Gold mining in SA is dead. What now?

Blyvooruitzicht was once the largest, most prosperous gold mine in SA. Established in 1937, it was the flagship operation of Rand Mines, a mining house more powerful than Anglo American in its day. At one stage, Blyvooruitzicht was said to have been the world’s most profitable mine.

Even into the 2000s, people would come from far and wide just to see its beautiful gardens, about 80km west of Joburg. Residents had more recreational halls than they knew what to do with, and a choice of no fewer than seven golf courses.

"Sundays, we were so confused. We used to have a two-hour meeting — which golf course are we going go play on?" says businessman and resident Paulo de Gouveia. "No, that one’s got buck. No, that one’s got beautiful flowers. Where are we going to go?"

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Ownership of the mine changed hands over the years. But in 2013, Village Main Reef went into liquidation halfway through a takeover of the Blyvooruitzicht assets. The operations were abandoned, and life at Blyvooruitzicht changed forever.

Power and sewerage ceased. Water supply became a problem too. Infrastructure was stripped for scrap and zama zamas (illegal miners) ran rampant. Though some homes were invaded, most are occupied by ex-mine employees with nowhere to go. The surrounding villages were built by the mine, but not officially proclaimed, so the municipality washed its hands of the problem.

Today, the golf clubhouse, once a social hotspot, resembles a war zone. The roof has gone, only walls remain, and every last scrap of steel has been removed. Glass, tiles, wood and other fragments cover the floor. The once manicured greens have been overrun by bushveld. The buck that once roamed here are long gone.

Joseph Rammusa was employed at the mine for 34 years, in admin and also in running the golf course. He flinches at the thought of going back there now. "It’s heartbreaking." Rammusa and other community members took it upon themselves to try to protect the abandoned assets after the mine closed. "Whatever we could protect, we did on a daily basis," he says.

"We fought with zamas. We didn’t sleep. They were shooting at us. We were patrolling at night. Some of our people are dead."

He says the community was forsaken. "Nobody helped us, and I mean nobody. Not even the government. We went door to door looking for help, we couldn’t get any."

Blyvooruitzicht’s hero-to-zero tale echoes that of many gold mines.

It was George Harrison, an Australian prospector, who discovered gold on the Witwatersrand in 1886, triggering a gold rush and the growth of eGoli, the city of gold, as Johannesburg came to be known.

What he had stumbled on was the Witwatersrand reef, which holds the world’s largest known gold reserves. It has been the source of half the gold mined on earth.

At its peak, SA produced 1,000t of gold a year and employed more than 500,000 people. Until 2006 SA was the world’s largest gold producer. Today, it is ninth.

In 2018, SA produced less than 130t while employing just over 100,000 people.

Up until the 1980s, SA had more than 60 listed and operating gold mines; today there are fewer than 10 and most have little to no assets left in the country.

AngloGold Ashanti has announced it is to sell its last SA asset, Mponeng, outside Carletonville, the world’s deepest gold mine.

This is the company that traces its gold mining roots to a German emigrant to SA, Ernest Oppenheimer, who borrowed £1m to start Anglo American in 1917.

The message is clear: SA’s gold mining industry is on its deathbed — even though we still have half the world’s known underground gold reserves.

The industry has absorbed far too many devastating blows in recent decades, says Peter Major, director of mining at Mergence Corporate Solutions. The list is extensive: certain state policies, excessive regulation, unions and an unreliable Eskom have led to the industry’s premature death.

He says the mortal wound occurred in 2004, when government effectively nationalised SA’s mineral resources but awarded companies the right to mine, subject to certain rules and regulations.

Since then, the Minerals Council says there have been 2,000 new regulations and 3,000 policy changes.

"You cannot solve everything by writing pages and pages of rules and regulations," says Major. "It asphyxiates everything."

At the same time the Mineral & Petroleum Resources Development Act and BEE goals were introduced, says Major.

"From an investment point of view, you have to spend 30% more to take on greater risk to get a weakened return. It contradicts everything 5,000 years of finance and Warren Buffett ever learnt and taught," he says.

On the Eskom front, power prices have surged 540% over the past 10 years and load-shedding has hurt production. "No deep-level mine has a chance without reliable, economic electricity," Major says.

Impoverished communities, frustrated by lack of service delivery, are increasingly venting their anger at the mines. And illegal mining has become a serious problem too.

The demise of gold mining comes down to SA’s inability to control the things that are under its control, says Gideon du Plessis, general secretary of trade union Solidarity. He points to poor labour relations, marked by strikes and union rivalry, as well as declining productivity of the workforce.

Unions can strike their members out of a job, says Du Plessis. He believes this is what happened at Gold Fields and Sibanye recently, where retrenchments followed protracted strike action. Populist unions also face a challenge because, ideologically, they will not agree to a salary freeze, smaller bonuses or overtime, says Du Plessis. They seem to accept that "workers can be retrenched just as long as they are not exploited while working", he says.

Collective bargaining is also under threat. Du Plessis believes last year’s round of wage talks at the Minerals Council level may be the last. "For Sibanye, Harmony and whoever buys the Mponeng mine, the sustainability of their mines is such that they cannot agree to a one-size-fits-all wage deal," he says.

The bottom line is that the investment case for SA gold mining just isn’t there. US treasuries give a return of 3.5% a year, while SA government bonds yield 8.5% (assuming the rand continues its long-term depreciation) and the US equity market has delivered average returns of 10% a year for 200 years.

In the end, AngloGold’s decision was probably pretty easy, given the issues facing SA gold mines. Sibanye-Stillwater or Harmony could buy Mponeng — but it’s hard to imagine their shareholders letting them.

"At Mponeng, there are another 20-million ounces down there," says Major. Just two or three million ounces could keep the mine going for another six years. But to get another 8-million ounces they’ve got to invest around $350m.

"Why would shareholders allow a company that could be paying dividends to put money into the ground instead?" asks Major.

A similar scenario is playing out at Gold Fields’ South Deep mine, which holds the world’s largest gold resource, very little of which is viable any more. Buffels, Harties, Elandsrand, Western Areas, Randfontein, and more, have all closed their doors with 10-million to 20-million ounces each still there.

"We may have half the world’s known gold, but it doesn’t matter if we have 99%," says Major. "Capital’s not going to go into SA gold mining, unless it’s got a good chance of getting a higher than market-related return."

As the gold mines die off, Mariette Liefferink worries about what will be left behind.

As she surveys the devastated Mintails operations in Krugersdorp, her eye catches a sprawling plant with small white flowers. "Look at this, in among all the devastation, isn’t it beautiful?"

Liefferink is the CEO of the Federation for a Sustainable Environment (FSE). At first, she appears an unlikely guide to the abandoned gold mines of the Witwatersrand. She’s never without perfectly painted coral-red nails and matching lipstick, but she’s a feisty activist.

In 2006 Mintails bought Mogale Gold, which was undergoing debt restructuring. Some of its other West Rand concessions came from DRDGold. The company said it would rehabilitate as it re-mined the dumps, but all that is left is devastation.

Mintails, which was majority-owned by Australian-listed group Mintails Ltd, has had a number of shareholders including Paige Ltd, which is run by the wealthy Harbour family in the UK. But the convoluted structure of the group has so far made it difficult to hold anyone to account.

Today, partially scooped-out dumps tower over the abandoned mining operations. "They only recovered the profitable parts," Liefferink says. "No rehabilitation took place."

The dust from the mine, which blows into the nearby community of Kagiso, contains toxic elements such as radioactive uranium.

Without a valid mining right, Mintails also opened new open cast pits, some more than 40m deep. They never filled those craters, many of which filled with water which, she says, could be acidic.

In the summer children swim in the easily accessed pits and there have been a number of drownings.

Nearby sits the acutely toxic Lancaster dam — one of 36 radioactive hotspots within the West Rand and Far West Rand gold fields.

In 2009, on Mintails’ watch, the dam wall broke down, allowing slime and toxic water to flow into the Wonderfonteinspruit, source of the Boskop Dam from which Potchefstroom gets its drinking water. The FSE lobbied for the wall to be fixed and succeeded. But the wall has now cracked.

Mintails was also forced to dig trenches to divert rainwater past the dam and into the headwaters of the spruit. But because they didn’t line the trenches, which is standard practice, the acidic water is now being funnelled directly into the waterways.

The damage is acute. A 2012 report found that the kidneys of cattle which drank from the Wonderfonteinspruit had a uranium concentration 4,350 above normal.

Last September, Mintails was placed in final liquidation, leaving behind a R460m environmental liability. There is no question that Mintails is responsible for vast devastation, but there was just R28m in its environment rehabilitation fund. So it has passed on its responsibility to the state.

The department of mineral resources’ (DMR) Gauteng manager, Sunday Mabaso, admitted to parliament last year that Mintails had operated without a valid mining licence, an environmental management plan or the funds to cover its obligations.

Mintails had three mining rights applications granted, but two were never issued because it failed to comply with conditions such as its environmental liability. Because the company employed 750 people, the department leant over backwards to accommodate Mintails, hoping it would eventually comply. It never did.

Catherine Horsfield of the Centre for Environmental Rights says a mine’s duty to set aside financial provisions for rehabilitation is regulated by the DMR, but companies typically do their own assessment of the liability. When mines go bust, they find this provision is inadequate. Though the mining minister has the power to appoint an independent assessor, Horsfield says she doesn’t know of a single case where this happened.

Another disturbing trend is for large companies to "on-sell" the mining right to a smaller outfit, which isn’t able to afford the rehabilitation, and leaves the liability behind when it goes belly-up.

Companies are also effectively abandoning mines by putting them under "care and maintenance", rather than closing them and paying the rehabilitation costs. It’s a short cut meant to save money. But, Horsfield says, at this point, mines stop attending to their environmental responsibilities.

She says the department doesn’t want to make it too expensive to mine, but if a company doesn’t mitigate its environmental impact and rehabilitate the mine, that burden doesn’t just disappear. "It manifests in significant health effects, lost livelihoods and unproductive land, all of which contribute to increasing inequality and poverty," she says.

However, DMR spokesperson Ayanda Shezi says it has issued 875 closure certificates since 2004, which should mean each mine has met the environmental remediation measures. It estimates the closure costs of all derelict and ownerless mines is R47.6bn — though these are mostly from pre-1992 operations, when environmental provisions weren’t required.

The total number of mines under care and maintenance is 72. The government says this is usually prompted by unforeseen circumstances and not a route to abandonment as such operations usually are resumed.

The DMR also says it continuously monitors the adequacy of financial provisions. In the few cases where financial provision is inadequate it has a mechanism to recover funds from those who have fallen short. The DMR insists it has excellent enforcement and mine environmental management units.

But in the case of Mintails, Liefferink says the DMR has laid no claim to the rehabilitation funds. It’s been left to NGOs like the FSE to do what they can through the courts.

Which isn’t to say the government isn’t aware of this danger. Last week, the minister of environmental affairs published amendments to the financial provisioning rules for the rehabilitation of damage caused by mining. The National Prosecuting Authority has started the prosecution of former directors of Aurora Empowerment Systems (including Jacob Zuma’s nephew Khulubuse Zuma and Nelson Mandela’s grandson Zondwa Mandela) for their environmental and water transgressions at the failed Grootvlei mine.

Given the challenges, it seems unlikely anyone would want to revive an old gold operation in SA. But James McArdle, Middelvlei mine manager, has been in the mining game for 52 years and knows an opportunity when he sees one.

Middelvlei mining has moved in on the asset, previously mined by Pamodzi Gold West Rand, which went into liquidation in 2009. "We are looking to mine gold and there is still a lot of gold left here," he says.

Speaking to the FM, McArdle unfurls two large drawings on the bonnet of his car as we overlook the site. For the next 18-24 months, Middelvlei plans to mine one pit where drilling has shown good grades.

"It’s all opencast and fairly small scale," he says. "We are going to move between 6,000t and 8,000t of ore a month. But there will be no processing here. The hardest part was securing the required rehabilitation funds of R16m, which is now in the bag."

Mining started here in 1930, says McArdle, who grew up in the area.

"JCI, they mined big. They were well aware of the fact that there was gold in this area, but for a big company like that, which carries big overheads, it’s not viable to put big overheads on small operations," he says.

JCI, which became one of SA’s largest gold mining companies, was started in 1889 by Barney Barnato, who died in mysterious circumstances less than a decade later. In 2005 it fell under the control of Brett Kebble, who pillaged its assets before himself dying in an "arranged suicide".

Those days of huge gold mines are long gone, says McArdle. The future of SA gold mining is small-scale.

But Major doesn’t believe gold mining in SA presents real opportunities for junior miners, given the tough and unpredictable environment. Gold projects in SA are almost impossible for small miners, he says.

Since its closure, no-one was prepared to even consider reviving operations at Blyvooruitzicht.

Until, that is, mining entrepreneur Peter Skeat and a partner invested R500m of their own funds to create Blyvoor Gold. They also have R900m from international investors Orion Resource Partners.

It was Blyvoor Gold which bought the assets out of the liquidated Village Main Reef. Since then, vast sums have gone into rebuilding and equipping the plant at Blyvoor’s five shaft, where they expect to produce gold in September this year. With a resource that would last 30 years, they’ll produce 15,000t of ore a month, aiming to reach 40,000t. It could employ 1,000 people.

For Skeat’s project to work, it must address the issues which have throttled gold mining. He believes Blyvoor Gold has the answers. It has installed a 25MVA transformer to ensure operations continue, even when Eskom’s power becomes erratic.

The mine will also employ a mining method that is expected to keep costs down to $600 a ton. The method was brought to Skeat’s attention by Alan Smith, a former AngloGold CEO and now Blyvoor Gold CEO. Though tried and tested by major mines, resistance from labour meant it was never implemented.

The method, Smith says, is particularly well-suited for the Witwatersrand reef and is expected to raise Blyvoor’s grade per ton significantly. It will allow Blyvoor Gold to first blast out waste ore, which is lying underneath the gold deposit.

Regarding unions and the community, Skeat says: "For the first time in SA, we are going to take the 26% BEE requirement and put it into a trust. And the beneficiaries of that trust are all the employees." Employees will get a set monthly salary, while profits from their BEE stake will translate into a monthly dividend or a second salary, which depends on productivity.

Bold move by entrepreneurs may revive a devastated mining community and give workers a second chance

—  What it means

The employees have formed their own union; so the established unions are unlikely to find a warm reception here.

"When the shit hit the fan [in 2013], they were not there. People suffered because of the union," says Rammusa, who now works for Blyvoor Gold. "We want to protect this project."

De Gouveia’s shopping centre is directly opposite one of the slimes dams, the dust from which can be so bad his staff wear goggles and masks. As Blyvoor Gold took on the environmental liability, De Gouveia wants these issues remedied, and fast.

Skeat says funds of R300m are in place and an environmental fix-up will happen quickly.

The village of Blyvoor itself was not bought out of liquidation, which means the service delivery problems in the town do not fall onto Blyvoor Gold, says Skeat. But as part of its social and labour plan, the company, once in production, must restore some of the bigger infrastructure, like the sewerage plant.

What about zama zamas? Blyvoor Gold says it has adequately secured its infrastructure and access to the mine. Illegal miners, in any case, do not venture underground here, where the depth is a major constraint.

Though workers at other mines have been known to assist zama zamas, they will not do so here, says Wels Sempe, a mine overseer at Blyvooruitzicht now with Blyvoor Gold. "I feel this is my company. I’m not going to allow someone to mess it up."

Major says that for Skeat to have put his own money, big money, into Blyvoor Gold is a bold move and a second chance for the workers. In five years it could be the only deep-level gold mine in SA, he says. "I fear the rest may be closed or close to closing. I hope I’m wrong."