Robert Friedland's Mining Showdown in South Africa

Published by MAC on 2015-01-11
Source: The Globe and Mail

Mailed fists behind a velvet glove

Robert Freidland's Mining Showdown in South Africa

Geoffrey York

The Globe and Mail

10 January 2015

MOKOPANE, SOUTH AFRICA - The two men took the cash from an envelope, counted it carefully and spread it on the table in front of Raesetsa Makgabo in her village home. It was exactly 5,250 South African rand (about $450 U.S.).

She says she remembers vividly what the men said next: They told her to take the money and allow the Canadian mining company to begin drilling on her maize fields – or lose her monthly pension.

Illiterate and unable to read the document in front of her, but fearful of losing the $120 monthly pension that was her main income, the 82-year-old villager took the pen and marked the agreement with a humble X beside her name. The two men, including an official from Ivanhoe Mines Ltd., signed the document dated May 10, 2011. Then the drilling began.

Ivanhoe’s $1.7-billion project, forecast to become the world’s biggest new platinum mine, is crucial to the fate of the Vancouver-based company – and to thousands of impoverished villagers near the site.

Ivanhoe says its Platreef mine will provide 10,000 direct and indirect jobs, along with a minority ownership stake for 150,000 residents and employees under South Africa’s black-empowerment rules.

Yet as Platreef moves into construction after gaining government approval in November, the project has remained highly controversial, triggering violent protests and clashes with police. While opponents accuse Ivanhoe of pressure tactics, the company has its own worries. It revealed to The Globe and Mail that its staff and property in South Africa have been subjected to “disturbingly explicit threats of extreme violence” and incidents of “arson, assault, illegal blockades and disruptive violence” over the past year.

Many villagers, for their part, have been threatened with the loss of pensions, welfare payments, farm fields or even cemetery plots if they refuse to co-operate with the mine, community activists say. The company denies any knowledge of such threats, saying that this would be “improper duress” and wouldn’t be tolerated.

Police fired rubber bullets to disperse hundreds of angry protesters at the mine site in late November. One of those injured by the rubber bullets was Ms. Makgabo’s daughter, Margaret, who says the $450 payment was meagre compensation for the loss of their crops. “Those fields fed our children, and now we can’t even afford a tomato or a cabbage,” she says.

Ivanhoe’s billionaire founder and executive chairman, Robert Friedland, is looking to South Africa for the third mining fortune of his colourful career, after selling the Voisey’s Bay nickel mine in Labrador for $3.8-billion and later developing the $6-billion Oyu Tolgoi copper mine in Mongolia, which was acquired by Rio Tinto.

His latest project could be hugely profitable. Its development costs are forecast to be paid off in six years, and the mine could operate for several decades.

But Mr. Friedland has never developed a mine in South Africa before, and this will be one of the toughest challenges he has ever faced. Post-apartheid South Africa is notorious for its labour unrest, powerful unions, government corruption, assertive regulators, strict rules on black empowerment, and a long tradition of community protest and violence by police and strikers. Police killed 34 protesters at the Marikana platinum mine in 2012, and the platinum sector was hit again by a devastating five-month strike this year.

The company is undeterred. When it won approval for Platreef in November, it was the culmination of 20 years of energetic tactics by Mr. Friedland and his colleagues to build support for the mine.

An investigation by The Globe and Mail has uncovered many details of Ivanhoe’s efforts to cultivate key government officials. Its tactics sometimes seemed pugnacious: court injunctions, ultimatums to government, and digging up dirt on opponents. But its tactics have also revealed a shrewd understanding of how to build political influence quietly in all the right places.

One key discovery for Ivanhoe was that the villagers lacked legal deeds to their farmland, even if they had farmed there for generations. Their land, considered communal, is controlled largely by a traditional tribal government: a chief and his “royal family” of relatives who serve as village headmen and council members. By tradition, they have the power to allocate land for cattle grazing, crops, graves or other uses. Many residents are afraid of losing their homes and government services if they dare challenge the council.

Under an unresolved South African legal vacuum, both the tribal councils and the national government share jurisdiction over communal land in the apartheid system’s former black “homelands” such as the Platreef region. So the Canadian company has focused on winning support from the traditional council, while also forging links to the African National Congress, the national ruling party.

Gifts for the tribal council

Mr. Friedland became involved with the site in 1993, in the dying days of apartheid, when he met William Hayden, the geologist who had founded Platreef Resources a few years earlier. They agreed that an Ivanhoe holding company would acquire 51 per cent of Platreef Resources. By 2000, the company had gained a prospecting licence for the site on the northern limb of the platinum-rich Bushveld complex, near the town of Mokopane, about 280 kilometres northeast of Johannesburg.

Official minutes from the Mokopane traditional council, seen by The Globe and Mail, show that Platreef has devoted close attention to its connections to the council for at least 15 years, giving private briefings, gifts and donations to the council.

In December, 2001, for example, 14 council members were invited to a barbeque at Platreef’s office in Mokopane, and the company provided “transport” to them. They were so thankful, according to the minutes, that they cited Biblical verses to express their gratitude for “all that the mine has done for us.”

Other notations in the minutes record how Platreef donated 3,000 rand to the council in late 2001, and a further 1,500 rand for two funerals of the chief’s family members. The amounts, relatively small by Western standards, were significant sums in the impoverished Limpopo province.

The current chief, Vaaltyn Kekana, was inaugurated in 2003 after the previous chief died. Many community members supported an older rival, considering him a more legitimate heir to the title. But the ANC government gave its blessing to Mr. Kekana and urged the Canadian mining company to negotiate with the chief.

One of his council members, Joseph Kekana, described how the Canadian company provided a leopard skin – a traditional symbol of a chief’s power – as a gift for the chief’s inauguration. “Because the skin of a leopard is now scarce, we got it from Canada,” he said in a tape-recorded interview with a doctoral student at the University of the Witwatersrand. “They bought it; they were contributing because they have activities in our area.”

In an interview with The Globe and Mail, Chief Kekana denied receiving a leopard skin from the company, but he said Mr. Friedland personally attended his inauguration and gave him two gifts: a walking stick and a watch.

In a statement to The Globe and Mail, Ivanhoe said the gifts were “in line with traditional cultural customs” and were “appropriate expressions of congratulation and respect.”

Traditional councils, usually unelected, have been controversial in many parts of South Africa, where their powers often seem excessive. Before the arrival of democracy in 1994, the apartheid regime used some tribal chiefs as puppet rulers in the black “homelands.” But since 1994, the ANC has continued to recognize many of them.

In 2007, Ivanhoe’s subsidiary launched a deep exploration program at Platreef. Three years later, it discovered a high-grade platinum deposit that it describes as “the motherlode” and “a prize right out of a geologist’s dream.”

The project will be the lowest-cost and longest-life new platinum producer in the world, and a “model” for 21st-century mechanized mining, Mr. Friedland says. He sold 10 per cent of the Platreef project to a Japanese consortium for $290-million in 2011, and raised a further $300-million (Canadian) in a public offering on the Toronto Stock Exchange. In addition to platinum, the property also contains palladium, nickel, copper, gold and rhodium.

To safeguard its interests, Ivanhoe’s subsidiary signed an agreement with Chief Kekana in 2010, describing him as the person who “by birth and customary succession … holds land in trust on behalf of the communities.” Under this agreement, a copy of which was obtained by The Globe and Mail, the chief promised to give the company “all reasonable access” to the land for test drilling. The agreement provided him with a range of personal benefits, including a “monthly stipend” of 30,000 rand (about $4,000 U.S. at the time) – an income far above the local average.

The agreement also required the company to provide the chief with a laptop computer, the use of a farm for a nominal fee of one rand a month, an annual year-end “gratuity” and a lump-sum payment to a “trust” of the chief’s choice.

It gave monthly payments of 3,000 rand to the chief’s adviser and five of his village headmen. (One of the headmen is also a company employee, Ivanhoe says.) The company also gave 10,000 to 30,000 rand a month, plus cellphones and computers, to the “community mining committee” in each village.

Under the agreement, the compensation for villagers whose fields were affected by drilling was fixed at 5,250 rand. Ivanhoe says it has paid this amount to 300 families – sometimes as often as twice a year. It says the amount is more than the value estimated by independent valuators. But many residents say they were never consulted about whether this amount is fair, and never gave consent for the chief to sign the agreement.

Asked about his monthly “stipend” and other benefits from the mining company, Chief Kekana demanded to know the source of the information and suggested it might be “defamatory” – but did not deny its accuracy. “I’m not saying it’s true or not true,” he said.

Ivanhoe, however, openly acknowledges its payments to the chief and headmen. It calls them “reasonable remuneration for time rendered to the company” – including meetings to inform community members of the drilling activity and the compensation for drilling.

Opponents say the payments and other personal benefits have compromised the chief’s neutrality, putting him squarely on Ivanhoe’s side instead of serving as a trustee for his people.

Ivanhoe says it has held more than 150 community meetings and the “overwhelming majority” of residents support the mine. Some meetings were attended by “independent scrutineers,” Ivanhoe says, although it has not disclosed the voting results. The issues were generally resolved by “consensus building,” it says.

Many residents dispute this. Some held protests in 2011 and 2012 that blocked or damaged Platreef drilling rigs, while others disrupted the community meetings. Some retained an independent group, Lawyers for Human Rights, which filed an appeal against the Platreef mining licence last July – an appeal to which the government did not reply. The appeal raised concerns about environmental damage, lack of consultation, inadequate compensation, threats to historic graves, and damage to traditional ways of life.

Over the past two years, the South African government has repeatedly told Ivanhoe to improve its consultations with the communities. An assessment of the mining project, conducted for Ivanhoe by independent consultants, warned last March that the community’s internal disagreements are a “risk” to the project. Of the 20 villages around the site, several refused to elect trustees for the project.

At the national level, Ivanhoe has forged an alliance with one of the most powerful figures in South Africa’s ruling party: Cyril Ramaphosa. A former ANC secretary-general, Mr. Ramaphosa helped lead the negotiations that ended apartheid. Later he became a wealthy businessman and joined Ivanhoe’s board of directors, while still remaining on the ANC’s national executive. By 2013, after a decade on Ivanhoe’s board, Mr. Ramaphosa held about 1.2 million of its common shares (worth about $1-million Canadian).

He resigned from Ivanhoe’s board in May, 2013, five months after becoming the ANC’s deputy leader. But only when he became deputy president last May did he announce that he would transfer the Ivanhoe shares to a non-profit organization, the Shanduka Foundation, a spinoff of his business empire. A spokesman told a local newspaper in November that the transfer was still “being finalized.”

At mining conferences, Mr. Friedland wows investors by touting his Platreef project as a futuristic mechanized operation where mine workers will be like highly paid “surgeons” in air-conditioned comfort.

But while promoting its benefits, Ivanhoe has also used hardball tactics to put pressure on those who might delay it. In 2012, after violent protests damaged some of its drilling equipment in the community of Kgobudi, the company obtained a court injunction against the entire population of 15,000 people, prohibiting anyone from coming within 200 metres of its equipment.

A court later decided that the restrictions should not have been imposed on the whole community, since only about 150 people had protested. In answer to questions from The Globe, the company says it took the “calculated risk” of obtaining the injunction against the entire community to ensure it covered “any potential wrongdoers.”

A community activist is targeted

One of Ivanhoe’s most tireless opponents, community activist Aubrey Langa, has become a favourite target for the company’s press releases. Mr. Langa has helped lead protests against Ivanhoe at the mine site and at a mining conference in Johannesburg. He also obtained a meeting with South African Mineral Resources Minister Ngoaka Ramatlhodi to lobby against the project.

In press statements, Ivanhoe has repeatedly attacked Mr. Langa for his “criminal past” – a reference to criminal convictions in 1977 and 1985 during the apartheid era.

Mr. Langa says the company is using his past as a “smokescreen.” He says his attempted murder conviction in 1977 was a result of police torture, and his 1985 conviction for armed robbery – which led to an eight-year prison sentence – was a “mistake” for which he has paid his debt to society.

The company says Mr. Langa’s criminal record is relevant because of his “numerous threats” against the Platreef project and “his continuing association with violence and dishonest conduct.” It says he threatened and assaulted a government official, and disrupted elections for trusteeships on the Platreef advisory council.

Mr. Langa acknowledges that he tried to hit an official during a meeting. He says he later offered to resign from his community group, but the group insisted he stay. “I can’t deny that I get angry, but it doesn’t mean I’m violent,” he said.

He says it is hypocritical for Ivanhoe to dig up an old criminal record to use against him, since Mr. Friedland himself was arrested and jailed in 1970 after selling LSD to a U.S. police agent.

Ivanhoe says the 1970 drug case was “youthful misconduct” and is “utterly irrelevant” today, since the conviction was legally expunged in 1986.

The company obtained a mining licence for Platreef last May, but the government delayed its final approval. In October, the company used another hardball tactic: It warned it would lay off 325 workers if the government kept delaying the execution of the mining right.

The tactic seemed to work. In early November, the mining right was finally authorized – just six days after the Mineral Resources Department had said it “cannot ignore complaints” from the local communities, and just a month after the department reportedly said that the project’s community benefits were “sketchy” and “did not offer much.”

Today, when community members want to visit their traditional farmland or the graves of their ancestors near the Platreef mine, they are blocked by the company’s security barrier and guards. Negotiating a way through this barricade can be difficult.

“How are we going to visit our ancestors?” asks Molwatsi Madimetja, chairperson of one of the community groups, who was blocked for an hour at the security barrier when he tried to show the graves to The Globe and Mail.

He points to a historic grave, less than 25 metres from two drilling holes. “The drilling is disturbing our ancestors,” he said. “I’m worried about the people buried there. We usually visit them at least twice a year, or when someone gets sick, and we ask the ancestors for healing or forgiveness. Now we can’t go in there. The guards tell us to make an appointment.”

He’s also worried about the loss of his farmland and the medicinal plants that the people traditionally harvest. “We were planning to give that land to our children, but now nothing can grow there.”

Opponents accuse Ivanhoe of failing to get permission from South Africa’s national heritage agency to allow mining activities so close to historic graves. The company says it has the agency’s permission for construction activities up to 50 metres from the graves. It acknowledges that some drilling may have occurred closer than 50 metres before 2011. In future, some graves will be enclosed within the mine’s fence, and as many as 154 graves will have to be relocated, with next-of-kin consulted first, Ivanhoe says.

The company says the mine will provide a range of benefits for the communities; not just the jobs and the 26-per-cent ownership stake under black empowerment rules, but also $16-million for economic development and skills training, and an annual $1-million payment to a community trust while the mine is developed.

But many residents are convinced that the empowerment trust will be controlled by the chief and council. Despite repeated requests, they haven’t been able to see the trust agreement and don’t know how it would function or how its funds would be distributed, they say.

Many say the benefits don’t compensate for the damage to their way of life and traditional land. One 72-year-old farmer, Daniel Nong, says he spends an extra $100 on food every month because of the loss of his crops. “Platreef put their machines in our yards,” he says. “There were so many machines. They’ve killed our crops. We can’t grow anything now.”

The head of the royal family, Chief Kekana, remains steadfast in his support for the project. Most people, he says, are “excited” by its benefits. “People are happy that they’ll get jobs.”

When he’s asked about the opponents, he scoffs. “They don’t createe jobs,” he said. “They don’t even hire a cleaning lady for their houses.”