond price however increased from $292 per carat in June 2009 to $1,050 per carat in January 2010 due to drastic measures taken by larger producers like De Beers and Alrosa to stabilise the market and the diamond price.
Although, Alexkor had been trying to paint a cosy picture, it was clear that the company had been struggling to make profits despite financial injections from the state.
It was no doubt the continued failure to turn around the fortunes of the state-diamond firm would be used as a yard-stick to measure the success (or lack of it) of state-controlled mining firms.
For now the results are very much against the nationalisation of mines.
Mathew Nyaungwa, Rough&Polished
