Quiet Karoo towns could be changed forever should gas exploration go ahead. Credit: Gavin du Venage/IPS

By Gavin du Venage
KAROO, South Africa, Nov 25 2013 (IPS)

To the casual passer-by, Petrus Kabaliso and his wife Cynthia present a disarmingly rustic sight, seated as they are under the shade of a date palm at a truck stop in the scorching Karoo desert, in South Africa’s Northern Cape province, a battered umbrella held jauntily over their heads.

“We find it very hard to live here,” Petrus, 59, tells IPS. “We find old metal, and sometimes the trucks that stop here leave bottles in the rubbish. We can change this for money, and buy pap [maize meal porridge] and sugar.”

Colesburg is more prosperous than many little Karoo towns. Trucks and cars ferrying people from up country to the coast make regular use of it as a stopover. Bed-and-breakfasts line the streets, with vacancy signs on display. But its wealth is relative: like most towns in the Karoo, the very lack of economic prospects is what has kept it away from the attention of developers.

But all this could change. There are plans to exploit potentially vast shale gas reserves under the earth here through hydraulic fracturing or fracking.

According to a study by financial research organisation Econometrix on behalf of energy multinational Shell, up to 480 trillion cubic feet of gas is available. To put this into context, Mossgas – the gas-to-liquids refinery situated on South Africa’s south coast – has provided five percent of the country’s fuel needs over the last 20 years using only one trillion cubic feet over this time, according to PetroSA, the refinery’s operators.

According to Econometrix, to exploit just 10 percent of the gas will create 700,000 new jobs.

But it has generated substantial controversy, with much of the debate focussing on how it will alter the Karoo landscape, some 400,000 square kilometres in central South Africa, which many believe should be left unspoiled.

“It will be better for all of us,” Ricardo Josephs, a petrol pump attendant in the picturesque town of Graaf Reinette, two hours from Colesburg, tells IPS. “Creating new jobs will mean my friends and family can come home. Everybody here is losing people who move to Cape Town or Jo’burg looking for work. Our people are all over and they don’t come back.”

Josephs concedes that the industrialisation of the Karoo may change its nature. “It will be a problem for the rich guys, the farm guys. They don’t want it to change. But for me, and the guys in the street, it will mean more jobs and better pay.”

Around 63 percent of the people in the Karoo live on or below the poverty line, Professor Anthony Leiman, an environmental economist at the University of Cape Town, tells IPS. “The finding of gas is like the discovery of gold all over again. It will profoundly change the future of the country.”

He notes that such large resources will inevitably disrupt life in the Karoo. In North Dakota, a sparsely-populated state of the United States, the discovery of large-scale gas reservoirs has turned life in many small towns upside down. The flood of male gas workers has seen towns swell to 10 times their population, and a rise in social problems from drug abuse to prostitution.

So far, much of the criticism has focused on possible environmental contamination, particularly of the Karoo’s scarce groundwater. The fracking process involves pumping thousands of litres into fissures kilometres below the ground. This fractures the rock, allowing gas to seep into a central well that carries it to the surface. In the U.S., incidents of badly prepared wells have led to groundwater contamination.

But Leiman dismisses this as a significant threat. “Poverty is a far greater hazard to the environment than fracking.”

Not so, counters the Treasure the Karoo Action Group (TKAG), the main lobbyist organisation campaigning against the extraction of shale gas. The organisation claims the long-term consequences, particularly water pollution, will fall hardest on the poor.

Up to 20 million litres of water are needed per well in the fracturing process, says TKAG, which will put the gas companies in competition with locals for an already scarce resource.

A bigger issue, say opponents of the process, is possible pollution of the water table. The water injected into underground wells is laced with chemicals to aid the process. This, say critics of the technology, risks contaminating existing ground water reserves. Elsewhere in the world contamination has led to illnesses in humans and cattle, especially due to BTEX chemicals – a group of chemicals derived from petroleum – known for causing endocrine disruption and cancer, says TKAG.

In September, South Africa’s Minister of Water and Environmental Affairs Edna Molewa declared fracking a “controlled activity”, effectively compelling gas companies to obtain a separate licence from her department. This will go some way to controlling water use by companies in the area, but critics are unlikely to be satisfied with this.

The TKAG also takes issue with the social disruption gas extraction will bring. Jeannie le Roux, the TKAG’s director of operations, tells IPS the experience in shale gas rich areas in the U.S. has been severe social disruption, a point Leiman agrees with.

Alcoholism, drug abuse, prostitution and social vices are quick to follow where young men with money, and not a whole lot to spend it on, are found.

“The social impact on a boom town brings lots of problems,” Le Roux says. “And the advantages it brings don’t last. Mining is a boom-bust activity. When the boom ends, the area is left with surplus labour.”

Although jobs will doubtlessly be created, Le Roux questions the benefits to affected communities. “History shows that the riches of mining seldom reach the people on the ground. Instead they end up with companies, and when the resource runs out, they depart, leaving the environmental degradation that local communities have to live with.”

It need not be this way, says Chris Nissen, chairman of the Karoo Shale Gas Community Forum, set up to represent the region’s poor in the fracking debate. The organisation was established a year ago to counter what he calls the “voice of the wealthy” who are fighting development of the region, Nissan tells IPS.

Nissen believes that vigorous enforcement of South Africa’s environmental laws can protect the landscape; and proper planning for the influx of migrant workers that could swamp small towns would ensure many potential problems could be averted.

“The Karoo is beautiful, but it is also a very sad place. In winter, you see children walking to school bare without shoes, through the frost.”

Thapelo Mokhathi, a young South African with a decade of experience in the mining industry, is now finance director of Shumba Coal, a junior coal explorer operating in Botswana. Credit: Gavin du Venage/IPS

By Gavin du Venage
CAPE TOWN, South Africa, Feb 14 2013 (IPS)

A calamitous year in mining has left many wondering whether it should still have a part in South Africa’s future. Illegal strikes, including one that left 47 people dead near Marikana in the northwest of the country, soaring costs and depressed world commodity markets have left the industry in its worst crisis in years.

“The perception of South Africa as a dangerous and difficult place in which to do business was brought home by Marikana,” David Butler, managing director for Southern and East Africa at Control Risks, a United Kingdom-based strategic analysis company, tells IPS. “But the underlying problems have been there for some time – it took an incident like this to bring them out into the light.”

The strike at the Lonmin-owned platinum mine in Marikana, in South Africa’s North West Province, made international headlines after 34 miners were shot dead by police after protests turned violent on Aug. 16. The death toll later climbed to 47.

“Violence is usually pretty low on the scale of factors that investors look at, while infrastructure – or lack of it – is usually much more important,” according to Butler. “But what Marikana did was expose the government’s inability to provide support for big projects. A lot of the problems in the area came down to lack of basic infrastructure and local government support.”

Analysts looking at investment destinations will usually pay more attention to hard figures and less to incidents of violence, he notes. However, this does not mean events such as Marikana will not influence the ultimate decision over whether to invest in a country or not.

“Analysts work on risk, and have models to work from. But the people sitting in the boardroom, who have to make the ultimate decision, will still be impressed by what they see on the telly,” says Butler.

Infrastructure, he stresses, is also a slippery variable. Although well supplied with roads, rail, port and power by African standards, South Africa is now far down the list for mining investment, lagging behind countries such as the Democratic Republic of Congo (DRC).

“The investment cycle in South Africa is 20 to 30 years, similar to that of other mature mining jurisdictions such as Canada or Australia, but with a much higher risk profile,” Butler says.

“The DRC, on the other hand, has an investment cycle of less than 10 years. Investors go in, quickly begin operations and leave. They bet on making profits in a short time cycle, so it’s much cheaper, with less risk, than investing in South Africa.”

He adds that South Africa’s ability to manage labour relations was now also in doubt. “People are now wondering whether the country has effective collective bargaining mechanisms,” he says. After Lonmin agreed to pay raisesof up to 22 percent, workers at nearby mines called for similar pay increases.

Striking Marikana miners who were given pay raises of up to 22 percent. Credit: Nat Nxumalo/IPS

A quick decline

The descent of South Africa’s mining industry has been swift. In 2005 the country was still the world’s largest gold producer. By the end of the decade, it had fallen to fourth place behind China, Australia and the United States, as its ageing reserves declined and required ever-deeper mines to access what is left. In 1970 it was producing 1,000 tonnes a year of gold – today it manages less than 200 tonnes.

Declining gold production had less of an impact than first feared, as platinum group metals (PGMs) were soon on track to take over the lead and create an entire new sector in the process. South Africa now produces 80 percent of the world’s PGMs, which are largely used in vehicle exhausts to remove emissions.

Averaging around 450 dollars an ounce for most of the 1990s, platinum began a steady climb at the turn of the millennium, reaching an all-time high of 2,253 dollars in March 2008. The large producers, Anglo Platinum and Impala Platinum, among others, initially enjoyed spectacular returns. However, years of above-inflation wage hikes, soaring power costs and falling demand in recession-struck Europe have left the mines struggling.

With an astounding 2.5 trillion dollars of minerals still in the ground, according to Citibank, the country could potentially be in the same position as the cash-flush oil states of the Persian Gulf.

But South Africa is expected to receive only 1.2 percent of global mining investment this year, while traditional rival Australia is expected to haul in 26 percent, according to Deloitte.

“The investment pipeline is not what it should be,” Abrie Olivier, southern African mining leader at Deloitte, says in an interview with IPS.

Olivier says continuing uncertainty over mining legislation, such as planned provisions to declare certain minerals “strategic” and therefore liable to arbitrary export controls, added to investor wariness.

Although talk of nationalisation, which has dominated the industry for the past few years, has now waned following the ruling African National Congress’ electoral convention in December, during which state ownership was ruled out, investors are still not entirely convinced.

“We need more certainty and clarity on policy,” says Olivier. “We are dealing with the same problems the industry faced five years ago. Very little has changed.”

The pressure from unions to negotiate above-inflation wage increases has also pushed mines over the edge of profitability: “I don’t think the unions get it, but then, I suppose it’s their members who have their jobs on the line.”

The government’s threat to withdraw mining licenses in retaliation to Anglo American Platinum’s announcement in January that it would cut 14,000 jobs, has been another factor adding to the industry’s wariness over future investment, according to Olivier.

“Mines are good at controlling costs – they have to be. When it comes to jobs, hard decisions need to be made, particularly where marginal operations are concerned.”

It may be a stretch to say the mining industry is giving up on South Africa. But, for South African miners at least, the future appears brighter elsewhere on the continent.

Thapelo Mokhathi, a young South African with a decade of experience in the industry, is now finance director of Shumba Coal, a junior coal explorer operating in Botswana. He has pinned his hopes across the border, he says, because of an easier regulatory environment and one where small companies enjoy the same governmental attention as larger players. It also has large untapped reserves of coal.

“South Africa is a mature market that has been operating for a hundred years or more. There are no blue skies opportunities,” he tells IPS.

Eventually Shumba intends to generate power from its coal reserves and sell it to the region – something else that would be difficult to do in South Africa’s heavily regulated energy sector where the state-owned utility Eskom enjoys a legal monopoly.

“For entrepreneurs the obvious conclusion is to look at other countries outside South Africa,” Mokhathi adds.