Tag Archives: Aging

Deeper Gets Deadly for Workers in Aging South Africa Gold Mines

Bloomberg, Sep 8, 2016

deep_underground_mining

* Fatalities up 20%, first rise since 2008, most in two decades
* Mine shutdowns ruffle industry that sees regulator overreach

Finding minerals in South Africa after more than a century of digging often means going deeper than ever before. Now, it’s also becoming deadlier.

In a country that remains one of the biggest producers of gold, platinum and diamonds, 60 mining deaths this year through August was 20 percent higher than the same period in 2015, according to the Chamber of Mines, an industry group. The annual tally is heading for its first increase in nine years and the biggest in at least two decades, escalating concerns by both workers and mining executives.

Many of those killed labored in the searing heat of gold mines that can be more than two miles under ground and traditionally are among the most deadly in South Africa. Various causes have been cited, from falling rock to miners failing to obey safety protocols. But in all cases, that means losses for producers when they are forced to shut mines until government investigations are completed.

“You would expect the response from the regulator would be a strong one, and that’s what we are seeing,” said Srinivasan Venkatakrishnan, the chief executive officer at AngloGold Ashanti Ltd., South Africa’s biggest producer of the metal.

Mineral Resources Minister Mosebenzi Zwane has expressed concern about the industry’s poor safety performance this year and urged companies to step up their efforts, especially because injuries and deaths tend to increase in the second half of the year when there are more work days and higher output. Zwane said on July 14 that his department will investigate the surge in fatalities, which had been dropping over the previous two decades.

Dangerous Work

Since 1994, when South Africa held its first democratic elections after more than a century of whites-only rule, the number of deaths has plummeted by more than 90 percent, with the fewest ever last year at 77, the data show. That reflects improved safety measures and a contraction in the industry’s labor force. During the latter years of apartheid, miners were killed at an average rate of about 800 a year, according to the Department of Mineral Resources.

But with the tally rising again this year, that means increased profit risk for companies as shutdowns become more frequent and costly.

When accidents occur, the Department of Mineral Resources can shut down the affected area or even an entire mine while it investigates. AngloGold and Sibanye Gold Ltd., the country’s biggest producers, weren’t able to extract about $112 million of bullion in the first half of the year due to closures after accidents, while Anglo American Platinum Ltd. couldn’t mine about $33 million of metal, the companies reported.

Costly Shutdowns

“It’s very difficult to shut these assets down in a hard stop,” said Richard Hatch, a London-based mining analyst at RBC Capital Markets. “In some cases, hundreds if not thousands of people need to be removed from a mine, then retrained. Heavy equipment takes time to start back up. Mistakes can be made which increases the risk of more accidents.”

Shares of AngloGold, the world’s third-largest gold producer, have dropped 9.3 percent since Aug. 15, when the company told investors of its three fatalities and 77 safety stoppages in the first half. Over that same period, the precious metal was little changed. Sibanye, which had eight fatalities in the period compared with four the previous year, has declined 19 percent since its results were posted on Aug. 25.

Most fatalities occur in South Africa’s gold mines, which are the deepest on Earth. After the precious metal was discovered in 1886, the country quickly became the biggest producer until 2007. As ore grades declined, so has output, which ranked sixth in the world last year at 168 metric tons, according to the World Gold Council. At its peak, it mined 1,000 tons in 1970.

Going Deeper

With reserves depleted, mining companies have chosen to dig deeper, which can mean more risk. AngloGold’s Mponeng is the world’s deepest mine, extracting gold from 3.9 kilometers (2.4 miles) below ground, equivalent to the height of almost nine Empire State Buildings.

Within a 50 kilometer stretch of the N12 highway west of Johannesburg, there are five other mines — Tau Tona, Driefontein, Kloof, South Deep and Kusasalethu — producing from at least 3 kilometers below the surface. Rock temperatures can reach 60 degrees Celsius (140 degrees Fahrenheit), enough to fry an egg.

At that depth, there is higher risk of mini earthquakes and rockfalls. It also takes longer to bring an injured person to the surface. Two people were killed at AngloGold’s Tau Tona in the first half, which the company attributed to a seismic event.

The industry and government have taken steps to improve safety, including more training, tighter regulations and new equipment such as nets to catch falling rocks.

Safety Signals

“Mines have made huge strides over the last few years in improving safety,” said Andrew Lapping, the chief investment officer at Cape Town-based Allan Gray Ltd., which manages about $34 billion. “Safety and productivity are heavily correlated in mining. A well-run operation is probably going to be a safe one.”

While everyone agrees that many of the government-imposed shutdowns were warranted, some executives say the regulators are being heavy handed in cases where entire mine operations have been halted. Stoppages “should be better targeted at the offending area rather than bringing a large underground mine to a standstill for a protracted period of time,” AngloGold’s Venkatakrishnan said.

Christopher Griffith, the chief executive officer of Anglo American Platinum, the world’s biggest producer of the metal, said last month that the department’s decisions on when to issue full-closure notices are often inconsistent.

Such comments prompted an angry response from the government. In an Aug. 23 statement, the Department of Mineral Resources blasted the companies for “appalling behavior” at a time when more miners are dying at work. “Health and safety in the mining sector under the democratic government is non-negotiable,” the agency said. “These are human lives.”

Various Causes

The evidence so far doesn’t point to any dominant reason for the accidents, or one major corporate culprit. Rock falls killed workers at Sibanye and Impala Platinum Ltd. mines, while Anglo Platinum blamed a “winch-related incident” on two deaths on April 26. Winches haul rock and people to the surface.

South African companies have been cutting costs to stay afloat as output drops. While executives say those reductions don’t compromise safety, union leaders say risks have increased.

“When there’s restructuring, there’s uncertainty, and uncertainty results in people losing focus,” said Eric Gcilitshana, head of safety at the National Union of Mineworkers, which represents about 195,000 miners. “Companies are committed to producing more with less, forcing employees to take shortcuts.”

AngloGold’s Venkatakrishnan denies any loss of focus on safety, which he said has a bigger impact on a mine manager’s bonus than productivity. A fatality can mean reduced compensation for the manager, he said.

More Training

Part of the problem may be that mines are employing younger workers with less experience and therefore a higher appetite for risk, which may mean they need better training, according to Sibanye CEO Neal Froneman.

“I’m not blaming anyone, I’m saying this is a new paradigm we need to understand better,” Froneman said. “The younger generation asks why we do things a lot more. They want to be more participative in decision making. That’s a good thing, but we need to change some of our behaviors as managers to incorporate that.”

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Global Inflation Mystery Risks Making Central Bankers Bystanders

Bloomberg, May 20, 2015

Federal Reserve Chair Janet YellenFederal Reserve Chair Janet Yellen.

Janet Yellen’s Federal Reserve is “reasonably confident” it can drive up consumer prices. Mario Draghi says his European Central Bank’s stimulus has already “proven so far to be potent.” The Bank of England reckons inflation is “likely to return” to its target within two years.

While not quite declarations of victory, such statements show policy makers’ optimism that record-low interest rates and bond-buying will be enough to return inflation to the 2 percent range most of them eye.

Yet, central banks have repeatedly overestimated inflation since the middle of 2011, according to Marvin Barth, head of European foreign-exchange strategy at Barclays Plc in London. To him, a mounting concern is that about a third of the decade-long decline in worldwide inflation is potentially inexplicable.

If he’s right then what he calls “global missingflation” threatens the ability of Yellen and company to push up prices and raises questions over whether they will ever be able to declare mission accomplished and truly end their use of easy stimulus.

“‘Global missingflation’ likely will keep central banks nervous and should give pause to those who think downside risks to inflation are no longer a risk,” Barth, a former U.S. Treasury official, said in a report to clients on Wednesday. “It also should instill greater caution in market participants who think that ‘lowflation’ or deflation are receding risks.”

27 Economies

To make his case, Barth studied 27 economies to identify why consumer prices outside of food and energy dropped 0.46 percentage point in industrial nations in the decade up to December 2014 and 0.74 percentage point in emerging markets.

Once he allowed for traditional drivers of prices such as demand or productivity, he found 35 percent of the slide in global inflation hard to pin down. Among the possible reasons could be deleveraging, technological progress, globalization, aging populations or China’s deflationary impulse.

Whatever the explanation, the inflation puzzle is a reason for central banks to worry about the power of policy and may leave them reliant on factors over which they have less control such as commodities, currencies or wages to propel prices.

Worse still is the risk that financial markets and the public lose faith in policy makers to control inflation. The inflation expectations of both over the next five years may start to suggest such doubts.

Sweden Rates

It could be that the “missingflation” fades or that monetary policy still works and just needs to be deployed even more aggressively, said Barth. In Sweden, for example, the recent use of negative interest rates has boosted inflation expectations.

The current environment nevertheless means that at the very least, the Fed and its counterparts will want clear evidence of sustained inflation before they push interest rates higher, he said.

But what if central banks can no longer manage inflation? In that case policy makers will need to keep their unconventional policies for longer, injecting volatility into markets and leaving investors charging more to accept risk.

“Rather than masters of inflation, central banks begin to look like passive bystanders in the process,” said Barth.

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Big Oil’s Latest Fear: A Price Shock After Spending Cuts

Bloomberg, Apr 22, 2015

The Collapse in Crude PricesA red control wheel sits near pumping units at an oil plant in Uhrice, Czech Republic. The collapse in crude prices has been so steep and so dramatic that most of the 200 major international oil and gas projects scheduled for final investment approvals in the next two years are susceptible to cancellation or postponement, said Nick Lowes, vice president of oil and gas consulting at IHS Inc.

As the oil patch grows accustomed to a new world of $50 to $60 crude, it’s now looking ahead to a different but equally daunting sort of cliff.

Oil companies are warning there will be a price to pay — a much higher price — for all the cost cutting being done today to cope with the collapse in the crude market. Big projects intended to start pumping oil and natural gas 5 to 10 years from now are being canceled or put on hold as the price crash forced $114 billion in spending cuts on the industry.

Energy giants from Exxon Mobil Corp. to Royal Dutch Shell say they’re taking a much more cautious approach to approving projects that cost billions and take years to complete. That’s setting the table for a future oil-price shock when a growing world population drives higher demand, said oil executives and financiers at the IHS CeraWeek Energy Conference in Houston.

“What we decide today will have an effect on the future,” Patrick Pouyanne, chief executive officer of Total SA said Tuesday during the event. Postponing spending on mega-projects that usually deliver significant quantities of oil or gas “will have an impact. This could affect supply in three or four years.”

Demand has already begun to show signs of strength. The Paris-based International Energy Agency last week raised its forecast for 2015 demand, projecting that the world will consume 94.7 million barrels a day of crude in the fourth quarter, a potential increase of almost 1 million barrels over the same period in 2014.

Shale Output

U.S. output in shale formations is expected to fall as soon as next month, according to the U.S. Energy Information Administration. Oil production decreases due to spending cuts and decline from aging fields, combined with demand growth, are likely to push prices higher in the next six months to two years, said Ralph Eads, vice chairman and global head of energy investment banking at Jefferies Group Inc.

“I don’t see how the market isn’t going to be in an undersupplied position,” Eads said in an interview. “If you look around the world, where’s the deliverability going to come from? That’s the head scratcher. You just don’t know. It’s hard to make the math add up.”

Eads, who as a deal-maker helped give rise to the shale age, is among many in the industry who have begun to point to a growing risk of diminishing spare capacity, the amount by which existing wells can increase global output if pumped at full speed.

Meeting Disruptions

It’s a closely watched figure in oil markets because it represents how much supply can be turned up to meet disruptions or demand increases. Continued Saudi production increases may “significantly” reduce spare capacity “at a time when oil markets will be tighter and geopolitical risks to supply are growing,” Pira Energy Group wrote April 14.

Not everyone is anticipating higher prices soon. BP Plc CEO Bob Dudley and Exxon Chairman and CEO Rex Tillerson said Tuesday that they see oil staying lower for years into the future. Dudley said “lower for longer” has become the company’s mantra.

Elsewhere, crude traders and hedge funds are beginning to see oil turn a corner. Prices can’t drop below $50 for sustained periods because that’s below the cost of supply, Ian Taylor, the CEO of Vitol Group, the world’s largest independent crude trader, said in an interview at the FT Commodities Global Summit in Lausanne, Switzerland on Tuesday. Andy Hall, CEO of commodities hedge fund Astenbeck Capital Management LLC, has also told investors that prices can’t stay low for long.

Outside OPEC

Beyond demand, supply outside of OPEC is one of the most important reasons for that. The collapse in crude prices has been so steep and so dramatic that most of the 200 major international oil and gas projects scheduled for final investment approvals in the next two years are susceptible to cancellation or postponement, said Nick Lowes, vice president of oil and gas consulting at IHS Inc. Sixty-six percent of those projects aren’t economical at current prices, he said.

In the long term, as further industrialization takes hold around the world and the global population swells to about 9 billion, energy consumption is expected to surge more than 50 percent in the next 20 years, according to BP.

Outside of some producing countries that limit access to their reserves, the industry has failed in recent years to find enough oil to replace lost production. Last year, the companies only struck enough oil for about 50 days of global consumption, said Tim Dodson, the executive vice president for exploration at Statoil ASA.

“The industry is struggling big-time to replace their oil resources and reserves,” Dodson said.

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