Integrated Annual Review 2012 Annual Financial Report 2012 Mineral Resources and Mineral Reserves Regional overview  
 

2.1.2 External impacts on the mining sector

Each country’s mineral resources are finite; governments justifiably want to see a fair proportion of the benefits of the extraction of these resources before they are exhausted. Communities in the vicinity of mining operations want to see that mining delivers development, employment and indirect economic multiplier effects – including the creation of new businesses and markets. We understand this – and have become a lot more transparent about what we are doing in these respects – and how we are doing it.

Matching the demands of our host governments and societies with the need to provide investors with a healthy return requires a delicate balancing act. Given the rise of resource nationalism and anti-mining sentiment in many high-profile mining geographies, this balancing act is becoming increasingly difficult. Indeed I fear that the pendulum has swung too far against the industry as a result of rising taxes, tougher ownership regulations, heightened community activism as well as a more radical labour relations environment – just to mention a few. Investors are shying away from the sector, as demonstrated by the poor performance of mining equities over the past few years.

Gold Fields is facing these issues in most of the jurisdictions it operates in and has developed a number of strategies to counter them. These range from extensive stakeholder engagement strategies with governments, labour and communities, to substantive sustainable development programmes.

The situation in South Africa, where we are domiciled and which is home to our South Deep mine, deserves particular attention.

Chair Cheryl Carolus
Chair Cheryl Carolus

South Africa has among the richest mineral resources in the world and yet more than half of the country’s platinum mines and about a third of its gold mines are operating at a loss. This is partly due to the cyclical nature of demand and relatively stagnant precious metal prices. But it is the underlying, structural changes to the business that the mining industry is most concerned about. Over the past four years, costs in South Africa’s mining sector have risen at twice the pace of inflation. For example, average wages in the industry have risen by 12% a year since 2007. Over the same period other commodity input costs have also escalated sharply, led by a 237% increase in electricity prices since 2009.

In this context, the illegal and violent strikes by mineworkers last year had an impact that went beyond lost production and earnings. They led to a significant loss of life, as well as a breakdown of trust and common purpose between employees and employers, which will require significant effort to restore. Likewise, it had a significant impact on the South African economy, which suffered not only from a marked loss of investor confidence, but also from a decline in tax revenue. The mining sector historically contributes nearly one-fifth of South Africa’s corporate tax receipts, which are essential to fund government services and expand social welfare.

What we need now is sound leadership from government, industry and organised labour, based on a sober review of last year’s events and the charting of a clear, sustainable future for the industry. We, in the mining industry cannot achieve this on our own. Labour and government need to work with us to put South Africa back on track to being a competitive investment destination. But such collaboration needs to take place on the basis of a common understanding of the economic realities facing the sector, namely increasing depth, declining grades, productivity declines, as well as unaffordable increases in input costs.

Should the industry have to continue to solely bear the brunt of the collective impact of these headwinds, further declines in mining output and unavoidable job losses are inevitable. If mining companies are to continue to offer benefits to communities, employees and the fiscus, they will require new investment. This will not be forthcoming in the current environment.

In summary, the key stakeholders in the mining industry – both in South Africa and in the other mining jurisdictions in which we operate – need to do the following for mining to thrive:

  • Governments worldwide need to provide an effective, clear and consistent policy and regulatory framework, adequate infrastructure and the rule of law
  • Our workforce and their trade unions need to ensure that their demands are in line with inflation and are supported by improved productivity
  • The mining industry must honour its commitment to all stakeholders in terms of sustainable development, transformation and, in South Africa, the delivery of its social and labour plans. As companies, we need to create shared value for communities, governments and other key stakeholders in the areas in which we operate

Gold Fields is fundamentally dedicated to fulfilling obligations outlined above and will play its role in driving co-operation forward, but we can only do so in an honest, constructive partnership with our host governments, communities and trade unions.