Inside Continental's jobs blowout

The government has scored an own goal when it comes to the Mining Charter – with companies like Continental Tyres now being kicked in the teeth.

That was the view of a number of mining experts who said uncertainty in the sector undoubtedly played a role in Continental’s decision to close down its underground mining tyres and agricultural tyres unit by August 30, putting 170 jobs on the line.

Mineral resources minister Gwede Mantashe, however, attributed the closure of the unit in Port Elizabeth to a loss of clients and market share.

The company – which currently employs 1,300 people in SA – intends relocating the unit “outside of South Africa”.

The German multinational tyre producer issued Section 189 (A) notices to 170 workers on June 7.

The company, in its notice, listed its first reason for the decision as the need to consolidate the CST (Commercial Special Tyre) functions into one singular facility outside SA.

The second reason supplied read: “The continued and persistent decrease and uncertainty of the mining sector within the geography of South Africa.”

Reacting to the company’s statement, Mantashe said: “Who are their clients? They have just lost contracts [to other tyre suppliers]. They have just lost market share, that is why [the unit is closing].

“There is no uncertainty in the mining sector ... Billions of rands are being invested into mining,” he said.

In a letter entitled “Contemplation of Possible Dismissals Based Upon Specific Operational Requirements”, sent to staff, the company also wrote: “This principal decision to consolidate worldwide CST production into a singular facility may furthermore have an effect on the remaining manufacturing facility in South Africa.”

The company said on Thursday it would not respond to any further questions as the Section 189 (A) process was now under way.

SA’s mining output contracted 1.5% year on year in April, according to JSE data – the sixth consecutive month the sector declined in year-on-year terms. Economist Professor Charles Wait said the closure of the unit stemmed from uncertainty in the mining sector linked to the Mining Charter, particularly BEE ownership levels being pushed up to 30% by former mines minister Mosebenzi Zwane.

Giving an example, Wait said if a black shareholder sold his shares on the JSE and the mining company dropped below the 30% threshold, this would mean it was no longer BEE-compliant.

“You can sell these shares any day on the security exchange. If a white person bought those shares it would no longer be BEE-compliant and they would need to find a new black investor,” he said.

“It is all about policy uncertainty.”

The first Mining Charter was agreed and implemented in 2004. At the time, the then Chamber of Mines and the then department of minerals and energy made clear to investors and potential investors that the 26% BEE ownership levels were immovable.

But the third iteration of the charter released by Zwane saw the BEE ownership level pushed up to 30%, among other broader changes.

When Mantashe took over in early 2018, concessions were made on some key points but the 30% BEE stake remained.

Nelson Mandela University economics department professor Ronney Ncwadi agreed the charter had caused uncertainty.

But he said power outages, a weak rand and a dismal economy also played a part in restructuring at Continental.

“The economy is just not doing well, and the tyre industry is part of the manufacturing industry which is affected by power outages,” he said.

“The rand has weakened and the manufacturing industry has to import products. They are competing with a weakened currency. These are all part of likely reasons.”

Minerals Council SA filed an application earlier in 2019 for a judicial review of the recently gazetted Mining Charter, citing problems with certain clauses.

Peter Leon, a veteran mining lawyer now with Herbert Smith Freehills, said the charter would certainly be a factor affecting Continental’s decision.

“It is very concerning. It is also very ironic as the government is trying to encourage local companies to [save jobs] through the Mining Charter.

“The fact that people are losing their jobs looks like an own goal.”

A Continental worker, who declined to be named, said a general meeting was called, with the unit’s workers then called to one side.

“They then just came with statistics about land reform and mining and what the politicians are saying. They said there is no profit and they are going to close it down,” he said.

Approached to gauge the industry’s perspective, Uitenhage tyre manufacturer Goodyear SA – which employs around 3,000 people – confirmed it also produced tyres for the underground mining markets.

Questioned around the general health of the tyre manufacturing industry in SA, company spokesperson Nonkosi Dyantyi said: “Goodyear South Africa invested close to R1bn in its manufacturing plant in Uitenhage in 2016 to increase production of high-value-added consumer tyres to meet local market demand.”

She said tyre imports were on the increase, putting pressure on local manufacturers.