How crime, zama zamas and extortion are killing SA mining

Far from the unreality of middle-class metropolitan life,  mines have long had a finger on SA’s pulse.

For years, important events in the country’s democratic passage have played out on the mining stage: unionisation in 1982, the Mining Charter of 1994 and the 2012 Marikana massacre, which presaged a new, disturbing chapter in SA’s history.

The steady deterioration in community stability due largely to public sector corruption and maladministration at local level, is worrying,  mining company CEOs tell the FM.

Take a city such as Rustenburg, at the centre of the world’s primary platinum group metal (PGM) sector. When it can’t provide piped water to two-thirds of the households in its municipal footprint, there’s cause for concern.

That’s one finding in the most recent auditor-general’s report on municipal fitness. And if there’s dysfunction in Rustenburg, one can only imagine the reality of regions with less industry on which to pin their hopes. In fact, we don’t have to: according to the report, just 16% of SA’s municipalities received a clean audit.

The deterioration in society has accelerated dangerously, as highlighted in a recent report by the Geneva-based Global Initiative Against Transnational Organised Crime (GI-TOC). As one example, it calculated that SA suffers a R187bn annual impact from infrastructure theft alone.

“Organised crime is an existential threat to SA’s democratic institutions, economy and people,” GI-TOC director Mark Shaw told news agency Bloomberg. “It often lies behind and connects numerous seemingly disparate criminal incidents we see occurring in SA every day.”

Hulme Scholes, a partner in Malan Scholes, attorneys that specialise in minerals law, points to the headline culprit: “I’m stating the obvious here, but what’s happening in SA is an expansion of criminal activity into the vacuum created by the failed state.”

The cost is weighing on the country’s mining companies.

One CEO, who asked not to be named, says plans for a mine worth billions in new investment — and thousands of jobs — were frustrated because foreign investors were scared off by community disruption.

“The reality is that our equity investors ran, our share price fell and because the share price fell, the banks were saying how would we get our proportion of the equity to build the mine,” he tells the FM. “The whole lot sort of snowballed on us to the point where it became very difficult to finance the mine.”

International investment in SA’s mining sector is shrivelling at a time when long-term global demand for minerals has been given a boost by the energy transition. As Fiona Perrott-Humphrey, a senior adviser to Rothschild & Co’s UK mining team,  explains it: mine community relationships, complex empowerment regulations and high capital intensity of new deep mines “have just got too hard” for offshore investors.

Another major problem is illegal mining. While this is hardly unique to SA, the government “hasn’t vaguely understood the extent to which it needs to intervene in the crisis”, Perrott-Humphrey says.

Company CEOs canvassed by the FM cite illegal mining as their primary operational concern. Unless stronger penalties are imposed — and police and legal responses stepped up — that’s unlikely to change

—  What it means:

In some ways, SA is already at a disadvantage to its African competitors, as it doesn’t have battery metals such as lithium, copper and cobalt, which have run hot. But it does have manganese, chrome, iron ore, PGMs and — while demand lasts — coal. Areas such as the Northern Cape are also largely unexplored by modern geological technology.

Yet the problems mount. In addition to illegal mining, mines are vulnerable to community disruption either by people focused on political gain or those extracting “fees” for influence, or both. And then there’s the grand theft that runs into billions each year.

The sector is struggling to contain the problems, which extend into unlikely places. Raising a red flag on a sudden spike in mine fatalities in August, the Minerals Council noted how crime and rule-breaking in mine communities have seeped into the workplace. The 36 mine deaths this year may no longer be a consequence of failure to follow certain technical protocols, and more related to deterioration elsewhere, it said.

“How are you supposed to tell employees to conform to safety regulations on a mine when they hurtled 140km/h in a 100km/h zone in an overloaded bakkie to get to work?” asks council CEO Roger Baxter.

It’s no wonder the Fraser Institute, a Canadian research house that annually ranks the world’s mining jurisdictions on governance and policy issues, puts SA bottom in terms of investment security in its most recent report.

“It’s clear the social contract is deteriorating in SA and you can see it in behaviour,” says Paul Kapelus, co-owner of Synergy Global Consulting, which has been advising mining companies on community engagement for 17 years. “Certainly, it’s pronounced in the mining sector, but there’s been an erosion of the social fabric. Everything is at stake.”

Illegal mining

Nine mining company CEOs interviewed by the FM cite illegal mining as their key operational challenge, along with restive elements within mine communities.

Scholes says his law firm has, in the past three years, issued about 40 applications asking the courts to remove illegal miners from mining company properties. This is despite the costs companies have incurred trying to address the issue.

Says Baxter: “Minerals Council member companies have increased annual spending on security by at least R2.5bn on top of the billions of rands they already spend to combat the scourge of crime and as illegal mining escalates.”

Public opinion was catalysed on the issue of illegal mining when, on July 29, models filming a music video at a mine near Krugersdorp were attacked and raped by men thought to be illegal miners.

Sibanye-Stillwater CEO Neal Froneman called for military intervention in response, given the hapless response of the police. In the absence of a policing response, the community took matters into their own hands, attacking suspected culprits with machetes and hammers.

Worryingly, there also seems to be a lack of legal response: 70 of those arrested were charged only with trespass. “That’s because there’s no other law to charge them with,” DA mines & energy spokesperson James Lorimer said at the time.

Illegal mining comes in many forms and shades. In the main,  illegal miners, financed by syndicates, target ownerless or derelict mines. By the Minerals Council’s estimate, these number about 6,100 in SA. Or they raid surface deposits — previously mined gold contained in the Witwatersrand’s numerous slag heaps, predominantly in the gold sector.

Asked how widespread this particular problem is, a gold industry executive, whose company re-mines slag heaps, says: “We expect to have shit.”

The proliferation of illegal mining is matched only by the increasingly brazen approach of its perpetrators. For illustration, look no further than the mining of outcropping chrome deposits in the Northern Cape.

Orion Minerals CEO Errol Smart describes how illegal miners seize on stranded “rock piles” abandoned by their owners. It’s an activity that, surprisingly, has the tacit buy-in of the department of mineral resources & energy (DMRE), which takes the view that this is not only a lesser evil but, in fact, performs an environmental good.

What’s misunderstood, however, is that these illegal miners are also equipped with earth-moving machinery funded by a syndicate.

“It sounds marvellous on paper,” says Smart of the government’s ad hoc formalisation of “artisanal mining”, but there’s a reckoning. “Miraculously, everybody forgets where the surface lies. They’re no longer picking up a broken rock pile; they’re also starting to dig what’s in the ground. Now they’re breaching the law.”

Baxter says an estimated 5% of SA’s chrome exports is illegally mined.

The government’s artisanal & small-scale mining policy of 2021, gazetted last year for public comment, is an attempt to control illegal mining by formalising it.

Scholes is scathing of the notion. “It assumes the platoons of zama zamas [illegal miners] will miraculously stop their illegal activities overnight, undertake formal training, use [personal protective equipment] and pay taxes and royalties,” he says. “This is like allowing drug dealers to continue selling drugs if they obtain pharmaceutical qualifications and pay tax on their earnings. It just won’t happen.”

According to Smart, the government should focus on improving the processes already in place. For example, the reason so many surface deposits lie idle is because there’s a two- to three-year wait time for environmental permits from the DMRE.

Orion Minerals has rock dumps from which it could produce copper within two weeks, Smart claims. Instead, illegal miners turn up on site to mine these resources with permits granted either erroneously, due to dysfunction in the licensing regime, or obtained by corrupt means.

Going for gold

The blue riband of the illegal mining game, however, must be preserved for those who rob operating underground mines, usually in SA’s gold industry.

Nash Lutchman, Sibanye-Stillwater’s executive vice-president and head of group protection services, says it’s impossible to keep every attempted mine invasion at bay, despite the millions spent on layers of security; the sophistication of illegal mining sometimes proves to be too good. And the network supporting the illicit industry is complex and extends into neighbouring countries.

Lutchman tells the FM it can cost a syndicate R20,000-R40,000 to install an illegal miner into an operating mine — a sum the “foot soldier” has to work off before he earns money for himself. These “miners” are often trafficked and intimidated, and often require no encouragement, as there are no viable work opportunities in their communities.

“He starts off on the back foot with debt,” says Lutchman. “He’s a slave.”

This is dangerous work. Whereas mine employees are kept from blast areas for three hours after detonation, an illegal miner will immediately take himself to the stoping area to “scoop up” as much blasted ore as possible before retreating to a secluded, closed area of the mine.

Before that happens, mine security is normally paid off to deploy illegal miners underground.

It’s not surprising, given the financial straits of communities in SA. A dual-income family where one of the breadwinners works in mine security might earn R12,000 a month — barely enough to keep body and soul together, says Lutchman. “People succumb to that pressure. Sometimes people who don’t accept bribes put their lives in danger.”

Not all illegal miners are unskilled. Occasionally, employees from one mining firm are bribed to provide critical skills illegally at another. The syndicates need winders and cage operators. Everyone’s up for sale and everyone’s approachable, given the reach of the syndicate network. 

With blasted ore in hand, and the rudimentary tools required for “washing” it — normally a “James table” lined with a carpet as filter, mercury as reagent, and water hacked from the mine’s water pipes — the miners set about the task of separating waste rock from reef. It’s crude, but it still produces amalgam — typically a ball of unrefined gold.

Getting this out of the mine is a relatively simple process — and fairly artless, at that. The contraband is strapped to the private parts of complicit miners, sometimes women, thereby evading the pat-down search perfunctorily performed by mine security. In a mine area encased in steel, metal detectors are useless and while strip-searches may be implemented, these are only occasionally carried out.

So the heist often works; sometimes there’s a bust. But enough amalgam finds its way to a DIY “spout house” in the mine community, to make it worthwhile. There the gold is processed further for supply to the myriad unregulated permit holders dealing in second-hand gold.

It’s unclear if syndicates leave the pipeline at this point. Lutchman says the police have lost touch with their movements over the years. He should know: Lutchman was previously a brigadier reporting to the police’s divisional commissioner of investigations, who in turn reported to the late Jackie Selebi. (The one-time police commissioner suffered a dramatic fall from grace, and was given a 15-year jail sentence in 2010.)

Lutchman cites the closure of the police’s gold and diamond division, which homed in on the perpetrators of mine theft, as a reason for his departure. Skills like his are now in the private sector, which makes mineral resources & energy minister Gwede Mantashe’s recent proposal to re-establish the division a tall order.

Citing illegal mining as “an existential threat”, Mantashe said establishing the unit will require a wide interdepartmental approach: “It will need to have the ability to detect, combat and investigate these crimes.”

The FM understands that though Mantashe failed to mention private sector support, the Minerals Council is deeply involved. In fact, it motivated the discussions. The only wonder is that it’s taken so long: police minister Bheki Cele was in talks with the Minerals Council on the matter in 2018.

Baxter declines to provide details of discussions on the new unit, but he’s clear its mission is critical. “On the crime side, this is as bad as it’s ever been in the mining industry,” he says.

The theft of Transnet Freight Rail infrastructure — especially copper cable — is also at a peak. It has hamstrung coal exports, which are expected to barely scrape 50Mt this calendar year, against 58Mt in 2021. The opportunity cost for coal miners exporting the fuel to energy-starved Europe runs to billions of rands.

For the specialised police unit, the question is whether the government can bring all the pieces together, especially at a time when the fight against organised crime more generally has been glacial, and the task of resuscitating an institution can take years, as evidenced by the continued struggles of Eskom.

A police crime scene investigator (CSI) with long-standing experience in illegal mining tells the FM that replacing lost skills in intelligence, policing and investigations is a huge task. “The partnerships are gone now,” the source says. “When they closed the unit down, the people left the police or they’ve aged out of it. So that knowledge is gone. You can never replace that.

Baxter says the private sector can help bridge the gap in skills by contributing its knowledge, but that will require co-operation from the government. So far, discussions with the police have been promising, but even Baxter — who is paid to be optimistic — acknowledges “engagement is one thing; outcomes are another”.

“The mining sector can solve the issues on the mining side; we’ve got the capability, but criminal activity is in many other areas: money-laundering, gun-running, prostitution. All these things are interlinked in the way that organised crime works.”

The involvement of the government’s justice & security and crime clusters is also required if stronger penalties are to be imposed for illegal mining, currently restricted to trespassing. Punishment consists of a fine and release.

Orion’s Smart alludes to poor regulatory controls handing illegal miners access to resources. This deficit in regulations extends further down the chain to buyers of unwrought gold. Permits are handed willy-nilly to second-hand gold buyers, enabling syndicates to launder illegitimate gold into official gold supplies.

Lutchman believes Rand Refinery is “unwittingly” part of this process.

It’s a point with which Rand Refinery CEO Praveen Baijnath takes issue. He says his company follows “extremely stringent” sourcing practices and considers it “unfortunate” that it is mentioned in the same breath as the illegal mining chain, especially considering 98% of its gold supply is from medium to large gold mining companies. 

“No ounce of gold of unknown provenance is worth the risk of losing our  ... good delivery accreditation,” he says.

“We are also concerned regarding illegal/zama zama mining and have measures in place to detect and prevent the entrance of such material into our supply chain either via the formal mining route, or via secondary depositors.”

Still, so entrenched is the illegal mining chain that it is worth it for criminal miners in sub-Saharan and central Africa to bring gold into SA, from where it can be exported onwards.

“It’s attractive to them because we have this network of permitted licence holders turning illegal gold into legitimate gold,” says Lutchman. “Also, other countries don’t have direct routes by air, which [are] accessible because of corruption in SA Revenue Service custom and excise from both sea and land ports. That’s how you get on the international routes.”

Rise of the community forum

As far as legal letters go, the dispatch dated July 11 from Sibanye-Stillwater counsel Ansie Malan to the Greater Marikana Unemployment Forum is fairly typical. It was effectively a cease-and-desist order, also requesting damages of R2.26m for PGM production lost during a series of protests held by the forum between March 13 and June 28 this year.

On closer scrutiny, however, it details extraordinary events, especially on June 22. On that date, the forum — which is alleged in the letter to have made untrue statements about the degree to which it represents the mine community — held employees at the K3 shaft hostage overnight unless new jobs were granted.

For a company willing to stare down the Association of Mineworkers & Construction Union, as per the recent three-month strike, there’s almost zero chance of the hostage drama working with Sibanye-Stillwater. And without wishing to diminish the impact of the event on employees, the company is somewhat sanguine about the matter. “We get these forums demanding concessions like this on a regular basis,” says spokesperson James Wellsted.

Thabisile Phumo, head of stakeholder relations at Sibanye-Stillwater, tells the FM that the actions of employee forums of this ilk are nothing more than political chicanery. Forum leaders are often not from the community at all, but are able to whip up local community support, normally in the form of a protest, in pursuit of one concession or another involving jobs, contracts and other benefits. Sometimes, these self-appointed leaders seek a permanent place in the municipality from which procurement opportunities can be exploited. In every case, the aim is to secure the perception that they represent community grievance.

Another such organisation, called the N4 Cluster Group, is led by Solly Soka, a businessman and former contractor to chrome producer Samancor. Soka, a resident of an affluent suburb north of Joburg, is also something of a minor YouTube celebrity, after the filmed gift of a luxury car, a Bentley,  to his girlfriend at the Lost City luxury resort.

His organisation staged a blockage on the road into Rustenburg in an effort to force concessions from nearby mines.

Tackling community rage is a difficult challenge for the police, especially in sensitive locations such as Marikana, says Phumo. “When do the police intervene, if at all?”

And with the ANC’s December elective conference looming, the political temperature is only expected to intensify.

“We get caught in the crossfire,” Phumo says. “Should there be instability, or any heightened political conflict, we get caught in the middle.”

Smart, referring to organisations such as the N4 Cluster Group, says: “They are portable businesses. They just find an unhappy cesspool that they can stir up and then make it worse. It’s pure extortion. The mine will get a letter that says unless you pay someone off you won’t get your deliveries. That’s what happens.”

Hostage-taking and blockades are the thin end of the wedge. One mining company recently received a formal proposal from an engineering, procurement & construction management (EPCM) contractor that claimed to be home-grown, the company CEO says. It’s an important deal — and not only because of the government’s localisation programme. EPCM companies also typically comprise 10%-15% of total project expenditure and have enormous influence in supplier selection and the hiring of employees.

“It looked great on paper, except that when you got down to the numbers, it had subcontracted to an Australian and an Indian company for the design and detailed design work,” the CEO says. “Nothing was going to be done in SA. These guys, who were going to take a 22% cut of the project (about R1bn), just said openly that as community representatives there would be negative consequences if they weren’t appointed.”

A new frontier

Astonishingly, all is not lost. “I have huge admiration for SA miners, especially in the way they throw themselves every day into fighting these challenges,” says Perrott-Humphrey. “If anyone did well after Covid in SA it was them.”

The reopening of mines after the initial hard lockdown in 2020 showed a level of public-private sector co-operation that, though rare, needs to be urgently replicated, especially if a turnaround is to be staged in mining community living standards.

For now, the companies are flying solo — but they are making progress. What’s under way now, Kapelus says, is “a new frontier” for miners. He believes many of the major firms are building coalitions with communities. These links are far less paternalistic than before, and meaningfully co-operative. But it’s definitely a rebuild job. That’s because legitimate community leaders have been subverted by people with criminal intent, he says.

“Mining firms are definitely stepping up. You can see it in the types of people they are employing. They are more sophisticated in their dialogue and facilitation,” Kapelus says.

That’s crucial, as co-operation is the most feasible way to stop the corroding effect of corruption and violence. But before assisting communities on aspects such as procurement and employment, there needs to be a re-establishment of “the rules of engagement”, including how conflicts are resolved and how to establish governance, he says.

Striking that balance is a difficult proposition and will almost certainly see mining firms take up more responsibility for government work. Sibanye-Stillwater’s Froneman says shareholders buy into this concept and recognise the importance of supporting the additional cost.

It’s a view supported by Gary Nagle, the SA-born CEO of minerals marketing and mining firm Glencore. His company, he says, has no choice but to take up the duties of the municipality. “Where municipalities can’t do it we step in, whether it’s providing water or roads. We will work closely with them, assisting in keeping their part of the bargain.”

But it’s a challenge, he adds.

“I have my business hat and then I have my SA hat,” says Nagle. “I love the country and it pains me to see the social tensions. These levels of unemployment and service delivery, the inequality and the poverty, are heartbreaking.”

Few companies do more for community engagement than Anglo American — and for good economic reasons. About 60% of the group’s 2021 earnings before interest, tax, depreciation and amortisation were derived from its controlling stakes in Anglo American Platinum and Kumba Iron Ore, both mining exclusively in SA.

But newly appointed CEO Duncan Wanblad reckons that at some point soon the government has to respond in a fundamental way to the growing social crisis on its doorstep.

“We recognise the government is trying,” he says. “But something has to be done at a more structural level because business can’t do the job of government and government can’t do the job of business. The fact SA has rising unemployment, almost 70% of youth in certain sectors, is absolutely a concern.”

Asked if it’s time for business to become more openly critical of the government, Wanblad says: “There’s a time and place for that but, personally, I’m a long way off from that in SA. These problems aren’t solved in attritional verbal warfare. We have found this [a nonconfrontational approach] is the best way to work with the government.”