AfricaLive: How has the drop in commodities impacted South Africa, and how has Exxaro adapted?
Mxolisi Mgojo: The last three years have definitely been a challenge to all economies across the world. The fact is that we are part of a global village and impacted by policies that are adopted by countries such as China, United States of America, and the United Kingdom.
Events such as Brexit and Donald Trump, as America’s president, are things that we are not immune to.
This is especially true in terms of our reliance on foreign earnings, which are very much driven by the ability to continue to export our goods. South Africa’s fiscus has been under a lot of strain for a number of reasons, such as the fact that there has been a sharp decline in the government’s ability to generate a sufficient revenue base, a lot of companies have been under a huge amount of stress, we have a high unemployment rate and high levels of inequality. These are all things that put a lot of pressure on the government’s ability to not only deliver the required services but also render basic services.
The 2017 budget delivered by the Minister of Finance last year is very much proof of that, showing that there has simply not been enough economic activities and growth in South Africa recently. Much like other countries, we have had to increase the amount of tax that citizens have to pay, especially the high earners because, unfortunately, a large part of South Africans simply cannot contribute to the economy due to living in poverty.
However, with the existing growing deficit in the economy, the question is whether or not making more debt is the right way to fund the country due to living in poverty.
We have to concede to the fact that part of the lack of growth and activity is self-induced, but also that global events and the global environment do play a big part. However, whichever way you look at it, South African companies, such as Exxaro, have to ask what they can do to spur growth and improve the situation.
Exxaro is continuing to invest in growth opportunities in its coal business in order to supply offshore markets where coal is still a primary energy input. We also have projects planned for domestic supply into the planned coal IPPs (independent power producers). These projects will contribute to providing much-needed employment and stimulating the local economy. A few key areas of focus during these trying times are cost efficiency, prudent CAPEX management and cash flow generation, optimising our investment portfolio and maintaining our dividend policy.
Coal is critical for investment, especially international investment, in South Africa. We are very passionate about sustainability and our corporate social investment (CSI). Most of our social and labour plan projects are channelled through the Exxaro Chairman’s Fund (ECF).
All our operations contribute to the ECF and the group has spent R88 million on social and labour plans (SLPs) and other community-related projects, mainly on education for teacher and learner development, enterprise development and infrastructures such as building roads and houses.
We strongly believe that focussing on natural, human, social, intellectual, manufactured and financial capital is a balanced approach to sustainable growth to increase our potential to invest and develop. This is not a separate objective, but rather the foundation for our commitment to our strategic objectives which are, themselves, aligned to the five capitals.
We do business with the intention of leaving each area holistically richer after mine closure, even though some capitals might be negatively perceived at points in the life cycle. During each stage of the mining value chain, which we refer to as the resource-to-market business model, the cumulative net effect is to leave a positive impact. Each sustainability capital that we affect will be responsibly managed to maximise the benefit to all stakeholders, internally and externally.
In a broader context, there are a number of initiatives by many organisations that look at what can be done regarding South African education, infrastructure and small enterprise development. From our point of view, growing small businesses is especially important, because these are the businesses that create employment. Big companies do not create the same level of employment, and rather focus on innovation in order to remain globally competitive. Therefore we have put together a fund of over R1.5 billion of donations from various companies in order to grow and develop smaller businesses.
Government policies are also a major aspect in South Africa and our business environment that need to be improved. We need to attract more foreign direct investment and realise that there are investors who are very interested in South Africa, however, there are improvements we should make. For example, we need to look at how we manage our investor environment and how we can improve the image of the country to the rest of the world.
Roger Baxter from the Chamber of Mines highlighted the fact that if South Africa wants to be truly competitive, there needs to be a real understanding of the available resource pool. What are your thoughts on this, especially regarding the competitiveness of the mining sector?
Mxolisi Mgojo: I think he is very right; unless you know what is in the ground, you cannot know what to do with it and you do not know what potentially exists.
Regarding resources such as gold, we have to keep in mind that mining has been active in South Africa for over a 100 years, which is a long time. We have had to go deeper into the ground, which unfortunately puts the miners’ lives at risk.
What I think is going to help South Africa going forward is finding the best way to extract the ores that were previously difficult to get to in the safest possible manner.
Technology has advanced and is continuing to advance so much so that it allows us to extract resources from deeper in the ground. South Africa simply has to adapt to and keep up with the latest technology, which increases the resources and hence the life of mines. The coal industry in South Africa is leading in terms of technology investment in the mining industry.
We at Exxaro boast a number of technological applications which have contributed to the efficient performance of our largest operation, Grootegeluk, in the province of Limpopo.
One strategy of the Minerals Council is to examine how South Africa can start looking at advancements in technology and utilising this to extract ores from those previously unexplored places.
Mining companies are also looking at what we can achieve by 2030. However, for these goals to be achievable we need to write an environmental policy that is conducive to attracting investment and will promote the growth of the mining sector. Without this, it will be a challenge; we need a well-regulated mining sector and well written, pragmatic and enforced policies.
We have to realise that there are certain imbalances from the past that still exist, such as the fact that mining was built on policies that subjected certain parts of our society to inhumane working and living conditions. It is important that the mining industry acknowledges that it benefitted from Apartheid because we cannot address it and write new policies without first acknowledging that it was there.
What are your strategic plans moving into the future?
Mxolisi Mgojo: How we allocate capital for growth and return on investment is top of mind.
Primarily, we will continue to build a resilient coal business whilst exploring new areas of investment. We looked at energy security and energy supply and noticed that there are many new revenue streams we can tap into. The overall idea is that we want to invest in strategies and innovations that will disrupt the market and disrupt the industry because that is the only way you will really achieve growth.
If you really think about it, along with food and water, energy is a basic human need.
Economies thrive from sustainable human livelihoods, and if you think about it like that there are many new areas to move into. The need for water and food is a good example. Therefore we are asking, “How can Exxaro make the lives of people better by helping them sustain themselves? How can we use the land space we have in South Africa and combine that with mining in order to grow our business by improving livelihoods?”
Exxaro, together with other mining companies, have a lot of resources which can be used to create secondary economies for communities and for ourselves. In this way, the people in those communities will be able to sustain themselves, whilst we as mining companies will be doing something good and the economy will grow.