Tag Archives: South Africa

Deeper Gets Deadly for Workers in Aging South Africa Gold Mines

Bloomberg, Sep 8, 2016

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* 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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Africa’s top 4 economies are in trouble

CNN Money, Apr 15, 2016

angola africa market economy
Angola has been struggling to repay its debts as oil prices have crashed.

Growth in Africa has outpaced most emerging markets in recent years, but that’s changing fast as a slew of problems beset its leading economies.

Cheap oil, political uncertainty and weak banks are all to blame.

Here’s what you need to know about sub-Saharan Africa’s big four:

South Africa

The prospects for Africa’s most advanced economy are not looking good. The country is set to grow by just 0.6% this year, according to the International Monetary Fund. It’s one of the slowest growing countries in one of the world’s fastest growing territories.

The rand plummeted 30% last year, and not just because of an emerging market sell-off. Political turmoil has also had a big impact.

Just this month, South African President Jacob Zuma survived impeachment despite the highest court in the land finding him guilty of breaching the constitution over how public money was spent renovating his home. Well known figures from the anti-apartheid struggle are now calling for Zuma to step down.

Chaos in government isn’t helping either. Zuma stunned investors by replacing Finance Minister Pravin Gordhan with a little known politician, only to backtrack and ask Gordhan to return to the post to stop the rand’s freefall.

The rand has steadied this year, rallying by about 7%. It’s been helped by a broader rally in markets driven by rising commodity prices. As a platinum, gold and coal producer, South Africa is sensitive to shifts in the commodity cycle.

But the country is not out of the woods yet. It’s on the brink of a ratings downgrade that would plunge its sovereign debt into junk status.

Still, investors are showing some renewed confidence, buying up $1.86 billion worth of bonds so far in 2016 — the best start to a year since 2010.

Nigeria

Africa’s largest economy is buckling under the low oil price.

Nigeria relies on oil for 70% of government revenue and accounts for 90% of export revenue. That leaves very little room to adjust the country’s budget. For an emerging market that can only mean one thing — slower growth.

The West African nation is expected to clock in growth of 2.3%, the lowest rate in 15 years, according to the IMF. Its facing a shortfall of $11 billion in its 2016 budget.

Discussions between Nigeria and the World Bank are continuing on a possible loan or credit facility that would be tied to policy reforms.

It has drawn down its currency reserves and implemented capital controls, making access to dollars very difficult. In an economy that relies on imports, the controls have made life difficult for companies and two South African businesses have already pulled out.

Index compiler MSCI is considering removing Nigeria from its frontier market index because the restrictions have made it harder for investors to repatriate money.

To make matters worse, the country is facing a fuel crisis. Despite being Africa’s largest oil producer, it has never had enough refining capacity, and the scarcity of dollars is making it harder for importers to bring gas into the country.

The war against Al-Qaeda linked terror group Boko Haram, which the government has vowed to eradicate, is placing further strain on the country’s finances.

Angola

What was once one of Africa’s fastest growing economies is now on its knees and asking for help from the IMF. Angola is Africa’s second largest oil producer and relies on oil for 95% of government revenue.

After debuting on the international debt market last year, the country appears unable to meet its budget and debt obligations. It has requested assistance from the IMF in the form of monetary support.

Angola is also bound to money-for-oil deals with China. It has used oil as collateral for loans from China, and that is further squeezing state finances.

The country is set to grow by 3.5% this year, down from 6.8% in 2013, according to the IMF.

Kenya

Kenya’s economy is more resilient and diversified but there’s trouble brewing in its banking sector.

Three banks are being wound down by the central bank. Two of the banks failed last year, and a third was forced into the arms of the lender of last resort this month. A fourth bank is being investigated, and analysts believe consolidation in the industry is inevitable.

The East African nation has 43 banks, most of which have overstated profits and are buckling under the weight of non-performing loans and a big fall in deposits. A dozen banks may end up under central bank control as it tries to clean up the sector.

All this is weighing on Kenya’s growth prospects: The IMF has just cut its forecast to 6% for 2016, down from 6.8% previously.

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Fed Gives African Central Banks Reprieve to Hold Rates

Bloomberg, Sep 21, 2015

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* South Africa, Nigeria, Kenya to keep rates unchanged this week
* Policy makers have been tightening policy amid currency slump

African policy makers worried that the U.S. Federal Reserve’s liftoff will roil their markets even further, have room to breathe. For now.

Central banks across Africa have bucked a global trend by tightening monetary policy to ward off inflation threats as their currencies slumped against the dollar. ForSouth Africa, Nigeria and Kenya — three of the four biggest economies in sub-Saharan Africa that will decide on interest rates this week — the Fed’s decision to delay raising borrowing costs gives them a temporary reprieve.

“We should see less hawkish monetary policy committees next week, particularly in the countries where the currencies have come under pressure,”Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said by phone on Sept. 18.

From Ghana to Zambia, Africancurrencies have been among the worst hit by a slide in investor sentiment toward emerging and frontier markets. The prospect of higher U.S. interest rates is driving investors away from riskier assets at the same time as a slowdown in China fuels a slump in global commodity prices.

In South Africa, where therand has weakened 14 percent against the dollar this year, the central bank has raised the benchmark interest rate twice since July last year even as the economy risks falling into recession for the first time since 2009. Eighteen of 20 economistssurveyed by Bloomberg forecast the Reserve Bank will leave the key rate unchanged at 6 percent on Sept. 23, with two predicting a 25 basis-point increase.

“Following the Fed’s decision to hold back, I think the most probable outcome for our MPC would also be unchanged interest rates,”Elize Kruger, an economist at KADD Capital in Johannesburg, said in an e-mailed note to clients. This is “predominantly due to the deteriorating local economic outlook and lower oil prices.”

The rand fell 1.1 percent to 13.4769 against the dollar as of 5:56 p.m. in Johannesburg on Monday.

Investors have pared back bets of higher borrowing costs in South Africa this year, withforward-rate agreements starting in three months, used to speculate on interest rates in the period, pricing in 20 basis points of increases, down from 45 basis points on Aug. 24.

Yields on rand-denominated government bonds due December 2026 climbed nine basis points this year to 8.35 percent on Sept. 18. Yields on Kenya shillingbonds due October 2024 rose 80 basis points this year to 12.8 percent on Sept. 18, while in Nigeria, rates onnaira debt maturing in March 2024 rose 48 basis points to 15.61 percent. That compares with a drop of 19 basis points to 4.83 percent in averageyields on the Bloomberg Emerging Market Local Sovereign Index.

Nigeria andKenya, which are due to announce rate decisions on Tuesday, are set to keep their benchmark rates at 13 percent and 11.5 percent respectively, according to most of the economists surveyed by Bloomberg. The Kenyanshilling has slumped 14 percent against the dollar this year, prompting the central bank to raise borrowing costs by 300 basis points since June.

The Fed’s decision provides the Central Bank of Kenya “an opportunity to freeze rates,” Robert Bunyi, managing director of investment company Mavuno Capital, said by phone from the capital, Nairobi. “If the Fed had raised rates, it would have put more pressure on the shilling as the dollar appreciates, and as money flows back to U.S. Treasuries.”

Ghana’s Action

In Nigeria, GovernorGodwin Emefiele has kept the policy rate unchanged since raising it by 100 basis points in November. He has resisted pressure to devalue the naira following a slump in oil revenue, imposing foreign-exchange restrictions instead to stabilize the currency.

Ghana’s central bank took pre-emptive action by raising the benchmark interest rate by 100 basis points to 25 percent three days before the Fed’s announcement last week. Finance MinisterSeth Terkper said in an interview on Sept. 18 that the delay in monetary-policy tightening in the U.S. is good news and “with the worrying signals, particularly from China, the Fed decision gives relief to emerging markets.”

That reprieve may not last long, particularly for African countries running large fiscal and current-account deficits, according to Moody’s Investors Service. Nations such as Ghana, Uganda, Nigeria, Angola and Zambia are facing the prospect of possible outflows because of higher U.S. interest rates, Rita Babihuga, an assistant vice president at Moody’s, said in a report.

“Everybody will still be looking ahead as to when the potential U.S. rate hike will come and the potential impact,”Ridle Markus, an analyst at Barclays Plc’s Africa unit, said from Johannesburg. “For now, they are relieved that it has not happened.”

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From Hyperinflation to Deflation, No End to Zimbabwe’s Decline

Bloomberg, Sep 2, 2015

* Spiral of slowing growth, rising unemployment, falling prices
* Capacity utilization in manufacturing drops to just 39%

Alfred Moyo sees two possible ways of moving stock from his hardware store in Mabvuku township on the eastern outskirts of Harare,Zimbabwe’s capital: selling it at a loss or giving it away.

“There’s simply no money out there,” he said in a phone interview. “It doesn’t matter if you’ve got $10 million worth of stock or $1,000 of stock, either way all you can do is sit it out and hope things will improve.”

Moyo is one of thousands of Zimbabwean business owners who are caught up in a spiral of stagnating growth, risingunemployment and now, worsening deflation. Consumer prices have fallen every month since March 2014, dropping 2.8 percent in July from a year ago. That’s a far cry from the days when prices rose an average of 500 billion percent at their peak in 2008, according to estimates from theInternational Monetary Fund.

Zimbabwe’s decision to scrap the local currency in 2009 helped end hyperinflation as it cut off the government’s ability to print money to pay debts. At the same time, it eroded manufacturers’ competitiveness by making it cheaper to import everything from food to clothing rather than produce them in a country suffering from a lack of cash, power shortages and high costs.

With Zimbabwe adopting the U.S. dollar and currencies such as the South African rand as legal tender, authorities have no ability to boost money supply in the economy.

“The macro-economy is under enormous pressure,”Joseph Rohm, a fund manager who helps oversee about $1.3 billion in African investments in countries other than South Africa for Investec Asset Management, said by phone from Cape Town on Aug. 31. “Because it’s a dollarized economy, we are seeing a lot of cheap imports flood into the country, particularly from South Africa. It’s hurting some of the businesses that we’ve invested in.”

Growth Target

Hundreds of abandoned buildings, workshops and factories line the potholed roads in Harare’s industrial areas, evidence of Zimbabwe’s economic slide. The situation is even worse in Bulawayo, the second-largest city, where production has been hobbled by water shortages. More than 80 businesses shut across the country last year and just 39 percent of the country’s manufacturing capacity is being used, according to Busisa Moyo, president of the Confederation of Zimbabwe Industries.

The economy’s nascent recovery that followed a 2009 power-sharing government between PresidentRobert Mugabe’s party and the main opposition has largely been eroded. Investors have been loathe to enter Zimbabwe since Mugabe, 91, won the 2013 election, pushing ahead with plans to force foreign-owned businesses to cede majority stakes to black Zimbabweans. Mugabe has been in power since 1980.

The economy, which grew on average 9.2 percent a year between 2009 and 2013, probably won’t expand fast enough to meet the government’s target of 1.5 percent this year, Christian Beddies, the IMF’s resident representative in Zimbabwe, said on Aug. 26.

“Local production costs are too high, so there is no way of competing with the imports,” Christie Viljoen, an economist at NKC African Economics, said by phone from Paarl, near Cape Town. “There is no way of being optimistic about the downward spiral ending any time soon.”

The United Nations estimates that more than 70 percent of the population of 14 million live on less than $2 a day. Remittances from Zimbabweans living abroad reached an estimated $837 million in 2014, exceeding humanitarian assistance of $735 million, according to data from the central bank.

Beer Volumes

Deflation comes with its own problems. It discourages consumers from spending as they anticipate prices will fall further, while declining margins reduces the incentive for businesses to invest and hire workers. That, in turn, limits wage increases, curbs tax receipts and worsens corporate and government debt burdens. Deflation fueled the Great Depression of the 1930s and several decades of almost no economic growth in Japan.

BrewerDelta Corp Ltd., Zimbabwe’s biggest company by market value and part owned bySABMiller Plc, cut the price of bottles of clear beer by 10 percent to 90 U.S. cents in December, the second reduction in three months. Sales dropped 4.3 percent in the year through March as volumes of lager beer slumped 17 percent.Econet Wireless Zimbabwe Ltd., the country’s largest mobile-phone company, said on Aug. 21 it agreed with staff to cut their salaries by 20 percent to ward off job cuts after annual net income plunged 41 percent.

Map of Zimbabwe
Map of Zimbabwe

No Comfort

In his annual state-of-the nation address on Aug. 25., Mugabe blamed the nation’s economic woes on drought, and said the government would repeal all laws hampering businesses, while implementing plans to revive agriculture and the mining industry.

Those assurances are of little comfort to Wilbert Chimedza, a manufacturer of security fences, who has resorted to only opening his workshop when he has orders to fill.

“The hardware shops aren’t buying because they have no customers, the people aren’t buying because they have no jobs,” he said by phone from Graniteside, an industrial area east of Harare’s city center. “I’ve explained to my staff, we either sit it out on piece-work or starve.”

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These Are the Biggest Losers Since the Yuan’s Shock Devaluation

Bloomberg, Aug 19, 2015

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A week has passed since China roiled global markets with its first major devaluation in more than two decades. The epochal move hit beleaguered emerging markets the hardest, contributing to record lows in the currencies of Colombia and Turkey.

From Lima to Kuala Lumpur, here are the biggest losers since the orchestrated drop in the people’s currency.

Let’s take a look at the most notable cases, bearing in mind that plunging oil prices and expectations of a Federal Reserve rate rise, the first since 2006, were already prompting investors to pull out, especially from crude-producing developing economies.

Asian Competitors

All major Asian currencies fell on concern a weaker yuan will force other policy makers in the region to devalue their own foreign-exchange rates to keep up with cheaper Chinese goods. The Malaysian ringgit and Indonesian rupiah plunged the most since 1998, the year of the Asian financial crisis.

Record Slumps

Colombia’s peso fell to a record level weaker than 3,000 per dollar. The South African rand slid to the lowest since 2001. In Turkey, the lira weakened to record low for the fourth consecutive day.

Winners?

Poland and Hungary. Luckily for them, they have less exposure to China.

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