Bloomberg, Sep 8, 2016
* 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.
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.
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.
“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.
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.
“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.”
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.
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.”