Amplats bid to buy peace around prized South African mine may backfire

By Ed Stoddard MOKOPANE, South Africa (Reuters) - Anglo American Platinum's bid to appease a community near its most profitable South African mine may unravel, highlighting the challenges of managing flashpoints of social unrest while trying to shore up its balance sheet. The world's largest open-pit platinum mine, Mogalakwena was shut for two weeks last year when residents of the surrounding shanty towns rioted, protesting against the government's failure to provide services and the mine's failure to provide jobs. In April, Amplats announced a deal to set up a 175 million rand ($11 million) community trust for the local Mapela tribe to kick-start development and investment in neglected villages. The trust's aim is "to improve the living conditions and quality of life of members of the Mapela Traditional Community". "It is the crown jewel in the portfolio and so managing risk and community relations around the asset are very important," said Hanre Rossouw, fund manager at Investec Asset Management, which holds shares in Amplats and Anglo American. But the gesture has been greeted with anger by some residents, who say the amount is too little and complain that while their traditional leader was consulted, communities were not. Standing in his two-room home, Joshua Lesete points to wall cracks he attributes to blasting at the Mogalakwena mine. "I haven't actually reaped any reward from being close to the mine," Lesete, 23, an unemployed black South African, told Reuters. "They decided for us how much they are willing to give us," he said. "There is a very huge possibility of the community shutting the mine again. The relationship between the mine and the community is on very shaky ground." Community activists have instructed human rights lawyer Richard Spoor - who has spearheaded a landmark class action suit against gold producers seeking damages for miners who contracted the fatal lung disease silicosis - to challenge the settlement. Spoor said he planned to file in court in June, objecting among other things to the composition of the trust, to be run by a board of seven trustees, with just two elected from the Mapela community. "We wish to renegotiate the agreement to ensure good governance," Spoor told Reuters. The stakes are high. Highly-mechanised Mogalakwena is the most profitable asset in Amplats' stable. Last year it accounted for about 16 percent of group output of 2.46 million ounces and was Amplats' lowest cost mine, with a cash cost of 409 rand a milled tonne versus 751 rand for the whole group. "If you look at the results for the first half of last year, it made all their money, all their cash flow. When times are tough it pretty much supports the entire group," said Ian Woodley, a fund manager with Old Mutual, which has shares in Amplats and Anglo American. The mine's importance has grown as Amplats sells off its labour-intensive Rustenburg mines that have been hotbeds of labour unrest. By contrast, the unrest in the communities around Mogalakwena is rooted in perceptions that the mineral wealth created has not generated wider prosperity. "The community has continuously been excluded from benefits of the mine, and the fear is that this settlement is more of the same," said Joanna Pickering of the University of Cape Town's Land & Accountability Research Centre. TRADITIONAL AUTHORITY Such situations can put the company in a bind - if it talks to one community representative, others feel excluded. Amplats says it has tried to be inclusive, but felt it had to go through traditional leader Kgabagare Langa, whose title is Kgoshi. "When there is any money involved, all sorts of groups jump up and say they are the right guys," Amplats Chief Executive Chris Griffith told Reuters. "We work with the traditional authority and we try and make sure the authority works properly. We spent the last year of the process trying to force greater involvement," he said. The Kgoshi said there "has been adequate consultation" but was open to talks with those unhappy with the agreement. "In view of the concerns raised by some community members, the Mapela leadership will reflect on the current system in place and see how we can improve," he said. The 175 million rand trust fund may look paltry, but Amplats - which has not paid a dividend since 2011 - is hardly flush after years of depressed prices, soaring costs and a bruising five-month strike in 2014. "They are sitting on 12.8 billion rand of net debt and only made over 175 million rand in earnings once in the last four years," noted Old Mutual's Woodley. PLATINUM GALORE, JOBS SCARCE Mogalakwena also highlights challenges confronting companies switching from conventional to mechanised mines - Amplats' stated strategy. Removing a large, unruly labour force does not erase social problems. It can create new flashpoints as mechanised mining requires a smaller, skilled workforce – so there are fewer jobs for swelling and impoverished communities. The Mapela communities are home to around 300,000 people but Mogalakwena only employs 2,864. Outside Mogalakwena last week, 150 people waited under a mild autumn sun, hoping for a job. "I come every Monday to Friday. But there is no work. They want a qualification but we don’t have the qualifications," said Selphy Sibambo, a 31-year-old single mother. (Additional reporting by Clara Denina in London; Editing by James Macharia and Susan Thomas)