Gold mine ownership, especially in this day and age, is not for the faint hearted. Nor is it for those without deep pockets or without considerable expertise and experience. This applies particularly in South Africa, where, even when ore grades are generally good, the basic cost of extraction is high because mining often takes place at depths that would have been unthinkable even a few decades ago. In addition, especially in older mines along the Witwatersrand, there is the problem of pumping and treating increasing volumes of acid water percolating into working areas from now derelict mines.
But in many minds, the glister of gold remains undiminished. The massive climb in price in recent years to levels above $1 400 a Troy ounce has also once again underlined the claim that gold is an economic refuge, a solid investment in a world of boom and bust, of burst property balloons and see-sawing currencies. This is an illusion because gold remains, potentially, a very volatile commodity since it has little practical use outside of jewellery.
Should any of the governments that are currently major holders of bullion decide to unload a substantial quantity of the metal onto the market, the bullion price would crash. So huge quantities sit in vaults, providing a nominal boost to national reserves. At the same time, especially in India and countries of the Middle East, the historic and traditional myth of gold as a final store of value drives demand at a level that — despite the amount of scrap coming to market — assures the present price levels.
But the surge in prices in recent years has made paying propositions of some older South African mines that might otherwise have been mothballed or shut down. This has encouraged some starry-eyed entrepreneurs to step in where mining engineers would fear to tread. A classic example is the long-running Pamodzi/Aurora debacle in South Africa that has already cost dearly in human terms and is the focal point of what could be an environmental disaster.
The chapter began in 2005, when Pamodzi Investment Holdings, a group representing part of South Africa’s emerging Black Economic Empowerment (BEE) wave, decided, through its Pamodzi Gold arm, to move in on some of the older mines up for sale. Included were properties to the east of Johannesburg owned by Bema of Canada. At one, superficial, level the purchases made sense: the average annual price of gold was creeping up toward the $450 mark, clearly above the cost of production, and showed every sign of going much higher. So, by 2006, the year when the price of gold broke through $500, Pamodzi Gold was registered on the Johannesburg Stock Exchange. The JSE listing came with confident predictions by the Pamodzi directors that the purchases would soon catapult the very junior mining house into the big league.
At the time, however, nobody — least of all Pamodzi — seems to have taken enough notice of the hedge book that Bema had built up. This meant that Pamodzi took over a commitment to forward sales of 100,000 ounces of gold at $350 an ounce — considerably less than the spot price. Most problematically, this guaranteed sale price was at least $20 less than the average cost of production.
With the deal concluded, Pamodzi soldiered on, with every ounce mined and milled putting the company deeper into debt. There may also have been other factors involved and, perhaps inevitably, Pamodzi Gold was placed in provisional liquidation in April 2009. This situation was confirmed in September that year with irate creditors demanding in excess of $140 million.
But 2009 was also the year that the annually averaged gold price surged toward the $1,000 mark, triggering interest in the assets of the failed company. The newer mines in the Free State province were sold off by the liquidators who controversially seem to have pocketed some $4 million more than was widely thought to be their due. But that left the Grootvlei mine east of Johannesburg in Gauteng and the Orkney mine in the North West province. The liquidators handed control of these to Aurora Empowerment Systems, a previously almost unheard of BEE company with no exposure to mining. But Aurora is headed by two politically very well-connected individuals, Khulubuse Zuma, nephew of South Africa’s president, Jacob Zuma, and Zondwa Mandela, grandson of Nelson Mandela. Another director is Michael Hulley, President Zuma’s legal representative.
The 5,000 miners working at the two mines breathed a collective sigh of relief: their jobs seemed safe, especially given that Zuma promised an immediate capital injection and had announced that the diverse Aurora Group was heading to big things. He told a radio audience: “In about five to ten years we’ll be doing in the region of about $5 billion to $10 billion [in business].”
Then reality set in when Aurora’s promised “foreign partners” failed to materialise and the money to buy the mines out of liquidation was not forthcoming. The problems were compounded by unprecedentedly heavy rainfall in Gauteng in January last year. Under normal circumstances, Grootvlei mine pumps out 80 million litres a day from the tunnels and stopes underground. By the end of January the rate was 120 million litres as water from other abandoned workings seeped through into Grootvlei.
Although Aurora has taken management control of both Orkney and Grootvlei, the company has not yet formally bought the mines. As such both still remain, in law, ownerless. However, they are controlled in fact by Aurora which is seen by the workers as the owner. Any proceeds from the mining operations also accrue to Aurora while the liquidators wait for the full purchase price.
This situation means that Aurora can legally avoid taking full responsibility for the mines and miners while still being in control as the bidder for, and putative owner of, the properties. Several partners for Aurora have been mooted, including the Chinese state-owned Shandong Mining Company, but none finally agreed to a deal. In the meantime, Aurora stopped paying wages to the miners, some of whom apparently decided to take matters into their own hands and went underground to get at what gold they could.
This, in turn, led to an underground confrontation with a special security squad hired by Aurora. Four “illegal miners”, known as zama-zamas, were shot dead. A murder case is now before the courts. But the majority of miners stayed on in mine hostels where the water and electricity were cut off as they waited in vain for wages. Many drifted off, and one committed suicide, having lost his house and car while being owned some $27,000 in back pay.
Government, despite an appeal by the Human Rights Commission, has not acted and tensions between the unions, and Aurora and the liquidators is reportedly at breaking point, with the liquidators having postponed again — until August this year — Aurora’s bid for Orkney and Grootvlei.
Now, amid accusations of asset stripping, vandalism of mine property and the misappropriation of pension monies, the two mines remain unworked and water continues to drown more sections of Grootvlei. According the the National Union of Mineworkers, pumping of this, if it occurs at all, is minimal and millions of litres of acid water are soon likely to be flooding the surface and polluting the water table throughout the area.