presentation to the parliamentary select committee on finance: mining charter impact assessment

1STRICTLY CONFIDENTIAL

PRESENTATION TO THE PARLIAMENTARY SELECT COMMITTEE ON FINANCE:

MINING CHARTER IMPACT ASSESSMENT

12 OCTOBER 2010


PRESENTATION LAYOUT

• The Mining Charter in context

• Impact of the Charter on the industry and the economy

– Mineral Rights structure

– Employment

– Investment

– Economic Indices

• Assessment of progress against the Charter elements –

Extent of transformation of the mining sector

• The amended Mining Charter 13 September 2010

• Concluding remarks


STRICTLY CONFIDENTIAL 4

THE MINING CHARTER IN CONTEXT

The Mining Charter is a stakeholder negotiated document

Established in terms of Section 100 of the MPRDA, 2002

First sector instrument to effect transformation

Objectives of the Charter: Promote equitable access to the nation’s mineral wealth Substantially and meaningfully expand opportunities for

HDSAs to benefit from exploitation of the nation’s mineral resources

Utilise the existing skills base to empower HDSAs Expand the Skills base of HDSAs Promote employment and advance the social and economic

welfare of mining community and the major labour sending areas

Promote beneficiation of RSA mineral commodities


ELEMENTS OF THE CHARTER

• Ownership and Joint Ventures

• Human Resource Development

• Employment Equity

• Mine Community and Rural Development

• Housing and Living Conditions

• Beneficiation

• Procurement

• Reporting


MINERAL RIGHTS STRUCTURE

• Pre MPRDA and the Mining Charter, Mineral Rights were

vested in private hands – thwarting the potential for

investment

• This regulatory framework (MPRDA) vested

custodianship of mineral rights in the hands of State,

unlocking the inherent potential for mineral development

• Regulatory framework enabled diversification of mineral

commodities and their socio-economic impact (from

depleting Gold resource development)

• More than 26 000 applications have been received by the

DMR since the promulgation of the new regulatory

framework – RSA Mineral Rush


300

400

500

600

700

800

900

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

to J

une

'000

EMPLOYMENT TREND – MINING INDUSTRY

DMRStatsSA


Real mining GFCF

-

5,000

10,000

15,000

20,000

25,000

30,000

1998

'

1999

'

2000

'

2001

'

2002

'

2003

'

2004

'

2005

'

2006

'

2007

'

2008

'

Year

FC

F (

mil

)

MINING INVESTMENT

SARB


Chart Title

Growth=7.42%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1998' 1999' 2000' 2001' 2002' 2003'

Year

FCF

(RM

ill)

Investment Growth Rate, 1998-2003

SARB


Growth=17.95%

-

5,000

10,000

15,000

20,000

25,000

30,000

2004' 2005' 2006' 2007' 2008'

Year

FC

F (

Rm

il)

Investment Growth Rate, 2004-2008

SARB


0

50

100

150

200

250

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

R Billion

MINERAL EXPORT SALES

DMRStatsSA


Gross and net exports (by sector) as a % of value added, 2006

-60 -10 40 90 140

Agriculture, forestry &fishing

Manufacturing

Mining and quarrying

Net exports to valueadded

Gross exports as a % ofvalue added

StatsSA


Contribution of Mining to GDP

0

50

100

150

200

250

2000' 2001' 2002' 2003' 2004' 2005' 2006' 2007' 2008'

Year

Min

ing

GD

P (R

bill

ions

)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Per

cent

age

Con

trib

utio

n to

G

DP

Mining GDP Mining as % oF GDP

StatsSA

SA GDP PER CAPITA

0

10

20

30

40

50

1998

'

1999

'

2000

'

2001

'

2002

'

2003

'

2004

'

2005

'

2006

'

2007

'

2008

'

GDP per Capita growth = 9.1% (1998 - 2003)

= 11.2% (2004 – 2008)

Source: StatsSA

R Thousand


SA GINI COEFFICIENT

South Africa the most unequal society in the world in terms of income levels by Class, Gender and Race.

0

0.2

0.4

0.6

0.8

1993

'

1995

'

1997

'

1999

'

2001

'

2003

'

2005

'

2007

'

Gini coefficient



PROGRESS AGAINST THE CHARTER TARGETS

METHODOLOGY:

• Records in the Department

• Records from the mines

• Questionnaires

• Detailed analysis of data

• Services of external consultants

• Interrogation of the Charter 2002 construct


OWNERSHIP

Measure:

Has the mining company achieved HDSA participation in

terms of ownership for equity or attributable units of

production of 15 % in HDSA hands within 5 years and 26 %

in 10 years?


8.9

-5

0

5

10

15

20

1

Perc

en

tag

e

Ownership

Net Asset Value

OWNERSHIP


HUMAN RESOURCE DEVELOPMENT

Measures:

(i) Has the company offered every employee the opportunity

to be functionally literate and numerate by the year 2005

and are employees being trained?

(ii) Has the company implemented career paths for HDSA

employees including skills development plans?

(iii) Has the company developed systems through which

empowerment groups can be mentored?



17 17

11

0

2

4

6

8

10

12

14

16

18

Functional Literacy Career Pathing Mentoring of empowermentgroups

Measure

Pe

rce

nta

ge


EMPLOYMENT EQUITYMeasures:

• Has the company published its employment equity plan and reported on its annual progress in meeting that plan?

• Has the company established a plan to achieve a target for HDSA participation in management of 40% within five years and is implementing the plan?

• Has the company identified a talent pool and is it fast tracking it?

• (iv) Has the company established a plan to achieve the target for women participation in mining of 10% within the five years and is implementing the plan?


EMPLOYMENT EQUITY

26

17

26

0

5

10

15

20

25

30

Achievement of 40% threshold 10% participation of WIM Talent pool identification andfast tracking

Measure

Per

cent

age


MINE COMMUNITY AND RURAL DEVELOPMENT

Measure:

• Has the company cooperated in the formulation of integrated development plans and is the company cooperating with government in the implementation of these plans for communities where mining takes place and for major labour sending areas?

• Has there been an effort on the side of the company to engage local mine community and labour sending area communities? (Companies will be required to cite a pattern of consultation, indicate money expenditure and show a plan)


63

49

14

0

10

20

30

40

50

60

70

Consultation Intergrated Development Plan(IDP)

IDP's for labour sendingareas

Measure

Pe

rce

nta

ge

MINE COMMUNITY AND RURAL DEVELOPMENT


HOUSING AND LIVING CONDITIONSMeasures:

• For company provided housing, has the mine, in consultation with stakeholders established measures for improving the standard of housing including the upgrading of hostels, conversion of hostels to family units and promoted home ownership options for mine employees? Companies will be required to indicate what they have done to improve housing and show a plan to progress the issue overtime and is implementing the plan?

• For company provided nutrition has the mine established measures for improving the nutrition of mine employees? Companies will be required to indicate what they have done to improve nutrition and to show a plan to progress the plan over time and is implementing the plan?


26

29

34

29

9

6

0

5

10

15

20

25

30

35

40

Provision ofhouses to

employees

Improvementof existinghousing

infrastructure

Homeownership

participation

Nutritionalplans

established

Upgrading ofhostels

Conversion ofhotels to family

units

Measure

Pe

rce

nta

ge

HOUSING AND LIVING CONDITIONS


PROCUREMENT

Measures:

• Has the mining company given HDSA’s preferred supplier status?

• Has the mining company identified current level of procurement from HDSA companies in terms of capital goods, consumables and services?

• Has the mining company indicated commitment to a progression of procurement from HDSA company over a three (3) to five (5) year time frame in terms of capital goods, consumables and services and to what extend has the commitment been implemented?


37

11

20

3

0

5

10

15

20

25

30

35

40

HDSA participation inprocurement

HDSA prefferedsupplier

Commitment toprogression over 3 - 5

years

value of expenditure

Measure

Pe

rce

nta

ge

(%

)

PROCUREMENT


BENEFICIATION

Measure:

• Has the mining company identified its current level of

beneficiation?

• Has the mining company established its baseline

level of beneficiation and indicated the extent that this

will have to be grown in order to qualify for an offset?


REPORTING

Measure:

• Mining companies undertook to report on an annual basis as per the provisions of section 28(2)(c) and section 29 and the measure was as follows:-

• Has the company reported on an annual basis its progress towards achieving its commitments in its annual report?


37

11

0

5

10

15

20

25

30

35

40

Companies with audited reports Submission of audited reports

Per

cen

tag

e

REPORTING

123 32

Amended Mining Charter 2010

The review of the Mining Charter was aimed at

strengthening and sharpening its effectiveness in driving

transformation and competitiveness in the mining sector,

– Improve the construct of the language, the scorecard and

remove ambiguities

The Amended Charter retains all original element and

introduces a new element on SD;

Mining Charter amendment concluded under the

auspices og MIGDETT, a tripartite mechanism established

in December 2008

123 33

Amended Mining Charter 2010 cont...

OWNERSHIP

- 26% of HDSA ownership by 2014

- Emphasising meaningful BEE ownership

- Entrepreneur, employees & Communities

- Evaluates the financing structure

- Offsetting permissible against value of beneficiation

123 34


PROCUREMENT AND ENTERPRISE DEVELOPMENT

- Procure from BEE entities:

- minimum 40% capital goods by 2014

- 70% service by 2014

- 50% consumer goods by 2014

- Contribution of 0.5% of annual income by

multinational suppliers of capital goods into social fund

123 35


EMPLOYMENT EQUITY

Companies to achieve minimum of 40% HDSA

demographic representation by 2014 at:

executive management (Board) level

senior management (Exco) level

core and critical skills

middle management level

junior management level

Companies to fast track existing talent pools to ensure high level operational exposure in terms of career path programmes.

OCCUPATIONAL DISTRIBUTION IN THE MINING SECTOR

123 36

Africans85.5%

Whites12%

Asians0.4%

Coloured2.1%

123 37


Industry to invest % of annual payroll in essential skills

development reflective of demographics as follows:

3% by 2010

3.5% by 2011

4% by 2012

4.5% by 2013

5% by 2014


GRADUATES STATS IN CORE SKILLS (ENGINEERING)

123 38

QUALIFICATION RACE

B W C I

Bachelors 2007 145 640 50 34

Honors 163 270 12 32

Masters 62 146 4 20

Doctorate 4 16 1 1

Bachelors 2008 166 683 8 28

Honors 176 334 15 29

Masters 75 144 1 17

Doctorate 7 17 1 3

123 39

MINE COMMUNITY DEVELOPMENT

- Stakeholders to adhere to international best practices

and guidelines,

- Invest in ethnographic community consultative and

collaborative process prior to implementation of mining

projects,

- Conduct assessment to determine developmental needs

in collaboration with mine community and,

- Identify projects for contribution towards community

development in line with IDPs proportionate to

investment


123 40


HOUSING AND LIVING CONDITIONS

- Companies to implement measures to improve

standards of housing and living conditions for

mineworkers as follows;

convert/upgrade hostels into family units by 2014,

occupancy rate of one person per room by 2014,

- Facilitate home ownership by miners in consultation

with labour by 2014

123 41

SUSTAINABLE DEVELOPMENT AND GROWTH IN

MINING INDUSTRY

-Mining companies to implement elements of sustainable

development commitments in Stakeholders’ Declaration,

-Improve on environmental management

-Improve on industry’s health and safety performance,

-To utilise S.A based facilities for analysis of samples

across mining value chain.


123 42


BENEFICIATION

- Companies to facilitate local beneficiation by

adhering to s26 of MPRDA and Beneficiation Strategy

- Offset value of level of beneficiation against portion

of HDSA ownership but not exceeding 11%

123 43

REPORTING (MONITORING AND EVALUATION)

- S47 MPRDA, suspension/ cancellation of rights

- S99 MPRDA, penalties


CONCLUDING REMARKS• The Mining Charter – precursor of all sectoral Charters (all

of which are premised on the identical elements originally identified)

• The extent of transformation of the mining sector against the Charter elements is grossly inadequate

• The construct of the Charter 2002, as a negotiated and compromise document presented gray areas in the elements and measures (scorecard) – unintended consequences of exploitation

• Lack of capacity within the DMR compromised the extent of vigilance on implementation of the Charter

• The Charter focused on transformation of the sector – lack of focus on sustainable transformation and growth of the sector


123 45

CONCLUDING REMARKS

- Development of Monitoring and Evaluation

component

- Companies must report levels of compliance

annually

- Review of MPRDA to beef up penalty

provisions that may be imposed to

companies for non-compliance.

CONCLUDING REMARKS

• The mining industry regarded the Charter as a compliance requirement – not a business imperative

• We, as policy makers presumed that everyone is committed to transformation

• The amended Charter strengthened the construct of the language to obviate against any multiplicity of interpretations

• The amended Charter introduces an element of sustainable development

• The amended Charter introduces a scorecard with clearly defined target

• Reporting mechanisms are well defined – annual reporting

• Review of MPRDA to beef up penalty provisions that may be imposed to companies for non-compliance.



ENDS….ENDS….

“A DROP OF WATER BREAKS A ROCK THROUGH CONTINOUS FALLING.”

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presentation to the parliamentary select committee on finance: mining charter impact assessment

Documents

mining investmentsarb

mining sectorthe

value addednet exports

value addedelectricity

mineral export salesdmrstatssa

value addedgross

unit of value

skills base of hdsas