THE state-owned mining firm, the African Exploration Mining and Finance Company, which the African National Congress (ANC) had punted as the answer to the domination of mining by multinational companies, is unable to raise finance to fund operations and lacks the cash to fund expansion itself, its annual financial statements show.
In the context of a call by the ANC Youth League for nationalisation of the mines, the re-establishment of the previously dormant company was viewed as an alternative solution to better leverage the country’s mineral resources for development. The company is a key part of the ANC’s vision of a “developmental state”.
Four years since its revival though, the company has yet to make an acquisition or develop the projects it inherited with the exception of the Vlakfontein Coal Mine, which was already an operating coal mine at Ogies. Alongside Vlakfontein the company also inherited Klippoortjie Mine and a third project named the T-project, neither of which have been developed.
Presenting the company’s annual report to Parliament’s portfolio committee on energy last week, CEO Sizwe Madondo said the company had been unable to raise finance for the projects or for new acquisitions as it had no equity to contribute.
There is also a lack of clarity for funders over its shareholder department, because as a subsidiary of the Central Energy Fund, it does not report directly to Parliament or the Cabinet. It is also unable to approach the Treasury for funding. “Lenders ask us to bring our equity, at least half of the project cost, and we don’t have that. We are also unable to go to Treasury, so basically we are on our own trying to raise finance for attractive projects,” said Mr Madondo. “We have projects where we could crack ground on Wednesday if we had the money.”
The two projects require about R3bn in capital expenditure. It was envisaged that these projects would produce coal by 2017.
The company has also applied for an extensive number of exploration rights.
Over the past three years, the company’s financial performance has been deteriorating. In 2013, it achieved net profit of 29%. This declined to 19% last year and 6% this year. Decreased cash from operations resulted in a negative free cash flow for this year.
Mr Madondo said it had been hoped Vlakfontein would produce 1.2-million tonnes of coal, but it had only reached 720,000 tonnes, due to low off-take from Eskom.
A Cabinet decision in 2012 to “hive off” the company and establish it as a company in its own right under an act of Parliament, has not yet been acted on.
In his budget speech last year, former mineral resources minister Ngoako Ramatlhodi said a bill to establish a state-owned mining company would be submitted that year. There are no signs that it will reach Parliament this year.
The decision to establish a state-owned mining company was part of a large package of interventions in the mining sector that flowed from the ANC’s State Intervention in Mining document, deliberated on at the ANC’s Mangaung conference in 2012.
The conference rejected nationalisation in favour of increased ” state ownership in strategic sectors where deemed appropriate, on the balance of evidence”.
It said the state would further increase its participation in the mining sector through equity, using the state-owned mining company as its vehicle.
The Mangaung conference resolution also resolved that there should be higher taxes for the mining industry, but did not say in what form. Three years later, this part of the resolution has also not been acted on, with the Davis Commission into taxation still examining the options.