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<\/p>\nA threatening letter, a derailed train, blocked roads, burned vehicles, workers locked up.<\/p>\n
That\u2019s what some of the world\u2019s biggest mining companies say they\u2019re battling in South Africa: Extortion.<\/p>\n
Covid plunged Africa\u2019s most-industrialized country \u2014 home to the biggest deposits of metals ranging from platinum to chrome and manganese \u2014 into the deepest economic contraction in more than a quarter century, and its aftermath has left it with soaring inflation, one of the world\u2019s highest unemployment rates and a collapse of local government services.<\/p>\n
Mining firms, riding a boom in the global commodities market, have been a rare bright spot, making companies like Anglo American Plc, Glencore Plc and Sibanye Stillwater Ltd. targets for groups they say are demanding as much as 30% of their lucrative procurement contracts, often with little to offer by way of skills and services. Non-compliance brings threats to executives and disruptions in operations.<\/p>\n
\u201cThe procurement mafia mobilizes the community for their own devices, which is really very straightforward extortion,\u201d Paul Dunne, chief executive officer of Northam Platinum Holdings Ltd., the operator of the world\u2019s deepest mine for the metal, said in an interview.<\/p>\n
While some groups say they are fighting for social justice or Black economic empowerment and demanding a bigger piece of the pie from the predominantly White-run mining companies, even the government concedes that much of the relatively new, violent extortionist phenomenon is being driven by gangs out to make a quick buck. Mining companies and even Black-owned contractors say they\u2019re increasingly confronting syndicates who incite local communities to disrupt operations.<\/p>\n
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Bloomberg interviewed more than a dozen mining executives, contractors, government officials, politicians and protesting groups, and reviewed threats received by firms to show why extortion \u2014 coming on top of onerous local-ownership rules, fractious labour unions and erratic power supplies \u2014 is turning South Africa into a less attractive destination for investment.<\/p>\n
The country’s Department of Mineral Resources, which this year began efforts to revitalize the sector, listed \u201ccommunity unrest\u201d as a reason for \u201cdecreased appetite by private investors.\u201d<\/p>\n
Already last year, Canada\u2019s Fraser Institute\u2019s Annual Survey of Mining Companies, a global industry benchmark, ranked South Africa at 75th out of 84 jurisdictions, compared with 60th in 2020 and 40th in 2019. Few new mines are being dug and little exploration is taking place, hitting the sector on which the country\u2019s economy was built \u2014 South Africa\u2019s $55 billion mining industry accounts for 8% of gross domestic product, about half of exports and employs almost half a million people.<\/p>\n
\u201cThe industry is under attack,\u201d said Hennie Flynn, head of the North West Province wing of the Hawks, the South African police services’ directorate that targets organized crime, economic misconduct, corruption, and other serious illegal activities. The syndicates \u201care creating their own mafia-type groupings that exert pressure.\u201d<\/p>\n
In November, a train derailed on the main export route for coal miners, with the state-owned logistics firm Transnet SOC Ltd. saying the incident occurred \u201cagainst a backdrop of threats and disruptions to the company\u2019s operations by disgruntled groupings seeking business opportunities.\u201d Efforts to restore normal services were blocked by the Ulundi Business Forum, which demanded contracts from the company, Transnet said, adding that the group resorted to \u201cviolent, extortion efforts.\u201d<\/p>\n
Musa Ngqulunga, chairman of the Ulundi Business Forum, denied it had anything to do with the derailment but said the group had been angered by contracts awarded to a business from outside the region, saying, \u201cwe can’t be spectators in our area.\u201d<\/p>\n
\u201cWe told Transnet that if you don’t give us a chance to work, we are going to close the site,\u201d he said in an interview. \u201cWe have only one weapon. We just stop the site; you can’t continue working. If you don’t give us a piece of the cake, that’s the solution. We just stop the site; that’s the way of making somebody understand better\u2026. the best way is to stop you until you cooperate.\u201d<\/p>\n
At Sibanye\u2019s K3 platinum shaft, about 15 workers with a mining contractor were locked up in May for 12 hours by a local politician who gathered about 100 youths to demand jobs at the mine, a spokeswoman for the company said.<\/p>\n
A radial road network in and out of a web of mines in the metals-rich Bushveld Complex in northern South Africa used by producers including Northam Platinum, Anglo American Platinum Ltd., Glencore and Samancor Chrome Ltd. has been blocked more than 140 times this year by groups asking for everything from contracts to jobs, said Northam\u2019s Dunne.<\/p>\n
\u201cWhat they are demanding is to be awarded contracts from the mines at any price, irrespective of their effectiveness or ability,\u201d Neal Froneman, CEO of platinum, palladium and gold producer Sibanye, said in an interview. \u201cIn the worst case, they demand partial payment from people that have honest contracts; otherwise, they disrupt their ability to deliver goods and services. Anyone that steps up to intervene is intimidated.\u201d<\/p>\n
The mounting attacks by gangs, which have also afflicted the construction industry, are quickly becoming an indictment of the inability of President Cyril Ramaphosa\u2019s government to ensure the rule of law in the conduct of business.<\/p>\n
\u201cThis is definitely the final nail in the coffin of investment,\u201d James Lorimer, the main opposition party Democratic Alliance\u2019s shadow minister for mineral resources, said in an interview. \u201cI have no faith that the government is going to act coherently over time to bring down these problems. There\u2019s no political will; that\u2019s quite obvious.\u201d<\/p>\n
Ramaphosa is fighting for his own political life after an independent panel\u2019s report said he may be guilty of violating the constitution and questioned his handling of the theft of at least $580,000 at his game farm in 2020, disputing his assertions that he\u2019d done nothing wrong. The scandal may further weaken his hand in tackling the country’s law and order problems.<\/p>\n
Groups like the Ulundi Business Forum and Banaef, an organization that represents 72 Black-owned companies, say they are legitimately seeking a fairer distribution of contracts. Companies at the receiving end of their demands don\u2019t see it that way.<\/p>\n
Consider a letter Impala Platinum Holdings Ltd. received late last year from a firm representing Banaef. Executive Outcomes, headed by an apartheid-era defence forces officer, said it had been hired by Banaef to conduct an audit of Impala\u2019s procurement processes because the world\u2019s third-biggest producer of platinum was \u201csuffocating some Black-owned companies.\u201d<\/p>\n
The letter was sent \u201cto put pressure so that they can know that we cannot just be the affected host community and 50 years down the line, there’s nothing we can show for it,\u2019\u2019 Letlhogonolo Mogopodi, who was Banaef\u2019s secretary-general until mid-November, said in an interview.<\/p>\n
To top managers at Impala, the letter \u2014 a copy of which was obtained by Bloomberg \u2014 was an effort to get it to redirect some contracts to Banaef members via a veiled threat from Executive Outcomes, which in the 1990s helped governments in Sierra Leone and Angola fight armed rebels.<\/p>\n
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Nico Muller, Implats CEO<\/p><\/div>\n
\u201cThere\u2019s definitely a tactic of syndicates organizing communities to act on their behalf, always creating an impression that they are disenfranchised,\u201d Nico Muller, the chief executive officer of Impala, said in an interview. \u201cWe\u2019ve had some of the communities appointing independent auditors who wanted to audit us. And then when you look into the audit firms, they are not accredited.\u201d<\/p>\n
Mogopodi said Banaef hired Executive Outcomes because it wanted to see \u201cif management at Impala benefits from the contracts meant for locals. Impala claims it\u2019s spending money on local businesses. We have no mechanism to test that.\u201d<\/p>\n
Executive Outcomes\u2019 website carries an image of a combat-geared man in a tank and makes no mention of audit services; its chief, Eeben Barlow, declined to comment. Banaef officials said they were not aware of Executive Outcomes\u2019 militia background.<\/p>\n
\u201cAre we using cartel-like behaviour in enlisting the services of mercenaries to get companies to implement transformative policies? I can equivocally say \u2018no,\u2019\u201d said Ditebogo Diale, the group\u2019s deputy secretary, adding that Banaef also took its case to a major Impala shareholder.<\/p>\n
Did all the pressure work? \u201cYes, you could say there has been progress, but whether that progress is worth the paper that it was written on, that can only be seen by the numbers Impala puts out,\u201d she said.<\/p>\n
Impala declined to comment on the Executive Outcomes letter. Often, groups demanding business want to provide products like diesel, explosives or uniforms, which the mining companies can get directly from the manufacturers at a much lower cost, said Johan Theron, an Impala spokesman.<\/p>\n
\u201cMost of the business practices are fronting,\u201d Theron said. \u201cIf we buy from them, we are not adding value to the economy in the communities, we are just making one person rich for doing nothing.\u201d<\/p>\n
The activity characterized as extortion by its targets often draws on the hopelessness of desperately poor people struggling to get by in circumstances exacerbated by the pandemic. Many mines are located in some of the poorest parts of the country, and the syndicates are tapping into the resentment of impoverished communities plagued by collapsed services and joblessness.<\/p>\n
There\u2019s little economic activity other than mining in the North West Province, where much of the country\u2019s platinum and chrome lies. Roads are dusty and potholed and settlements are ramshackle, often boasting little more than a church, a liquor store and a pawn shop. The government \u2014 which faces a party election this month and a general vote in 2024 \u2014 is pushing mining companies to buy more goods and services from firms owned by Black South Africans.<\/p>\n
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Patrice Motsepe, African Rainbow Minerals CEO<\/p><\/div>\n
Mining companies have profited for decades from exploiting rich veins of metals like gold, platinum and manganese. Some have included community trusts in Black economic empowerment deals whereby a stake in assets is sold to members of South African ethnicities disadvantaged during apartheid.<\/p>\n
The biggest beneficiaries of that effort have been a small group of Black businessmen, some of whom are politically connected. Among those are President Ramaphosa, who took stakes in assets owned by Glencore Plc and Lonmin Plc during a stint outside government, and his brother-in-law, Patrice Motsepe, South Africa\u2019s only Black dollar billionaire.<\/p>\n
But little progress has been made in promoting Black South Africans to the upper echelons of management. Of the eight South Africa-based mining companies included in an index of the top 40 stocks traded in Johannesburg only one, Exxaro Resources Ltd., has a Black CEO.<\/p>\n
While Black-owned companies\u2019 participation in the sector has increased, many smaller firms are still excluded because they just can\u2019t afford the machinery and equipment required, said Jonathan Leso, executive director of African Sun Mining, a Black-owned contractor. That said, Black businesses are also often targets of the gangs, he said.<\/p>\n
\u201cThe environment is a little bit levelled-up, the reason being that people are no longer looking at who you are, they just want to know do you have the machines,\u201d he said. \u201cThe biggest thing now is that if you\u2019re not from that local area, it\u2019s difficult to get any type of job because the local communities are fighting that. If you\u2019re not from the community, they block the roads, they burn the tires because they are forcing you to go into a joint venture with them.\u201d<\/p>\n
About 90% of people or entities demanding business from mining companies aren\u2019t registered, said Tseliso Maqubela, deputy director-general at the Department of Mineral Resources and Energy, acknowledging that the increase in such activities is a problem.<\/p>\n
\u201cSome of them think they can just go to a mining house and demand to be given a contract,\u201d he said.<\/p>\n
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Natascha Viljoen, Anglo Platinum CEO<\/p><\/div>\n
Communities with high levels of unemployment and lacking basic services such as clean water now look for solutions from mining companies, said Natascha Viljoen, CEO at Anglo American Platinum, the world\u2019s biggest platinum producer by market value.<\/p>\n
We are \u201cpicking up additional costs to do business,\u201d she said in an interview. These are needed to ensure \u201cstable operations and to make sure that we can run our businesses uninterrupted,\u201d she said.<\/p>\n
Security costs have surged, and Impala alone has about seven ban orders against various groups interfering with its business, a person familiar with the situation said, asking not to be named for fear of being attacked.<\/p>\n
One group is currently threatening to burn buses used to ferry employees to the mine unless it is awarded contracts, the person said. Security guards have been hospitalized after being beaten up, vehicles and guard cabins have been set on fire and procurement staff have resigned after being threatened, mining companies said.<\/p>\n
\u201cThis is as bad as it has ever been,\u201d said Roger Baxter, CEO of the Minerals Council South Africa, which represents most mining companies operating in the country.<\/p>\n
Gold Fields Ltd. had to cordon off its assets after groups that had asked for 30% of the value of some projects were turned away, said Sven Lunsche, its spokesman.<\/p>\n
\u201cWe had to erect fencing around our tenement to keep people away,\u201d Lunsche said. \u201cWe provided security to our procurement teams. We had to make sure they had bodyguards when they went home. Some of our senior managers were also threatened. Some are personal threats, and you don\u2019t take that lightly.\u201d<\/p>\n
Rio Tinto Group found out just how real such threats can be when the general manager of operational services at its Richards Bay Minerals unit, Nico Swart, was shot dead on the way to work last year. The motive for the killing isn\u2019t known, and those responsible have not been found. The company said its mine is still subject to intermittent harassment, with sporadic shootings at buses carrying workers or the stoning of vehicles.<\/p>\n
\u201cAll our leadership still have to travel and live under very heavy protection, including myself,\u201d Werner Duvenhage, managing director of the unit said in an interview. \u201cYou can\u2019t really move around. Normal little things like going to shops or just going out for dinner, those are not normal things anymore.\u201d<\/p>\n
For now, producers have higher metal prices to help them shoulder the additional costs, but that may not last, Sibanye\u2019s Froneman warned.<\/p>\n
\u201cWhen the commodities cycle changes, it obviously impacts our margins,\u201d he said. \u201cWe put jobs at risk because we now have taken on burdens that we\u2019ve already paid for in terms of taxes and royalties.\u201d<\/p>\n