Kudumane Manganese Resources CEO Thembelani Gantsho is passionate about the opportunities for South African mining. He spoke with Janie Davies about his first-hand experience of funding and operating a new mine and the outlook for the nation’s mining industry
Since breaking ground in May 2012 and shipping its first ore in April of the following year, Kudumane Manganese Mines has established itself among South Africas larger manganese miners, producing 1.8-2 million tonnes of ore per year.
Operated by Kudumane Manganese Resources (KMR) in South Africas Northern Cape Province, 80 km northwest of Kuruman, the 250 million tonne resource project includes an open pit mine, mobile crushing and screening plant and chemical analysis laboratory. It ships its ore from the ports of Durban and Port Elizabeth, counting China, India and Russia among its export markets.
Kudumane Manganese Resources is headed up by a former investment banker who swapped investment banking glamour for the grit of manganese ore, a darling of South African mining that imparts strength in steelmaking. A finance graduate of Cape Town University in the mid-noughties, CEO Thembelani Gantsho has a varied resume with stints at blue-chip banking and mining giants, having alternated between those sectors for a few years.
One gets lured by the glamour of investment banking. And it is lovely to watch a mining project from the ground up and navigate the difficulties of funding, he said.
After starting his banking career at Barclays-affiliated South African bank ABSA Capital, Gantsho was eventually headhunted into Xstrata Alloys, a unit of FTSE-100 listed mining giant Xstrata, which went on to merge with trader-miner Glencore in 2013. In his two years at Xstrata, he looked after platinum in a business development and strategy role, setting the foundations for a mining career. Thats where I cut my teeth in mining. I enjoyed it; it was great fun, he said.
He was later headhunted back to ABSA and is candid about finding his way back again to resources and a longer term career at a miner, working his way up from head of sales, marketing and logistics to the helm of the company. I did it for a while and banking was not for me, I guess. Stroking egos to get business for the banks, I didnt really enjoy it, said Gantsho. The mining industry has given me vast opportunities to travel the world, meet international players and network. Its the opportunities that it has given me that have kept me stable in this company, he said.
Gantsho readily reviews his career development, but it is clear that what really impassions him is discussing the wider manganese market and, even more so, the future of South Africas mining industry.
His financial mind is ticking throughout the conversation, but he is balancing miners funding considerations and profit margins against how they fit into South Africas wider strategy and future, which comes with other responsibilities. Once youre done, you need to leave a lasting legacy. We must leave an impact and make sure the community is better off. The benefit must not just be to the owners and the area must not be a barren land with the community in abject poverty, he warned.
KMRs shareholders have set aside up to 10% of the economic benefit derived from the business for the benefit of our employees and local community. This goes beyond our current requirements but embraces the spirit of the latest Mining Charter, he said.
Surviving the pandemic
It is his workforce that is his first thought when he expresses his relief at surviving the Covid-19 pandemic. South Africa imposed two national lockdowns, the first in March 2020 and the second in June this year. The first lockdown triggered a series of force majeure declarations across the countrys mining sector while mines were forced to temporarily close and staff were unable to get to work.
For KMR, efforts to mitigate the effects of the pandemic included fixing water pipes, providing water tanks, serving healthcare centers and enabling online learning for grade 12 students by providing tablets and data. The company also directed its existing collaboration with other Northern Cape miners, including rivals in the manganese space, towards the Covid relief effort.
Covid forced us to be on survival mode as we had to prioritize the safety of our workforce. We were fortunate in that as an industry we were allowed to operate, thus enabling us to safeguard jobs and be in a position to meet our obligations to our employees. In addition, we played our part in ensuring that we assisted our local communities, focusing on improving service delivery within the local water infrastructure and education. We also partnered with our neighbouring mines Kumba, Assmang and South 32 under the Shared Value Initiative to collectively direct our efforts towards making a meaningful impact in our Covid relief initiatives, Gantsho said.
South African mining
Alongside his commitment to corporate social responsibility, he recognizes a need for South African mining to attract fresh capital, having lost some of its appeal in recent years. He sees these priorities as inextricably linked and in line with the South African Mining Charter.
The proportion of investment in Africa that goes to South Africa has shrunk drastically in less than a generation, Gantsho pointed out. Over a decade to a decade and a half ago, South Africa used to get the lion's share of Africa's mining capital investment. However, this has shrunk to below 5% based on Africa's latest mining capital internment figures. This is both for new and prospecting projects, Gantsho said.
We have a sense that mining is a sunset industry, but there is lots of opportunity for it to be a sunrise industry. For mining to grow, you need to invest in prospecting. South Africa creates great opportunities, but capital has dried up, he said. He blames the capital drought on frequent changes to the regulatory framework, which continue to spook investors despite the country being relatively stable politically.
South Africas Mining Charter aims to radically improve black economic empowerment (BEE), community benefits and competitiveness under a number of transformation goals. It has been revamped twice, most recently in 2018, and although the government frames the charters evolution as progression and agility, many, including Gantsho, believe the changes have meant uncertainty for investors, even though the intention is right.
Its to do with regulatory uncertainty; constant changing of the rules. We are on our third iteration of the Mining Charter; even ministers have admitted some flaws and that creates uncertainty. The essence of the Charter is needed; it drives transformation and we need not be apologetic about that. But there needs to be stability in the rules, he said.
The kind of fears some investors have around political instability in some emerging economies and potential loss of assets should not apply to South Africa, Gantsho added. When capital is deployed, its protected. Youre not going to have assets taken by government, he said.
Recent unrest in South Africa riots and looting following the jailing of former president Jacob Zuma has drawn international concern and knocked the countrys rand down from its strong recent performance among emerging market currencies.
Great opportunities still remain and investors can look beyond the unrest to the growth in the Northern Cape in particular, according to Gantsho. The recent unrest highlights the disgruntled state of the masses with regards to the massive inequality and high levels of unemployment and poverty in the country. This does not diminish the opportunities that the country possesses, only if they are supported by enabling policies and a willingness from the government to execute those policies. Mining still has great opportunities, especially demonstrated by the massive growth in mining operations over the past decade in the Northern Cape Province where we operate, he said.
South African mining and downstream industries in particular also continue to operate under the shadow of limited power supply and frequent load shedding, which is controlled blackouts aimed at reducing the pressure on the national grid. This presents another challenge for government by making added-value downstream manufacturing difficult to establish or maintain. Power is a constraint the country has on any ambitions of the government for beneficiation, Gantsho said.
Gantsho shares the frustrations of many other senior executives and marketing managers of manganese miners amid what has long since been seen as poor producer discipline on output levels. While commodity market participants elsewhere debate the emergence of a new supercycle, many with stakes in the manganese market fear exclusion from this kind of upside. He believes that South African manganese producers continuing to push ever higher volumes into an already-oversupplied market will cost manganese a place among the winners of any such event.
Gantsho stops short of declaring a new commodity supercycle in todays market himself, but he says manganese producers will be ruling themselves out of significant upside as long as they continue to export at todays rate. The South African producers are really pumping and we are going to miss an opportunity to benefit from any cycle. The only way is to get stocks down and for South Africa to exercise restraint, he warned.
Stocks of manganese ore in Chinese ports have been declining throughout 2021, but inventories have still risen by over a million tonnes over the past twelve months, standing as high as 5.67 million tonnes in mid-July.
Manganese ore prices have been relatively volatile this year amid weather-related disruptions, logistical constraints and soaring freight rates, and the market has remained under pressure from the high stocks in China and rising exports volumes from South Africa. Preliminary data shows South African manganese miners exported about 2 million tonnes of ore in June this year, up from 1.7 million tonnes in May and 1.8 million tonnes in June 2020. As recently as the second half of 2019, 1 million or 1.3 million tonnes was a normal monthly volume.
Preoccupation among manganese miners with being the top or among the top producers is leading to decisions that weigh on market conditions, Gantsho believes. Producers need to see reason and not think about market position. Its a balancing act; we need to be disciplined as producers and position ourselves to take advantage of any cycle, he said.
Since January, prices for South Africas 37% semi-carbonate ore have risen nearly 13% on a cif basis, reflecting higher freight costs, but have fallen nearly 10% on a fob basis to $3.10 per dry metric ton unit as of July 21, meaning producer netbacks are down.
Road and rail
The use of more expensive road transport to boost export volumes beyond South Africas constrained rail capacity has been particularly controversial in recent years. Manganese ore producers utilize trucks to ramp up exports when prices are high, but many in the industry complain these increased exports continue for too long after prices settle back down.
We still have guys who are dogmatic about putting material onto trucks and you have to question how theyre making money. Theyre focused not on margins but on being the number one or two producer at any cost, Gantsho said. We dont ship more than our Transnet [South African rail] allocation. We have only trucked one or two shipments since 2016, he added.
The year Kudumane stopped trucking was one of unprecedented volatility that started with fob prices for 37% semi-carbonate ore at $1.35 per dry metric ton unit and ended with a three-month rally that took prices as high as $7.96 per dry metric ton and the market has been vulnerable to rallying and crashing with little warning ever since.
Although Kudumane has only trucked one or two shipments since 2016, according to Gantsho, it started out with trucking as its only transportation option before securing rail allocation. We started out trucking ore and were offered an opportunity with an entity in Port Elizabeth to partner and thats how we got into rail. In 2015, thats when our railing kicked off.
Gantsho helped bring Kudumane into existence in partnership with Dr Mandla Gantsho, former chairman of Sasol, Kumba Iron ore and Impala Platinum and a relative of Thembelanis, as well as Hirotaka Suzuki, founder of Hong Kong-headquartered Asia Minerals Limited (AML), the majority owner of KMR.
AML provides technical and marketing services for the mine, which also has a black economic empowerment (BEE) partner, Afris Capital. I partnered with Dr Gantsho. He knew funding and I knew mining. We invested in Kudumane Manganese Resources and I moved up the ranks. Then we partnered with Mr Suzuki of AML and the relationship has gone from strength to strength, he said.
We found an asset we fell in love with. It came up and we got to understand it and its applications. Once you understand it, its easy to fall in love with it, he said. You get to see the whole value chain; opening the pit up, doing your first shipment. We had no Transnet allocation, we had to find solutions. I started with no experience in logistics, but we had a great team. We found operators ready to work with us and there was a big push to get Transnet onboard, he said.
Securing Transnet allocation is always a huge step for South African miners, who have to share the countrys constrained capacity and often complain that they would export much greater volumes by rail if they could. Gantsho said achieving rail allocation was something he did through perseverance. Being in their face all the time until you build those relationships, he said.
Seeing the project through its early days has given Gantsho a great appreciation for AMLs support, which came at a time when the risk profile of junior miners was unattractive to many investors.
In the beginning when the operation started, AML still came to the party and funded from their own cashflows and theyve been rewarded. The funding was a challenge from the banks, but our partner stepped up and allowed us to do it without the debt from banks. Due to the risk profile at the time, mining was not sexy for banks unless you were a major, Gantsho said.
I applaud AML; they bet everything on developing KMR, having invested in excess of $150-million and that investment has paid off. It is thanks to Mr Suzukis visionary leadership that AML ventured into manganese mining and thats how KMR came to be, he added.
In handling Kudumanes ore marketing, AML has not been among those who Gantsho believes are pushing volumes at any cost, he said, adding that a solid client base has been established without such practises. Ive enjoyed the partnership with AML and I appreciate the mentality of AML; not chasing volume and clients are with us whether the market is down or the market is up. They dont look to play the market; even when the temptation is there, they exercise restraint. Its not about what the market is doing its about what the business needs, he said.
Gantsho believes his experiences rising in the company have also made him a better leader, better able to understand the challenges of his workforce. He is also more confident in letting them grow into their roles.
Fernando Voges looks after our logistics. He is a real treasure. He has done an exceptional job in that role to ensure that we minimize our reliance on road hauling and grow our rail allocation. My experience in logistics allows me to understand the challenges the guys have, and I am able to advise and provide solutions. You see the mistakes you made at the beginning. Im privileged enough to have had direct involvement with elements of the business and allow them to be their own boss and not stifle their decisions, he concluded.
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