Monday, April 7, 2014

The mysteries of mining.

And the hidden curse of natural resources.

It’s been a while since I visited Pilgrims Rest. The picturesque town nestled in the mountains of Mpumalanga has a special place in our history and a visit there takes one back to the mid-19th century – probably more so for members of my generation for whom the heady days of gold rushes and diamond discoveries of a prior era were romanticised in most forms of entertainment and popular fiction.

In the search for instant wealth, rogues rubbed shoulders with the genteel; the cavalier with the cunning; the meek with the brave; and the fox with the lion. Most shared one powerful motive: unbridled greed. A smaller number were in it for the sheer adventure, others through desperation; but there were also those drawn into the frenzy by the power such wealth could bring for themselves, King and country.

Mining and the exploitation of natural resources are strongly woven in the fabric of South African history with names such as “Wheelbarrow” Patterson, George Harrison, Cecil Rhodes, J. B. Robinson, Hans Sauer, and Barney Barnato adding vibrant colour to that fabric. Some were part of the colonially inspired Rand Lords -- villains to some, heroes to others. They went on to dominate gold and diamond exploration and extraction leading to the formation of four large mining houses that for many decades were to play a dominant role in the South African economy, strongly influencing other commercial, industrial, social and even political structures.

It was and still is a rough, risky world both for individuals and investors. Having had one very close call as a mine onsetter in my youth in nearly falling down a mine shaft, I shudder still today when I see TV images of those dark holes that zama-zamas crawl into to claw from the bowels of the earth, some specks of the yellow metal. They may be labelled illegal or even criminal, but to me they display raw courage, albeit inspired by tragic desperation.

In their own, small and individual way, they represent the hidden curse of mining and exploitation of natural resources generally. Find it; get it out, and you have instant wealth. It may have been this spirit that inspired a refrain that my father in his shaft sinking and high speed developer days would chant as they descended into the portals of hell: “Stof en gate, skiet die Engelse klip en ons maak geld!

Completely absent in this spirit is a sense of doing something meaningful for others, the very soul of business. Like some lotto player, the beneficiary has little interest in who pays the winnings. They are simply there, a never ending source of wealth as long as you have a winning ticket. So like a frenzied mob, everyone wants a ticket, even to the point of stealing or extorting it via decree or complicity.

For decades I accepted that this is simply the nature of the beast. The only criticism I could find was that in the exploitation of natural resources we failed to apply enough of the spoils to the development of people. As such, we failed to adhere to the fundamental precepts for what makes a winning nation – having an external focus and developing people.

Failing to do the latter has been a tragedy, but not doing the former has been the more destructive. It is a moot point whether South Africa’s grand lotto of mineral wealth has not inordinately held us back in promoting those principles and becoming a truly winning competitive nation. It is more than co-incidence that by and large the richest nations in the world have limited natural resources, while the converse can also be argued.

When Jimmy Furstenburg, a co-custodian of my consulting work since retirement, asked me where I would place mining in the continuum between survival and empathy, my immediate thought was unequivocally in the survival mode. But on further reflection, I remembered that one of our employee awareness training programmes, People and Wealth, designed specifically to enhance an empathy understanding of business, was first developed at a gold mine. It was a joint project between me and the late Ben Coetsee, the HR manager of WAGM. He lamented the appalling lack of awareness amongst workers of the product and its uses. Morale was not based on any sense of purpose over and above pay and a soldier like camaraderie in the workplace.

Further reflection reminded me of the efforts of the World Gold council, formed specifically in the late 1980’s to promote alternative uses of gold. Perhaps it has been a case of too little too late. Earlier and greater market empathy may have led to more beneficiation and value adding at production source. The wider use of gold as alternative to money, or directly challenging the demonetisation of gold in the 70’s may also have been more actively explored.

In Platinum group metals, a similar council was formed at the about the same time. Individual platinum refineries today are also actively engaged in scientific and market research to promote wider use of the metal. It’s a moot point whether earlier and greater empathy with platinum customers would not have led to the development by the producers themselves of the auto-catalytic converter. Palladium producers had already experienced the futility of trying to dictate price to a dependent market, a policy AMCU now seems keen to revive.

De Beers has also been down this road in the diamond market. It has discovered that its business model of trying to control supply is no longer functional with the CSO cartel label becoming more onerous, more producers entering the market and diamonds being tainted with revolutionary blood. Apart from introducing the Kimberley Certification process guaranteeing a bloodless product, it has for some time now been more actively seducing pretty hands to be adorned with highly expensive trinkets.

Ultimately, it is simply a case of business sense. Being of service to the market does not mean being subservient to it, like a blindfolded cow to slaughter. It’s always been the hallmark of great companies to go beyond simply responding to the needs and wants of customers and to also explore what they could need or want that they are not aware of. Innovation is a natural outflow of empathy.

But what you cannot do is bring your own needs and wants to the market. The concept of empathy applies to the way you approach your market and society, and while it can inform wealth distribution, especially in employment policies, the latter will always be dependent on the former. Put differently, wealth distribution is always dependent on wealth creation. Some of course may retort that “charity begins at home”. It was also a favourite Mafia mantra.

The mining industry is clearly still firmly stuck in a survival mode, perhaps inevitably so in some cases such as in the current platinum labour problems. But one could also argue that having essentially been in this mode for a long time, has contributed to those problems.

Understanding one’s real purpose in business gives a greater sense of meaning for all involved, particularly for employees, but also for serious investors. The need for means is the less significant part of human endeavour. The search for meaning is far more significant.

After all, one of our greatest needs is to be needed.

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