Lonmin CEO: ‘Never waste a good crisis’

In a Q&A with Critical Resource, Ben Magara offers an optimistic view on South African politics, reflects on the Marikana tragedy, and stresses the need to build stakeholder relationships to overcome the ‘winner-takes-all’ mentality that besets the mining sector.

Lonmin is one of the world’s largest producers of platinum group metals, with operations focused on South Africa. Ben Magara has been CEO since 2013. He previously held senior management positions at Anglo American.

Customers will eventually feel the pain from current under-investment

Ben Magara, CEO of Lonmin

“The downturn has taken many by surprise, both by the speed at which it arrived and the length of time it has lasted. Post 2008, most assumed its trajectory would be shaped like a ‘U’ or a ‘V’, but instead for platinum, it has looked more like an ‘L’, with prices flat-lining amid few signs of recovery. As a result, we’ve all had to adopt painful but necessary cost-cutting measures to survive in this tough environment and ensure our investible ability to be a major employer in the longer-term.

Notwithstanding the need for companies to scale back in the present downturn, the reality is that the industry is suffering from a lack of long-term investment. Since 2009, investment to replace and grow mines has dwindled, and companies have been leaving high-cost and low-grade areas. These will only become more expensive because of excessive costs for electricity and water. Customers will eventually feel the pain when falling supply is outstripped by demand. I believe the next boom will be driven by lack of supply and not necessarily by growing demand.

As tough as the downturn is, business and government should never waste a good crisis. They can act now to prepare themselves for the next boom. By cutting costs to create flexibility during the downturn, companies increase the options available to them when the upturn arrives. Meanwhile, if government can create an enabling environment attractive to foreign direct investment, it puts itself in the best position to make the most of a future boom.”

Overcoming the ‘winner-takes-all’ mentality

“The boom times were wonderful. We expected them to last forever because we saw China as a continuously rising dragon. That hasn’t happened. People’s expectations were raised and they have not adjusted to the downturn. There’s a ‘winner-takes-all’ mentality in the platinum industry. Consider, for instance, the 2014 six-month strike in the platinum industry – employees demanded wages that are simply untenable if we are to have a sustainable mining industry that thrives. Ultimately, only a profitable business has the surplus which is critical to solving our social challenges.

In a downturn like this, nobody wins. Everyone thinks they are being short-changed. But this attitude can be debilitating for the industry. After the strike, job losses were clearly unavoidable. It’s simply not sustainable if every stakeholder thinks: “I’m not getting what I deserve.” To avoid this ‘winner-takes-all’ mind-set, we need a shared vision that makes each stakeholder feel they have a stake in their company and want it to succeed. Simply put, every stakeholder needs to accept short-term pain for long-term gain.”

South Africa – stepping back from the cliff edge

“The major success story of this year’s local government elections has been the strength of South Africa’s constitutional democracy and its independent institutions.* South Africans always take each other to the edge of a cliff before stepping back, as happened in these elections. Claims that our democratic processes and institutions were not up to the task were disproven by the absolute professionalism with which the elections were organised and conducted for the fifth time since democracy in 1994.

Local elections are where government is felt and experienced by the citizenry. From an investment perspective, however, local elections matter less than those at the national level, but the recent ones send the clear message that those in power must deliver services or else face electoral revolt. To the extent that this will influence the investment climate, it will have a positive effect by incentivising elected officials to improve services like water and electricity – the basic ingredients of a good business.”

Marikana: the week that changed our lives

“The Marikana tragedy was a really sad moment for Lonmin, South Africa and the world – one which called for a lot of introspection. Its major lesson was that genuine engagement with employees and other stakeholders is absolutely crucial. It taught us that we cannot continue to ignore the dissenting voices of the minority even in a majoritarian democracy. For too long, mining companies in South Africa delegated employee communication and engagement responsibilities to trade unions. In the eyes of our employees, we, the managers of the mining companies, have effectively abdicated our management duties. We must reclaim this role because our workers are Lonmin employees first and foremost, regardless of their union affiliation. With this goal in mind, half of our key work involves directly reaching out to our employees, acting as a reliable source of the information they need and genuinely listening to their views on the challenges we face.

The tragedy also highlighted the necessity of improving the living conditions of our employees. We discovered that our migrant employees prefer rental accommodation over home ownership – as a result, we have converted all of our single-sex hostels into modern, lower-density single and family accommodation that employees can rent at an affordable rate. Unfortunately, the conversion of the hostels means that we accommodate fewer employees. As a result of this, we introduced an adequate Living Out Allowance (LOA) for our employees which has unfortunately had the unintended consequence that our employees are using the LOA towards other expenses simply because basic living services are still not available in the surrounding areas. We donated land to the government for integrated settlements, and we are working with local government to rezone informal settlements around Marikana and Rustenburg into townships.

Employee indebtedness is another major challenge. Our miners – most of whom are migrants – are easy pickings for loan sharks. Most have families in rural areas, meaning they essentially provide for two households. This excessive cost can lead to indebtedness. We therefore now provide our employees with financial literacy training covering budgeting skills, the do’s and don’ts of unsecured lending and consumer rights.

Regarding Amnesty International’s recent report into the housing conditions of Lonmin’s employees, we recognise Amnesty’s role as a moral conscience of society and welcome its contribution to the debate [Amnesty International’s highly critical report can be accessed here]. However, while we acknowledge that there is still scope for further improvement in employee living conditions, we have made great strides in the wake of the tragedy. The company committed its full support to the Farlam Commission and we have worked hard to build a more open, transparent and mutually trustworthy environment. Overall, significant progress has been made, but there is still much more to do.”

Platinum’s long-term future is bright within a greener global economy

“The long-term fundamentals of the platinum industry are undeniably robust and attractive because platinum is essential for transitioning to a greener global economy. There are no better catalysts for reducing harmful Internal Combustion Engine emissions than platinum and palladium – this is why auto-catalysts remain the biggest market for platinum group metals. As a result, the underlying drivers of platinum investment are strong, with demand further underpinned by the jewellery sector.

The standardisation and rationalisation of emissions standards and legislation is essential, from both an environmental and platinum industry perspective. In particular, with personal transport use increasing in developing markets, a uniform policy is urgently needed to align emerging markets with global best practice. Once this is in place, the increased demand means we’ll have a sustainable and thriving platinum industry capable of alleviating social challenges, such as poverty, inequality and joblessness.”

*The 2016 South African municipal elections, which took place in August, saw popular support for the ANC fall to its lowest level since 1994.