Dalubuhle Ncube: Antimony future looking positive

Asian Metal: Good morning Dalu, thank you very much for agreeing to meet with me this morning and having this interview. Firstly, could you please tell us a little more about yourself and your company?

Dalu: I come from a gold mining background and have been in the antimony sector now for around five years. Village Main Reef has been making various acquisitions over the last few years and the Cons Murch Mine was one of our first acquisitions. After that we started acquiring gold mines around the country, three of them. In May this year we restructured the company in which we created commodity divisions which are gold, platinum and antimony. I was appointed as Managing Director of the antimony division therefore my sole focus has been on this market since then.

Asian Metal: Now that we are slowly heading towards the end of 2013, what are your thoughts of the last year?

Dalu: Over the last year we have witnessed a weakening rand which has boosted our export revenue. Therefore the depreciating rand certainly did help our numbers. From an international perspective in the beginning of the year there were concerns on supply and the fluctuations in price. Over the past three or four months though there has been a jump in price which recently has started to slowly move down. This is a positive improvement and we are of the opinion that the outlook of the market is positive. Speaking to potential investors and suppliers we often hear that antimony is becoming even more of a strategic metal moving forward, and we are in complete agreement. This is because regulatory requirements for fire proofing, for instance cars and children toys, is going to continue to drive demand from a regulatory compliance perspective. So overall it has been a better year and we think it will be a much better year next year.

Asian Metal: It is fair to say that demand has been rather stagnant this year and the jump in price has been largely attributed to the stockpiling seen earlier in the year. Prices have now dropped below USD10,000/t which many are claiming is a natural correction. Many market players we have spoken with are convinced prices will go down. Do you think prices will continue to drop?

Dalu: It is a bit of a difficult question to answer as we do not control the market and therefore not privy to the policy and strategy in Asia. There will probably be a dip but I’m of the belief that will not be an all time low. We are a producer and therefore bullish about the long term. Obviously we have to ensure that we remain profitable, that is our primary concern. We still believe in investing in antimony production and increasing production regardless of what happens. We are busy with new projects, if you go on our website you will see we are pursuing new antimony projects that are motivated by a long term bullish view. Obviously we cannot influence the price, we can only control costs. Therefore we were not going to be investing in increasing producing if we did not think it was positive in the long term, which we predict will be at a healthy level.

Asian Metal: China is by far the largest producer in the world however we are currently seeing new projects being developed, for instance in Turkey and Spain, that are trying to contend with Chinese supply. What are your thoughts on this?

Dalu: It obviously represents a risk to minor producers. I will talk from our perspective. Even as small as we are, I believe there is an opportunity for us and a premium being a non-Chinese producer. The Chinese market influences everything. However, despite our relatively small size there is an opportunity for us. We can position ourselves as an outside of China producer. There are a lot of non Chinese companies that are trying to solve the antimony supply problem, projects in Australia, Russia, Spain and Turkey are working towards this. China will always be the dominant player however there is a gap to exploit here and offer options to consumers. I think the influence of China will decrease in the long term with more projects and new channels of supply opening. However it is undeniable they will continue to remain the dominant player.

Asian Metal: Of course, there is a risk of having a majority supplier that is a majority user. All your material is concentrates, have you ever thought of expanding and providing metal and other refined products?

Dalu: When we got the plant in 2009 there was what is called the ‘Antimony Products Plant’. Metorex were the previous owners and they had a joint venture with an American company. They were taking the concentrate and processing it to all the way to trioxide material. During the credit crunch and economic crisis, their American partner got liquidated and in the process the jointly owned plant stopped operating. We believed that you cannot focus on the next stage of production if you have not fixed the front end part of your operation which is the underground mining process. Our sole focus was on recapitalizing the mine and fixing the concentrate plant. We had limited resources therefore this is what we did, however that processing plant is still available. There was a Trade-off, do we invest capital in restarting that processing plant or do we try and increase production? So after a cost-benefit analysis it was in our interest to stabilize our mine in terms of the concentrate production instead of moving towards producing trioxide. Having said that, I think there is still an opportunity to restart the plant if capital is invested. There are things that will need to be done such as improving the technology and capability. This could be in our interest as it would give a pricing benefit, the trioxide fetches a higher price than the concentrate. We could increase our percentage payable in terms of the pricing formula. This is a mid to long term idea though, dependant on capital investment and financial viability.

Asian Metal: Coming from an African perspective, what do you think are the biggest risks operating in South Africa?

Dalu: There are a number of challenges. The industrial relations issues, by this I mean socio-political issues such as the strikes we saw earlier this year. There has been a new rival union (AMCU) that has emerged in South Africa. Traditionally NUM has been the dominant force, so this emergence has changed the game as now there is a power struggle dynamic between the two. As a company we cannot afford to get caught in between the fight but we need to manage the relationship in order for it not to impact on our production. The strike that we had, talking specifically at Cons Murch, was a misunderstanding by the employees on their shareholding and expected returns related to an Employee Share Trust scheme, which is part of our BBBEE structure. So our strike was not related to the same issues in the industry such as we saw in the platinum industry. This was an illegal strike and not sanctioned by the trade unions. However the unions will always continually negotiate for increases in basic salary. I believe industrial relations issues in South Africa are driven by the will to close the socio economic gap. The union that negotiates and strikes a deal with a better increase will be the favoured union, therefore there is this competition.

About 50% of our cost is labour, so if there is 20% increase you can imagine the impact on the cost line. With regards to the issues of power and the increasing cost it should be understood that we are not a deep mine, only 1km so much different to a 4km deep gold mine. We still have cost issues with power but we have not been largely impacted.

Additionally there are safety and health issues which we have to continually work on improving. Mining by nature is high risk. In South Africa we have always, particularly in gold, been ranked as high risk. South Africa, compared to Australian and Canadian mines, ranks lower in terms of health and safety. However, we have a strong track record at our mines and are continually working on improving this even further.

Asian Metal: There has also been a lot of talk of the risks of the South African government nationalizing the mines. What are your thoughts on this?

Dalu: In my view it comes down to what stage of your project you are in. We do have elections next year and therefore there is a lot of talk and promises being made. I personally do not foresee a scenario where the government will nationalize the mine. I think the legal tenure risk all depends on what stage of production you are in, if you are applying for a new mining right that may be difficult, but someone already up and running, adding value, national economic development and employment is probably at lower risk. There is also a lot of talk about skills shortage but South Africa is producing top mining graduates and as a company we are tapping into that talent. We are also training and developing our staff on a constant basis. Therefore we are a fully functioning production mine that is genuinely adding value and working on improving South Africa.

Asian Metal: Dalu, thank you very much for taking the time to speak with me and we look forward to having you as a speaker at our International Antimony Conference next year in Madrid.

Dalu: It is my pleasure and look forward to speaking with you in the future.