Team Finland Mining, Etelä-Afrikka

Module 4.2 Market Studies

Team Finland Mining Growth ProgramSOUTH AFRICA

16.12.2015

Table of contents

– Introduction and Executive Summary

– Introduction: Overview of the South African Mining Industry

– Results and Recommendations– Procurement: Decision Making Process– Sales and Distribution Channels– Marketing Channels– What South African Mining Companies Value in their Current Suppliers– Potential for Finnish Companies to Enter the South African Market– Recommendations

– Market Landscape– Overview of the South African Mining Industry– Current Key Trends in the Mining Industry

– Market Specific Issues– Regulatory Environment– Mining Operation Phakisa– The Value Chain in the Mining Industry– Key Players in the Value Chain

– Acronyms

– References

16.12.2015 Team Finland Mining Growth program

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16.12.2015

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competitive and

enabling environment

South Africa

largest resource base

gold

PGM’snickel

copper

uranium

opportunity

investment

modernisation

partnership

important to global economy

employment

health and safety

infrastructure

efficiency

cost reduction

exploration

portfolio diversification

productivity

local talent development

energy efficientiron ore

Africa

mechanisation

sustainability

coal

B-BBEE and the

Mining Charter

CSI

return to profitability

mining Phakisa

Team Finland Mining Growth program

Introduction and Executive Summary

This study was conducted by Finnish Trade Organisation FINTRA Ltd and AdvanceInternational Business Development Ltd as part of a three year mining industrygrowth programme initiated by the Finnish mining industry that is steered by thetrade and investment agency, Finpro, and supported by the Ministry of Economyand Employment in Finland. Similar studies were conducted concurrently in fivecountries around the world.

The purpose of this report is to provide Finnish mining supply companies withrelevant and up-to-date information about the South African mining industry.

The methodology applied in the study was research of primary and secondarysources; both data from existing articles, reports and statistics as well asqualitative research in the form of interviews and discussions with a number ofdifferent key players and industry stakeholders.

Interviews were conducted with representatives from South African authorities,mining companies, industry specialists and suppliers as well as the media.


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Understanding of the very specific market conditions, specific challenges andopportunities that exist in this market, operating models and other relevant factsabout the market, together with insights, views and recommendations provideddirectly by some of its key players in our interviews, will hopefully assist Finnishcompanies in their decision making and planning for a successful market entry anddevelopment of their international business in South Africa.

The study begins with a general overview of the mining industry, also with somehistoric perspective, to show how the industry has changed over the pastdecennium.

South Africa has one of the richest deposits of minerals in the world, believed tohold some USD 2.5 trillion worth of mineral reserves in the ground. Including theindirect sector, it contributes around *R645 billion or 17% to the GDP and provideswork to over one million people (1.3 million).

Most deposits and mining activity are situated in the north-eastern part of thecountry.


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*The local currency is South African Rand, shortened ZAR or R


There are 1700 registered mines of which around 1000 are believed to be inoperation. 200 of these are counted among the mid-tier to major mine operationsin the country. These mines produce precious metals & minerals, energy minerals,non-ferrous metals and minerals and ferrous metals and minerals.

In this year (2015), 80% of revenue from sales has been from mining of coal,PGMs, gold and iron ore. Diamonds make up 5% of total sales.

Industrial minerals are also a large part of mining production in South Africa butwill not be covered in detail in the report as it is particularly in the deepunderground platinum and gold mines that conditions specific for this marketprevail and that pose very special challenges and needs from side of the miningcompanies, that suppliers of equipment and technology shall be aware of.

The 75 mining companies that are members of the Chamber of Mines of SouthAfrica, represent about 90% of mine production value.


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64 mining companies are listed (2015) on the local securities exchanges: the JSEand AltX. Of these, 36 have their global head quarters in South Africa. Their totalmarket capitalisation is R319 billion. This is a steep decline in market capitalisation,only a third of the situation a few years back in 2011.

In addition to the global decline in commodity prices, this report will explain andpoint out some of the very market specific challenges and conditions that theindustry in South African is experiencing:

Increased cost of labour, exponential increase in cost of electricity, powershortages causing unplanned production down time, and very deep and difficult toreach, narrow ore bodies make mining costly and often risky and unsafe. Outdatedmining methods with a large component of manual, unskilled labour adds to thecost and need for modernisation of the industry.

The current trend in the South African mining industry is toward mechanisationand automation, to make mining more efficient, cut costs and return toprofitability. This creates opportunities for Finnish suppliers.


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A detailed outline of the South African value chain, mostly for underground miningbut also for surface mining, and examples of some of the main players in this chainare part of the next section. In the section on the value chain, we introduce themining companies and industry specialists as well as authorities that wereinterviewed for this assignment.

A large part of the report deals with the regulatory environment. There is amultitude of acts, laws and regulations administered and regulated by severaldifferent authorities. Special attention is given to the most important of these: TheMineral and Petroleum Resources Development Act (the MPRDA), the MiningCharter and the Government’s Codes of Good Practice for Broad-Based BlackEconomic Empowerment (B-BBEE). These are important pieces of legislation andrules to comply with for the entire mining industry value chain and it is importantto be aware of and understand its reach and implications.

The study ends with recommendations to a successful market entry in SouthAfrica, validated and often provided directly by the interviewed mining companiesand specialists.


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Introduction: Overview of the South African Mining Industry

– South Africa in its ground holds the world’s largest mineral reserves, estimated to be valued at USD 2.5 trillion

– Challenging environment. Some of the deepest mines in the world with very narrow and deep ore bodies that makes it difficult and risky to reach and mine

– In 2015 there are 1700 registered mines and quarries in South Africa.

– Currently, little over 1000 of these mines are in operation of which about 200 make up the most important mines in the country.

– The 75 mining companies that are members of the Chamber of Mines are the large mining houses that make up 90% of the mining production value in South Africa

– The mining industry in South Africa employs just under half a million people directly and indirectly as many as 1.3 million people.

– In addition to the globally declining commodity prices, raising costs of operations, labour and energy, the South African mining industry, especially for gold and platinum mining, is in need of rapid modernisation and mechanisation.


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Results and Recommendations

Procurement: Decision Making Process

Approach Mining Company

– Face-to-face meetings, networking and building of personal relationships is essential to being a successful supplier in the mining industry in South Africa.

Global Procurement Teams & Site Visit

– Procurement teams use their knowledge base and actively search for new and more efficient technologies. Should there be any interest they will carry out a site visit to the supplier to see their operation, manufacturing plant, capabilities and health and safety standards.

The Role of Mining Engineering Consulting Firms and EPCMs

– Mines contract out to EPCMs for large projects who manage the whole project on the client’s behalf. The EPCM contractor co-ordinates all design, procurement and construction work. They will carry out site surveys, get clearances from authorities, do the basic engineering and prepare the site for subcontractors who are chosen by the EPCM company, but they have an agreement directly with the final customer.

Pilot Programme

– New products must be put through a pilot programme. Here the product is tested in real operating conditions.


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Source: Interviews

Register as Vendor

– All companies have a “vendor” list. Suppliers wanting to supply goods and services must register as vendors after which they are awarded company specific vendor numbers

Procurement Purchasing Levels of Authority

– The authority to procure items exists at different levels of the company according to the price bracket in which the procurement is taking place. The price brackets are different for each company and work through an internal governance system unique to each company.

– Example:

Level 1: 0-R50 million capital expenditure approved at mine site level or by a member of EXCO

Level 2: R50-R250 million capital expenditure approved by South African EXCO

Level 3: R250 million and above capital expenditure approved by Board at global Headquarters

The Tender Process

– When a tender opens, suppliers are invited to compete on a tender. Sometimes the tender is open to everyone, sometimes it is open to only a few selected suppliers offering a specific solution.


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Source: Interviews

Procurement: Decision Making Process

Sales & Distribution Channels


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Supplier Supplier Supplier Supplier

EPCMLocal

Distributor /Partner

Local Distributor /

Partner

EPCM

Mining Company

Mining Company

Mining Company

Mining Company

Global Procurement

Team

The procurement decision for most equipment is often taken at the local head office or at global headquarters that may be based overseas. Some multinational companies have global procurement teams and commodity specialists for different types of equipment who might be based in another, third country

Source: Interviews

Marketing Channels

The following channels were recommended from the industry interviews:

Direct approach and building on personal relationships:

– Face-to-face contacts and building on personal relationships is a very strong motivator and was highlighted by everyone interviewed.

– Many companies are open to meeting new suppliers and for suppliers to present their company and service offering.

Existing suppliers:

– Most companies source suppliers from their internal knowledge base of suppliers. This makes it even more clear how important it is to make one’s products and services known.

Global procurement teams & commodity specialists

– These attend world-wide conferences, trade shows and exhibitions to stay abreast of technology e.g. in Australia, Canada etc.

– Commodity Specialists are incentivised to source new technology that can improve efficiency and profitability


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Marketing Channels

The following channels were recommended from the industry interviews:

Online:

– Internet searches

– Database - Ezee-Dex Online is Africa's Premier Industrial and Mining Search Engine and Directory www.edz.co.za

Professional Magazines in South Africa:

– Mining Weekly and Engineering News, Creamer Media www.miningweekly.comwww.engineeringnews.co.za

Trade Shows and Exhibitions in South Africa:

– Cape Town - African Mining Indaba - currently the world’s largest mining investment event and Africa’s largest mining event www.miningindaba.com

– Johannesburg – Bauma Conexpo Africa - for Construction Machinery, Building Material Machines, Mining Machines and Construction Vehicles www.bcafrica.com

– Johannesburg - Electra Mining – the biggest mining, industrial, construction and electrical trade show in Southern Africa www.electramining.co.za


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http://www.edz.co.za/

http://www.miningweekly.com/

http://www.engineeringnews.co.za/

http://www.miningindaba.com/

http://www.bcafrica.com/

http://www.electramining.co.za/

What South African Mining Companies Value in their Current Suppliers


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brand recognition

locally available spares /

consumables 24/7

ISO rating

quality management systems

service level agreements

cost effective equipment

Potential for Finnish Companies to enter the South African market – Advantages

– Companies interviewed are open to new technologies that can make the

operations more cost efficient throughout the value chain

– Companies interviewed are open to global suppliers, including from Finland

– Finnish products, such as from e.g. Sandvik, have a very good reputation in the

South African mining industry

– Based on our interviews, mining companies prefer to work with European

suppliers rather than East Asian suppliers from a quality and reliability

perspective

– The South African mining industry is going through a period of change toward

modernisation. It is a fruitful time to market modernising products and services

as there is an openness to this


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Potential for Finnish Companies to enter the South African market – Barriers to Entry

– The providers of products and services to the mining industry in South Africa are well established in the market. There is strong competition

– Companies interviewed are happy with their existing suppliers

– A culture of conservatism can be a barrier to entry where there is internal resistance in companies to new technologies

– Language can be a barrier to entry as at mining site level the industry is still dominated by Afrikaans speaking management

– Diesel fuel standards are not up to the specifications of the European machines

– The exchange rate is unfavourable toward imports as the Rand is currently weak

– The larger part of labour in precious metal and mineral mining is unskilled

– B-BBEE rules and regulations can pose a challenge but must be considered


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RecommendationsFor Finnish companies who want to do business in SA

– Personal relationships are key

– One needs to establish relationships with the technical people at the mining companies, to get a “presence” here, become known and network

– Business in South Africa is very much built on networking, relationships and trust

– Use the time of low investment and economic stress to research and prepare your market

– Actively find out who the key procurement people across the sectors are

– The way tenders are distributed is based on what the buyer knows

– Products must go through a testing phase at the mine

– Start getting pilot programmes in place

– Miners are conservative procurers.

– Demonstrate that your products have a track record


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– Demonstrate how your products can assist in lowering the cost base or improve production efficiency or safety levels

– Support product presentation with case study

– Plan to have a presence in South Africa with parts, skills and expertise to back up your products locally

– Wholesale a complete solution including after sales maintenance service

– Offer turnkey solutions

– Companies prefer to buy from a supplier that is locally based and that shows that their supply chain creates added value to the local economy

– Find a committed, credible and reputable South African partner to work with that has the skills, the right industry connections and good B-BBEE credentials

– B-BBEE compliance is very important throughout the supply-chain.


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– Chose your partner company well

– This will be your ‘face’ to the market

– Shares in your operation for B-BBEE compliance, should be bought by the right partner

– Set up an office with one or two people and start doing marketing and building client relations, while looking for the right partner to work with

– Choose your customer well

– Make sure that there is / or create a genuine interest

– South African culture is such that they do not like to disappoint, so one might not be given an honest answer

– South Africa is a good gateway to Africa

– Mining houses with regional offices in South Africa, normally procure equipment and products also for their operations in Africa


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RecommendationsOn market areas into which to expand

– Mechanised and automated mining

– High end extractive technology

– Instrumentation

– Mechanisation in terms of safety and environment

– Independent power technology to supply the mines ‘off the grid’.

– This also for mining operations in other African countries, e.g. Ghana

– Environment - new technologies that are fit for the local environment

– e.g. waste water purification

– Information Technology (IT)

– data mining

– technologies that allows the analysis of an ore body

– Other African countries (e.g. Botswana, Ghana, Namibia, Tanzania, Zambia)

– There is a gap in the market in African countries for consumable items


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– Try to establish personal relationships early

– The most important connections are the personal ones.

– This includes playing sports with people – Golf, etc.

– Send emails with credentials, product presentations and case studies also to the technical officers at the mines

– Follow up with local contact

– Visit the people at the operational mines

– Then the mine technical operations will inform head office what they require

– Remember that all gift items given to the mines (even pens and pads) must be branded with your company or product name or logotype

– There are very strict policies for receiving gifts or entertainment, and each of these are carefully documented.


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Recommendations - How shall Finnish companies

launch their products to enter the South African market

Recommendations - How shall Finnish companies

launch their products to enter the South African market

– Attend a forum or platform at the Mining Indaba in Cape Town

– Attend a stand or visit the Bauma Africa show at Nasrec, Gauteng

– A targeted mining event together with a group of suppliers from Finland targeting and inviting South African mining industry stakeholders (buyers, decision makers, opinion leaders, mine managers, engineers).

– Also involve technical speakers.

– Even if the attendance at some of the major trade shows was recommended, it was also highlighted that for a more targeted joint activity, it might be better to host such an event in isolation, to avoid dilution of attendance and attention.

– Advertising or editorial in popular trade publications (Mining Weekly, Engineering News, etc. )

– Network and build relations, make your product and presence known


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“It is my personal belief that South Africa will arrive at a competitive and enabling environment for mining and that the mines of the future will be far less labour intensive and far more modern. In short, the country will succeed in turning the $2.5-trillion worth of metals and minerals it has in the ground to positive account.

As that happens, the way will be opened for both domestic and continental expansion, which will in turn strengthen the business case for the provision of an expanded range of goods and services from South Africa into Africa.”

Martin Creamer, Creamer Media, October 2015


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Market Landscape

The mining industry contributes just over 7% to the South African economy. Calculating in the indirect factor, the total contribution to SA’s GDP is about 17%

Overview of the South African Mining IndustryMarket Size: Mining and Quarrying % Contribution to Total GDP


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Source: South African Reserve Bank; South Africa Info quoting Chamber of Mines

7,47%

8,34%8,01%

8,38%8,67%

8,32%8,06%

7,55%7,17%

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

9,00%

10,00%

2007 2008 2009 2010 2011 2012 2013 2014 2015

In 2014, products and services sold in the mining industry were R286 billion Both direct and indirectly, its total contribution (17%) is estimated to be over R645

billion

157 672

197 643 200 824

230 350

262 391 271 410

284 802 286 606 284 345

-

50 000

100 000

150 000

200 000

250 000

300 000

350 000

2007 2008 2009 2010 2011 2012 2013 2014 2015


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Source: South African Reserve Bank: Chamber of Mines; Info SANote: Information for 2015 is annualised based on January to June 2015 figures

Overview of the South African Mining IndustryMarket Size: Mining and Quarrying GDP Contribution in R’Million

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Source: South African Reserve Bank

Agriculture, forestry and fishing

2 %Mining and quarrying

7 %

Manufacturing12 %

Electricity, gas and water

4 %Construction (contractors)

4 %

Wholesale and retail trade, catering and

accommodation13 %

Transport, storage and communication

9 %

Finance, insurance, real-estate and

business services19 %

Community, social and personal services

20 %

Other10 %


Overview of the South African Mining IndustryMarket Size: Comparative Contribution to GDP 2015 as %

Source: Johannesburg Securities Exchange (JSE)

30

896941

818

665

490

319

0

100

200

300

400

500

600

700

800

900

1 000

2010 2011 2012 2013 2014 2015

Of the 64 mining companies listed on JSE & AltX in 2015, 36 have their global head quarters in South Africa. The total market capitalisation of the South African based mining companies is R319 Billion. This is a steep decline from earlier years, less than half of the capitalisation in 2013 and only about a third of that in 2011.


Overview of the South African Mining IndustryMarket Capitalisation on JSE & AltX, R’Billion 3 November, 2010-2015

- 50 100 150 200 250 300 350 400 450 500

African Rainbow Minerals Ltd

Northam Platinum Ltd

Kumba Iron Ore Ltd

Sibanye Gold Ltd

Exxaro Resources Ltd

Oakbay Resources and Energy Ltd

Impala Platinum Ltd

Gold Fields Ltd

Anglogold Ashanti Ltd

Anglo American Platinum Ltd

South32 Ltd

Anglo American plc

Glencore plc

BHP Billiton plc

31

The top 4 companies have their global head quarters overseas.


Overview of the South African Mining IndustryMarket Capitalisation on the JSE of SA’s top mining companies, R’Billions

3 November, 2010-2015

Source: Johannesburg Securities Exchange (JSE)

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Source: Chamber of Mines16.12.2015 Team Finland Mining Growth program

Overview of the South African Mining IndustrySouth African Key Mineral Deposit & Infrastructures

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Source: Department of Mineral Resources (DMR); Mines in operation: Eskom; Number of mines: www.mining.co.za

Precious Metals and Minerals

• Diamonds

• Gold

• PGMs

• Platinum

• Rhodium

• Palladium

• Silver

Energy Minerals

• Coal

• Hydrocarbon Fuels

• Uranium

Non-ferrous Metals and Minerals

• Aluminium

• Antimony

• Cobalt

• Copper

• Lead

• Nickel

• Titanium

• Zinc

• Zircon

Ferrous Metals and Minerals

• Chromium

• Iron Ore

• Manganese

• Vanadium

Industrial Minerals

• Aggregate and Sand

• Alumino-silicates

• Dimension Stone

• Fluorspar

• Limestone and Dolomite

• Phosphate Rock

• Clays

• Sulphur

• Vermiculite

There are about 1700 registered mines in South Africa, including industrial minerals Of the 1700 registered mines, approx. 1000 are in operation Of the 1000 operational mines there are about 200 main mines producing the

following: precious metals & minerals, energy minerals, non-ferrous metals & minerals and ferrous metals & minerals


Overview of the South African Mining IndustryMined Commodities in South Africa

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Source: Department of Mineral Resources (DMR)

COAL27%

PGM24%GOLD

15%

IRON ORE12%

DIAMONDS5%

INDUSTRIAL MINERALS4%

CHROME ORE 4%

MANGANESE ORE4%

NICKEL2%

COPPER 1,46%

ZINC METAL IC0,12%

LEAD METAL IC 0,10% COBALT METAL IC

0,07% SILVER0,05%

Close to 80% of sales was generated from these 5 commodities: Coal PGM Gold Iron Ore

Diamonds contributed to 5% of sales


Overview of the South African Mining IndustrySales per Commodity 2015, as % of Total Sales in Rand (R)

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Source: www.mining.co.za

Of the 200 main operating mines in South Africa, 53% are surface mines and 47% are underground.

Most of the surface mines are also coal and diversified with a large number of diamond mines.

Most of the underground mines are coal mines, but the Platinum and Gold mines are among the deepest mines

Diversified mines mine Cobalt, Copper, Gold, PGMs, Silver, Sulphur and Uranium concurrently.


Overview of the South African Mining IndustryUnderground vs. Surface Mining among the main mines

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Source: Department of Mineral Resources (DMR) * 2013 figures are the latest available

96%

74%

26% 25%21%

11%

3%1%

63%

49%

21%

33%

25%

6% 3% 4%

0%

20%

40%

60%

80%

100%

120%

PGMs Chromium Manganese Vanadium Zirconium Gold Coal Iron Ore

SA's % of World Reserves SA's % of World Production

South Africa holds 96% of the world’s PGM reserves


Overview of the South African Mining IndustrySouth Africa’s % of World Reserves and Production in 2013

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South Africa’s Mining Industry is a major employer even if employment numbers have been decreasing over the last few years

In 2015 mining employs just under half a million people Since 2012 over 35000 jobs have been lost

448909 444132 456337

495150518519

492219 498906 512878 524632 510099 495 592 489 515

0

100000

200000

300000

400000

500000

600000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Department of Mineral Resources (DMR)16.12.2015 Team Finland Mining Growth program

Overview of the South African Mining IndustryEmployment figures in the South African Mining Industry

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34124 3670341756

49924

6519368935

78044

91866

107930100811 102 185

0

20000

40000

60000

80000

100000

120000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Increasing labour costs is a key trend in the industry that is of great concern to the industry

Labour costs have tripled in the past 10 years Many mining industry employees have lost their jobs in the last 3 years


Overview of the South African Mining IndustryEmployment Cost – R’Million

16.12.2015

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PGM39 %

Gold24 %

Coal16 %

Other mines and quarries

9 %

Iron Ore4 %

Chrome4 %

Diamonds4 %

PGM and Gold mining remain labour intensive due to outdated mining technologies with little mechanisation

The desired trend is towards a smaller, more skilled work force

Coal has the largest revenue of the commodities but due to coal mining being on par with global mining technologies, it is less labour intensive and the labour force is more skilled


Overview of the South African Mining IndustryEmployment by Commodity – 2015

16.12.2015

– The South African mining industry is clearly defined into two segments – the established mid-tier to large mining companies, and the smaller, junior miners.

– Major miners - are companies with an asset base above R7 billion

– The characteristics of the major miners are multi-national companies mining diversified commodities and they are also geographically diversified

– Mid-tier miners – many of the major mines in South Africa are referred to as mid-tier miners. This refers to the size of the company, its assets, relatively limited or focused operations in South Africa (number of mines) and they are still developing, even if they are often global players (like e.g. Goldfields)

– Junior miners - are companies with an asset base of R50 million to R7 billion

– They are mostly in the exploration phase and are developing to become producers or have just started producing

– Small Scale miners - Below R50 million

– Artisanal miners - Below the small scale miners (working with spade and hacks)

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Team Finland Mining Growth program16.12.2015

Overview of the South African Mining IndustryA brief description of the industry key segments

Current Key Trends in the Mining IndustryEnergy shortfalls – while costs are increasing dramatically

– Energy is a concern for all the mines from junior miners to major miners

– In addition to increasing energy costs, South Africa suffers from frequent energy

supply shortfalls, where demand outstrips supply and there are black outs on

mines, both planned (‘load shedding’) and unplanned, causing down time and

severe production interruptions

– Currently electricity is controlled by the government monopoly, Eskom

– However, there is a drive towards IPPs (Independent Power Producers)

– Some mines are looking at alternative, renewable energy sources and storage

solutions

– Goldfields South Deep mine, Sibanye Gold and Anglo Gold Ashanti have opened

tenders for solar power plants and power storage for their mines

16.12.2015

41


Current Key Trends in the Mining IndustryCost of Electricity for Mining Industry (Cents/KwH) 2008-2015

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

2008 2009 2010 2011 2012 2013 2014 2015

Av.

c/k

Wh

16.12.2015

42

Electricity costs have more than tripled in the last 7 years (from 2008 – 2015)


Current Key Trends in the Mining IndustryLabour poses an increasing problem in South Africa

– Labour costs are continuing to increase. This is a prevalent concern for all the mining

companies

– Gold and platinum mines are labour intensive because they are still mining in an old-

fashioned, traditional way where several thousand workers are employed in a mine

– Labour on gold and platinum mines is mostly unskilled but there is a trend toward employing more skilled labour and also to train and upskill the labour force

– Mines are moving away from employing migrant labour and are instead aiming at

establishing a community of local labour with their families living and working near the mine. Socio-economic development and sustainability is important.

– As a consequence of lower profitability on the mines, retrenchments are on the increase

– The main unions are AMCU and NUM. They are highly politicized unions with labour unrest, strikes and violence on the rise.

– The unions are demanding double digit increases well above the inflation rate but

increasing labour costs do not translate to increases in productivity


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Source: Interviews

Current Key Trends in the Mining IndustryModernisation: Mechanisation, Automation and I.T.

– Some major gold and platinum mines are modernising i.e. installing mechanised or automated mining methods

– Coal mines in South Africa are already modernised and on par with the rest of the world

– Coal mines employ a more skilled labour force and are more mechanised than gold and platinum mines which tend to employ a manual and unskilled labour force

– Gold Fields’ South Deep mine is the only mechanised gold mine in South Africa

– South Africa has most of the deepest mines in the world which make it difficult, expensive and risky to mine (e.g. Mponeng at 4km deep)

– The need to increase efficiency and profitability in spite of the challenges that the gold and platinum mining industry faces (depth, energy, labour, safety) is driving the trend towards modernisation


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Source: Interviews

Current Key Trends in the Mining IndustryGold Production & Sales (1000 kg) 2000 – 2015


45

– Gold production and sales in South Africa have more than halved over the last 15 years but

is still a significant contributor to world production and the South African economy.

0

50

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 F

10

00

kg

Production

Total Sales

Linear (Production)

Linear ( Total Sales)

16.12.2015

Current Key Trends in the Mining IndustryPGMs Production & Sales (1000 kg) 2000 – 2015


46

0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F

10

00

kg Production

Total Sales

Poly. (Production)

Poly. (Total Sales)

– After peaking in 2006 the general trend in production for PGMs is declining

– 2014 saw the worst strikes in the platinum mining industry resulting in up to 5 months of complete shutdown for certain mines and a big decrease in overall production volume

Source: Department of Mineral Resources (DMR); 2015 Forecast based on extrapolation of mining production and sales up to June 2015

Current Key Trends in the Mining IndustryCoal Production & Sales (1000 tonnes) 2000 – 2015


47

190 000

200 000

210 000

220 000

230 000

240 000

250 000

260 000

270 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F

kt

Production

Total sales

Linear (Production)

Linear (Total sales)


– Coal production and sales in South Africa have been on the increase since 2000, but the

forecast for 2015 looks lower than 2014

Current Key Trends in the Mining IndustryIron Ore Production & Sales (1000 tonnes) 2000 – 2015


48

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F

kt

Production

Total Sales

Linear (Production)

Linear (Total Sales)

– Iron Ore production and sales in South Africa have been on the increase since 2000, but

supply is outstripping demand


– Commodity prices have been decreasing globally since 2013

– Exploration is on the decline because of global low commodity prices

– Mining houses are holding back on major investments due to regulatory uncertainty and the low commodity prices

– Regulatory uncertainty is a matter of concern for both mining houses and investors

– There is a trend toward less investment in the mining industry, market capitalisation has declined

– There is a trend to move from underground mining for higher grade ore to open cast mining for lower grade ore

– Production in coal and iron ore is increasing

– Production in gold and platinum is declining

– Eskom power shortages and steep price increases pose challenges

– Labour costs are on the rise and working with the unions poses challenges

– The weakened Rand counters the effects of falling commodity prices to some extent, but makes it more costly to import capital equipment


49

Current Key Trends in the Mining IndustryGeneral Trends

50

Market Specific Issues

The Regulatory EnvironmentThere are a multitude of acts regulating the mining industry

The Department of Mineral Resources (DMR) is the main Regulatory Authority. The State is the

custodian of the mineral and petroleum resources in South Africa. The Minister of Mineral

Resources acts on behalf of the State and may grant, issue, refuse, control, administer and manage

any exploration permission, prospecting right, mining right, mining permit, retention permit,

technical co-operation permit and production right.

The DMR is also the architect and administrator of The Mining Charter, the Codes of Good Practice

for the implementation of Broad-Based Black Economic Empowerment (B-BBEE) in the mining

industry, for meaningful economic development and involvement, of socio economic upliftment of

historically disadvantaged South Africans (HDSA) and mining communities.

The Department of Trade & Industry (the dti) regulates not only the trade relations and current bi-

lateral trade agreements in place, such as the TDCA between South Africa and the EU. It is also the

main authority behind the General Codes of Good Practice for B-BBEE and the Industry Sector

Charters (except for the mining industry).

The Department of Environmental Affairs and the Department of Water and Sanitation are the

main authorities behind environmental legislation concerning the mines.

The labour force and its relationship with the employers is regulated by the Department of Labour.


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– The Mineral and Petroleum Resources Development Act, No. 28 of 2002

– The Mineral and Petroleum Resources Development Amendment Act, No. 49 of 2008

– The Mineral and Petroleum Resources Royalty Act, No. 28 of 2008

– The Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry of 2002 (the Mining Charter);

– The Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry of 2010 (the revised Mining Charter);

– The Broad-Based Black Economic Empowerment Act, No. 53 of 2003;

– The Broad-Based Black Economic Empowerment Amendment Act, No. 46 of 2013;

– The Codes of Good Practice for the South African Minerals Industry (published 29 April 2009);

– Mining Titles Registration Act, No. 16 of 1967;

– The Precious Metals Act, No. 37 of 2005;

– The Diamonds Act, No. 56 of 1986;

– The National Environmental Management Act, No. 107 of 1998;

– The National Environmental Management: Protected Areas Act, No. 57 of 2003 (NEMPAA);

– The Mine Health and Safety Act, No. 29 of 1996;

– The Mine Health and Safety Amendment Act, No. 74 of 2008;

– The Occupational Health and Safety Act, No. 85 of 1993;


52

The Regulatory EnvironmentSome of the most important acts that regulate the industry


53

Department of Mineral Resources

(DMR)

Mineral Petroleum Resources

Development Act, 28 of 2002

Mine Health & Safety Act 1996

The Regulatory EnvironmentExploration and Mining Laws and Regulations

The Regulatory EnvironmentMineral and petroleum resources

Mineral and Petroleum Resources Development Act of 2002 (Act No. 28 of 2002).This is the most important legislation regulating the mining industry. It is administered by the Department of Mineral Resources

The Act’s main objectives are to:

– set out the State authority of all mineral and petroleum resources

– achieve equitable opportunities and access to the mineral and petroleum resources, particularly among historically disadvantaged South Africans (HDSA);

– support investment, growth and employment in the mineral and petroleum industry;

– mandate security of tenure in respect of existing prospecting, exploration, mining and production operations;

– uphold section 24 of the Constitution that the mineral and petroleum resources are orderly and ecologically sustainable; and

– ensure that owners of mining rights assist in the development of the regions where they operate

– ensure safety at mine operations

– mandates the rehabilitation of the environment after exploration and mining


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Mine Health & Safety Act of 1996 (Act No. 29 of 1996)

Mine Health & Safety Amendment Act of 1996 (Act No. 74 of 2008)


– To provide for protection of the health and safety of employees and other persons at mines and, for that purpose-

– to promote a culture of health and safety;

– to provide for the enforcement of health and safety measures;

– to provide for appropriate systems of employee, employer and State participation in health and safety matters;

– to establish representative tripartite institutions to review legislation, promote health and enhance properly targeted research;

– to provide for effective monitoring systems and inspections, investigations and inquiries to improve health and safety;


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The Regulatory EnvironmentHealth and Safety

Mine Health & Safety Act of 1996 (Act No. 29 of 1996)

Mine Health & Safety Amendment Act of 1996 (Act No. 74 of 2008)


– to promote training and human resources development;

– to regulate employers' and employees' duties to identify hazards and eliminate, control and minimise the risk to health and safety;

– to entrench the right to refuse to work in dangerous conditions; and

– to give effect to the public international law obligations of the Republic relating to mining health and safety;

– and to provide for matters connected therewith.

Any breach of this Act results in a ‘Section 54’ stoppage which is a closure of the mine’s operations until a full investigation has been completed by the Department of Mineral Resources


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The Regulatory EnvironmentHealth and Safety


57

Department of Labour

The Labour Relations Act (LRA),

Act 66 of 1995

The Employment Equity Act 55 of

1998

Basic Conditions of Employment Act (BCEA) of 1997

The Occupational Health and Safety Act, No. 85 of 1993This act applies to all workers and employers, except for those in the mining areas,mines or mining works, where instead the Mine Health and Safety Act applies

The Regulatory EnvironmentLabour Relations

The Labour Relations Act (LRA), Act 66 of 1995

The LRA deals with rights of individuals regarding fairness, bargaining and dispute resolution and rights and obligations of trade unions.

The LRA covers:

– rights of employees to form and join a union or an employers' organisation

– the rights of trade unions in the workplace

– collective bargaining

– industrial action

– Bargaining Councils and Statutory Councils

– the establishment of workplace forums, which allow employees to participate in management decisions at work

– what are fair and unfair labour practices

– procedures that must be followed for dismissals to be fair

– dispute resolution structures and procedures, including the Commission for Conciliation, Mediation and Arbitration (CCMA)


5858



The Employment Equity Act, Act 55 of 1998; as amended by Act 65 of 2002; Act 68 of 2002; Act 52 0f 2003 and Act 47 of 2013, Employment Equity Amendment Act 2013

The main objective with the Employment Equity Act is to eliminate and correct the effect ofdiscrimination of historically disadvantaged South Africans. It sets the framework forAffirmative Action; stipulates a reporting format to employers for their equity adjustmentplans; prescribes “equal pay for equal work” and strives to protect workers against anydiscrimination and unfair practices or policies based on gender, race, age, religion, maritalstatus, etc…

Basic Conditions of Employment Act, Act 75 of 1997

Basic Conditions of Employment Amendment Act of 2002.

This Act regulates the basic conditions between the employer ad the employee for itsemployment; such as e.g. daily and weekly ordinary working hours, night work, shift workand overtime, work on Sundays; annual leave, maternity or family responsibility leave; mealintervals, daily and weekly rest intervals; and procedures and rules for termination ofemployment.


5959

The Environmental aspect of mining is, further than the DMR (as in the MPRDA),

in main regulated by the Department of Environmental Affairs (DEA) and the Department of Water and Sanitation (DWA).

– The National Environmental Management Act, No. 107 of 1998 (“NEMA”);

– The National Environmental Management: Air Quality Act, No. 39 of 2004;

– The National Environmental Management: Waste Act, No. 59 of 2008;

– The MPRDA;

– The National Water Act, No. 36 of 1998;

– The Environment Conservation Act, No. 73 of 1989;

– The National Heritage Resources Act, No. 25 of 1999;

– The Hazardous Substances Act, No. 15 of 1973;

– The Health Act, No 61 of 2003


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The Regulatory EnvironmentEnvironmental Legislation

The Broad-Based Black Economic Empowerment Act, No. 53 of 2003;

The Broad-Based Black Economic Empowerment Amendment Act, No. 46 of 2013;

The Amended Codes of Good Practice (published in Government Gazette No. 36928 on 11 October 2013), in force from 1 May 2015

Amended Guidelines for Codes of Good Practice, Phase 2 (published in the Government Gazette No. 38765 and 38766 on 06 May 2015) (Refers to i.a. Sector Codes, Specialised and Small Enterprises, Equity Equivalent Contribution by Multinationals)

In 2007, the dti issued the first B-BBEE Codes of Good Practice as a framework for implementation of the B-BBEE legislation and policy. At the same time mechanisms to monitor and evaluate compliance throughout the economy were established.

The Act and its Codes were introduced to bring about political, economic and socioeconomic change, to redress past inequalities, to achieve real transformation of society and enhance the participation of Black South Africans in the economy.

The Codes aim at changing the demographics of the economy at all levels, from company ownership, via the Boardrooms and Executive Management, throughout the entire workforce to the factory floor, but also to develop and train its employees, to prioritise and support Black owned suppliers and Black entrepreneurs, and, to contribute to socio economic development and upliftment of disadvantaged and poor communities.


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The Regulatory EnvironmentBroad-Based Black Economic Empowerment , B-BBEE

To further enforce and bring about change in the economy, the Government’s ambitions are now in its

second phase, with the New B-BBEE Codes of Good Practice gazetted in late 2014 and in force since 1st

May 2015.

The present New Codes measure companies against five (5) elements on the “Balanced Scorecard”:

1) Ownership, 2) Management Control, 3) Skills Development, 4) Enterprise- and Supplier Development

and 5) Socio-Economic Development. Performance toward all five elements is required.

Compliance is evaluated on the company’s performance against set “Compliance Targets” for each of the

five weighted elements. Depending on how well or to what extent the compliance target is achieved, this

is then rewarded with scores, and the total accomplished scores within one financial period (financial

year) result in a “B-BBEE Rating “ on a scale from Zero (non-compliant) and Level eight (8) to Level one (1),

where Level one (1) is the highest and best rating.

The rating for a company is documented in a B-BBEE Certificate that is issued by an authorised entity. It is

valid for one year and re-evaluated against total compliance on an annual basis.

The highest ratings (closest to 1) are achieved by companies with Black shareholders / ownership and that

focus on training and skills development of its Black staff component (HDSA) and both support an develop

its Black-owned suppliers and also require from its entire supplier base to also comply with the B-BBEE

Codes.


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The Mining companies, that in turn have to comply with very high demands in terms of empowerment via the Mining Charter (see next slide), often require ratings of at least Level 4 or Level 3 from their suppliers.

When it comes to the Ownership element, to fully comply, the Generic Codes require 25% interest in the entity in the hands of Black people, alternatively 25% of voting rights ‘plus 1 vote’.

To fully comply with this requirement, a large number of B-BBEE ‘deals’ have bee closed in recent years, in the form of Mergers & Acquisitions, sales of shares and employee share-schemes. Companies in South Africa have put a lot of effort and money into complying with the requirements of the Codes and to ensure that partnerships with the right partners and companies are secured.

Transformation Sector Charters

Since the introduction of the Codes in 2007 a number of industry sectors that are seen to be of particular importance to the country and its transformation of the broader Black population have received special attention. These are : agriculture, finance, ICT, property, chartered accountants, transport, forestry, construction, tourism, advertising and mining (dealt with separately under the Mining Charter), and for these industries separate “Sector Charters” have been created. The company’s main focus in its operations, determines if and what Sector Code applies.

The “Compliance Targets” for the measurement elements in the Sector Charters sometimes vary from those of the Generic Codes, so e.g. the targets set for Ownership that are often set at between 30% and 35%.


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Recognition of Equity Equivalent for Multinationals

Government realises that it may be against company policy for Multinational s to sell of shares or

part of their company in South Africa, if that is also not done in other parts of the world.

To enable these Multinationals to still comply with the Ownership element for its B-BBEE rating an

Equity Equivalent Investment Programme (EEIP) has been put in place, in which after a special

application, the Minister can approve an investment against certain Development Programmes

(socio economic and/or skills development, National Development Plan, etc. ) as Equity Equivalent.

The size of such investment is either 25% of the value of the South African operations or 4% of total

revenue generated from its operations in South Africa, and the size of that in turn decides the

investment period of between three to ten (3-10) years that the investment will be valid for ( i.e.

count against the Ownership element) in view of Equity Equivalent.

As a new supplier in the South African market, if planning for your own operationsor when looking to identify the best suitable partner company to work with, it is ofessence to include B-BBEE compliance and rating as one of the determiningcriteria.


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The Original Mining Charter

The Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry of 2002 (published in Government Gazette No. 26661 on 13 August 2004)

The Revised Mining Charter

The Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry (published in Government Gazette No. 33573 on 20 September 2010)

The Mining Charter is the Codes of Good Practice and Sector Charter of the mining and minerals industry. Unlike the other Sector Charters and Codes (under the dti), it is administered by the Department of Mineral Resources and is the Government’s instrument to bring about transformation and larger ownership, participation and opportunities of HDSA in the industry.

It has a wider scope of elements in that in addition to elements of ownership, skills development, employment equity, procurement and enterprise development, it also gives directive on measurable targets on housing and living conditions of its employees, development of the mine community and sustainable development (environment, health and safety, research).

Its effect is far stricter than that of the other Codes, as the Minister by non-compliance by mining companies, can at its worse and in line with the MPRDA, withdraw the company’s right to mine, i.e. its mining licence.


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The Regulatory EnvironmentThe Mining Charter

The amended Mining Charter of 2010 gave the mining companies four (4) years time until 2014 in which to reorganise company structure and operations to comply with the set targets.

Some targets are higher than those of the dti’s Codes of Good practice. Compliance targets related to company structure (B-BBEE status), employment equity, procurement and sustainability (here in brief):

Ownership 26% * is the minimum HDSA economic participation and shareholder rights Employment Equity 40% minimum HDSA representation at each management level (Board,

EXCO, critical skills, mid and junior management)

Procurement and Minimum 40% of capital goods must be procured from B-BBEE entitiesEnterprise Development Minimum 70% of services must be procured from B-BBEE entities

Minimum 50% of services must be procured from B-BBEE entitiesIts global suppliers of capital goods must contribute minimum 0.5% of their annual income from local mining companies toward socio-economic development of local communities

Sustainability Elements of sustainable development must be implementedi.a. environmental processes for waste and water managementimprovement of the industry’s health and safety performanceenhance skills for SA research and development facilities and use these


66

The Regulatory EnvironmentThe Mining Charter

The TDCA – the ‘Agreement on Trade, Development and Cooperation’ governs the

trade and development cooperation between South Africa and the member states

of the European Union (and so Finland). The agreement was signed in 1999 and

came into force in 2004.

Since then a 90% free trade area for bilateral trade relations was implemented and

subsequently completed by 2012.

In line with the TDCA, most goods and products traded between the EU and South

Africa are either zero rated (free) or at ‘preferential rates’.

This also refers to most machinery and equipment aimed at use in the mines and

underground mining. Value Added Tax (VAT) on imports is 14%

http://www.sars.gov.za/Legal/Primary-Legislation/Pages/Schedules-to-the-

Customs-and-Excise-Act.aspx


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The Regulatory EnvironmentTrade & Development Cooperation of South Africa and the European Community, TDCA

http://www.sars.gov.za/Legal/Primary-Legislation/Pages/Schedules-to-the-Customs-and-Excise-Act.aspx

Article 58 of the TDCA clearly states the aim of cooperation between the EU and South Africa

in the field of ‘Mining and Minerals’ which is (Quote TDCA):

– to support and promote policy measures that improve health and safety standards in the

mining industry as well as conditions of employment

– to make mineral resources and geoscience information accessible for exploration and

mining investment. The cooperation should also create a mutually beneficial climate for

attracting investment in the sector, including SMEs (and previously disadvantaged

communities)

– to support policies which ensure that mining activities take place with due consideration

for the environment and sustainable development, taking into account the specific

circumstances in the country and nature of mining

– to cooperate on mining and minerals technology research and development


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The Regulatory EnvironmentTrade & Development Cooperation of South Africa and the European Community, TDCA

The Mining leg of “Operation Phakisa” was initiated by the Presidency with the aim to turn around and revitalise the industry.

The Mining Operation Phakisa aims to identify key constraints to investment, to clear and overcome some of the challenges that the industry faces and to develop a shared vision and growth strategy for the long term development and transformation of the sector.

The Government has convened all stakeholders in the industry in a lab process during October-November 2015. These include the DMR and other relevant Government departments, the leadership of business, the Chamber of Mines and the South African Mining Development Association as well as labour which is represented by the unions (National Union of Mineworkers, Solidarity and UASA).

The main objectives are to develop “fast and implementable” results that will transform the industry and increase investment, in line with the goals of the National Development Plan.

It will seek to re-position the industry as a catalyst for development, maximise the development of the industry across all value chains in the country, and find win-win solutions for mineral beneficiation.


69

Sources: www.sabinetlaw.co.za/mining-and-energy/articles/mining-phakisa-scheduled-octoberwww.fin24.com/Economy/Zuma-pushes-for-mining-rescue-plan-20150908

www.sanews.gov.za/south-africa/mining-operation-phakisa-start-work-augustwww.sabc.co.za/news/a/5970988049cf6ede8703efc59f56a7b6/Revitalising-the-SA-mining-

industry-20151109

Mining Operation Phakisa

http://www.sabinetlaw.co.za/mining-and-energy/articles/mining-phakisa-scheduled-october

http://www.fin24.com/Economy/Zuma-pushes-for-mining-rescue-plan-20150908

http://www.sanews.gov.za/south-africa/mining-operation-phakisa-start-work-august

http://www.sabc.co.za/news/a/5970988049cf6ede8703efc59f56a7b6/Revitalising-the-SA-mining-industry-20151109

Mining Operation Phakisa

“If the current Phakisa (‘Hurry Up’) workshop, led by the Presidency,

manages to arrive at an enabling legislative environment for mining that is

competitive, the industry will prepare for an improvement in global

demand from its low current supply base. A successful Phakisa outcome

will ensure that, as global demand improves, South Africa's energy and

transport infrastructure capacity will be increased to allow South African

mining to claw back some of its lost global market share.”

Martin Creamer, Creamer Media, October 2015

– The name “Phakisa “ is Sesotho (one of South Africa’s many local, official languages)

meaning ”Hurry Up”. The expression is inspired by Malaysia’s ”big, fast results” approach

that achieved considerable economic results.


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The Value Chain in the Mining IndustryMarket specific challenges: Some of the deepest mines in the world

South Africa has unique challenges in that it has most of the deepest mines in the world:

1) AngloGold Ashanti’s Mponeng gold mine - 4km underground

2) AngloGold Ashanti's TauTona gold mine - 3.9km underground

3) Savuka Gold Mine – 3.7km underground

4) Goldfields’ Driefontein Mine – 3.4km underground

5) Harmony’s Kusasalethu Gold Mine – 3.2km underground

6) Moab Khotsong Gold Mine – 3.0km underground

7) Goldfields’ South Deep Gold Mine – 2.9km underground

The deep underground mines pose extraordinary challenges and conditions that require special solutions in order to provide cooling, ventilation, safety and transportation of labour and bulk materials, which in turn increases costs of the mining operation.


71

The Value Chain in the Mining IndustryUnderground & Surface Mining Process


72

Legislation: obtaining exploration rights from DMR

Safety & Health – all structures must be in place at the

outset even before mining can begin according to the Mine

Health & Safety Act

Exploration / drilling / feasibility study

Surveying and analysis

Legislation: obtaining mining rights from Dept. of Mineral

Resources

Source: Interviews

The Value Chain in the Mining IndustryUnderground Mining Process – *and also Surface Mining


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For a mechanised mine, the technology is decided (automation,

digitisation, I.T.) – *

Drilling – *

Blasting - *

Construction of mine incl. shaft sinking (destressing of rock / decline

development / cages / development tunneling

Mine labour (recruitment, training, administration) - *

Load & haul to remove bulk materials

(bulk material handling) - *

Source: Interviews


74

Energy and power supply - *

Services – air / water / ventilation / cooling / lighting

Mine equipment & ground engaging tools (G.E.T) – *

Mining on reef / transportation of staff (personnel carriers / 4x4’s) – *

Roof support (comes in after ore has been extracted) – shotcrete, roof bolts,

pre-stressing units, meshing & lacing, netting, temporary / primary /

secondary

Pumps – ground water and service water needs to be extracted

The Value Chain in the Mining IndustryUnderground Mining Process – *and also Surface Mining

Source: Interviews


75

Transportation of bulk material within the shafts (skips, conveyers, locos,

trucks)

Surface processing (crushing, grinding, screening, beneficiation, extraction

via chemical processes)

Environmental & waste management (carbon emissions, tailings dams,

purification, acid mine drainage AMD)

Refining the ore

Rehabilitation & mine closure

The Value Chain in the Mining IndustryUnderground & Surface Mining Process

Source: Interviews

Key Players in the Value ChainEngineering, Procurement, Construction, Management Services (EPCM) Consultants


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– Murray & Roberts Holdings, Ltd – www.murrob.com - Johannesburg, South Africa HQ

– Hatch – www.hatch.ca - Canada HQ

– DRA - draglobal.com - Johannesburg, South Africa HQ

– Worley Parsons - www.worleyparsons.com - Sydney, Australia HQ

– Aveng Group - www.aveng.co.za/operations/aveng-mining - Johannesburg, South Africa HQ

– SRK Consulting - www.srk.co.uk - Cardiff, United Kingdom HQ

– Redpath - www.redpathmining.com - Johannesburg, South Africa HQ

– Read, Swatman & Voigt – www.rsv.co.za - Johannesburg, South Africa HQ

– China Metallurgical Group Corporation (MCC) – www.cccme.org.cn - Beijing, China HQ

– Fluor - www.fluor.com - Texas, USA HQ - (Opencast) (mainly Petrochemical)

In an EPCM arrangement, the client selects a head contractor who manages the entire project, from exploration through to shaft sinking to mine closure, on behalf of the client.

Below are the key EPCM Consultants in South Africa:

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Source: Interviews

http://www.murrob.com

http://www.hatch.ca

http://draglobal.com

http://www.worleyparsons.com

http://www.aveng.co.za/operations/aveng-mining

http://www.srk.co.uk

http://www.redpathmining.com

http://www.rsv.co.za

http://www.cccme.org.cn

http://www.fluor.com

Key Players in the Value ChainSuppliers of Mining Equipment and Services

Exploration and Surveying Mechanisation Drilling Blasting


77

Feasibility and analysis study:• Open House

Management Solutions (OHMS)

• Solrock Mining Services

• SRK Consulting• Middindi Consulting • Geosearch

International

Also refer to:

Council for Geoscience SA Institute of Rock Engineers

• AEL Mining Service

• Bulk Mining Explosives

• Sasol • Orica Limited

Automation, digitisation, I.T.• The Cyest

Corporation• Mine PR• Mine Vision Systems• ABB Group• Rockwell

Automation• SAP SE

• Sandvik• Atlas Copco• Master Drilling• Aard Mining

Equipment• GHH Mining

Machines

Source: Interviews

Key Players in the Value Chain


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Power Supply and Infrastructure including IPP’s

Parastatal:• Eskom

IPP’s

Equipment & Infrastructure• Siemens• General Electric• Schneider • Weg Electric• Actom• Caterpillar

Air• Rand Air

• Kaeser• Ingersoll Rand• Atlas Copco

Ventilation• Woods Fans• Howden• Actom• Cox Manufacturing

Cooling• Siemec Tecberg• ABC Ventilation

Systems• Joules

EPCM’sRefer to above list

Contractors• Louwill Bakgoni JV • Shaft Sinkers

Suppliers of Mining Equipment and Services

ConstructionBulk Material

HandlingEnergy/Power Services

Load & haul• Komatsu• Bell• Caterpillar• Liebherr• Daewoo• Volvo• Hyundai

Source: Interviews

Key Players in the Value ChainSuppliers of Mining Equipment and Services

Mine Equipment & G.E.T.

Roof Support PumpsSurface

Processing


79

• New Concept Mining

• Aveng Duraset• Normet• DSI• Jennmar• RSC Ekusasa Mining• SKF

• Envirotech• Warman• Sulzer• Metso• Weir (slurry pumps)• KSB (water pumps)• Flyght (submersible

dewatering pumps)

Mine equipment• Sandvik• Caterpillar• Normet • Joy• Bird Equipment• Fermel• Aard Mining

Equipment• GHH Mining Machines

G.E.T• Bradken• Connell Mining• ESCO

Crushing, screening, grinding, beneficiation, extraction• Metso (all of above)• FLSmidth (all of above)• Sandvik (crushing and

screening)• Kawasaki (crushing and

screening)• Outotec (grinding mills)

Source: Interviews

Key Players in the Value Chain

Suppliers of Mining Equipment and Services

Analysis & Testing

Chemical Producers

Environment & Waste Water

TreatmentConsumables


80

Consumables, tyres, fuel

• Dunlop Industrial• Firestone• Total• Shell• SKF

Analysis, Mineralogy, Minerals Processing, Testing

• SGS • Mintek

• BASF • Normet• Sika• Chryso• RSS Mining• Mapai

• Golder Associates• Knight• SRK Consulting

Source: Interviews

Key Players in the Value ChainOpinion Leaders in the South African Mining Industry

– Bernard Swanepoel

– Bobby Godsell

– Martin Creamer

– Nick Holland

– Rick Menell

– Roger Baxter

– Sipho Nkosi


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Source: Interviews

Key Players in the Value ChainOpinion Leader: Bernard Swanepoel

More than 20 years of experience in the mining industry

– Chairman, Joburg Indaba

– Non-Executive Director, Afican Rainbow Minerals Limited, 2003 - present

– Non-Executive Director, Village Main Reef Limited, 2006 – present

– Independent Non-Executive Chairman, Simmer and Jack Mines Limited

– Vice-President, South African Chamber of Mines

– Managing Director, Harmony, Randgold & Exploration Company Ltd


82

Source: http://whoswho.co.za/

Key Players in the Value ChainOpinion Leader: Bobby Godsell

Godsell is the Chair of Business Leadership. He was appointed by President Zuma to the National Planning Commission in 2010.

– Member, National Planning Commission, Government of South Africa, 2010 –present

– Non-Executive Director, Anglo American Corporation, 1991 – present

Previous Positions:

– Non-Executive Chair, Eskom, 2008 – 2009

– Chair, World Gold Council, 2001 – 2002

– Chief Executive Officer, Anglogold Ashanti Limited, 1998 - 2007

– President, Chamber of Mines, 1992 - 1999


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Key Players in the Value ChainOpinion Leader: Martin Creamer

– Founder and Publisher, Mining Weekly, 1990 – present

– Founder and Publisher, Engineering News, 1981 – present

The latest news and developments in the mining sector are available to readers of these magazine and to visitors to the websites.

Mining Weekly is South Africa’s primary source of weekly news on mining developments in Africa. Mining Weekly provides in-depth coverage of mining projects and key players. It is an essential source in the mining sector. It addresses key service areas and topics such as health & safety, legislature and environmental issues.

www.miningweekly.com

www.engineeringnews.co.za


84

Source: http://whoswho.co.za/; http://www.creamermedia.co.za/

http://www.miningweekly.com

http://www.engineeringnews.co.za

http://whoswho.co.za/

Key Players in the Value ChainOpinion Leader: Nick Holland

– Chief Executive Officer, Gold Fields Limited, 2008 – present

– Executive Director, Gold Fields Limited, 1997 – present

Previous Positions:

– Chief Financial Officer, Gold Fields Limited, 1998 – 2008

– Senior Manager, Gencor Limited, 1994 – 1997

– Group Finance Manager, Impala Platinum Holdings Limited, 1993 – 1994

– Manager Treasury, Trans-Natal Coal Corporation Limited, 1990 – 1993


85


Key Players in the Value ChainOpinion Leader: Richard (Rick) Menell

– Mining “thought leader” with a career of 35 years in the mining industry

– Chairperson South Africa and Advisor, Credit Suisse Group, 2011– present

– Non Executive Director, Sibanye Gold Limited, January 2013 - present

– Non Executive Director, Rockwell Diamonds Incorporated, Canada, January 2013 - present

– Non Executive Director, Gold Fields Limited, 2008 - present

Previous Positions:

– Deputy Chair, African Rainbow Minerals Limited, 2004 - 2007

– Deputy Chair, Harmony Gold Mining Company Limited, 2004 - 2005

– Executive Chair, Anglovaal Mining Ltd, 2002 - 2004

– President, South African Chamber of Mines, 1999 – 2001


86

Source: : www.miningweekly.com


Key Players in the Value ChainOpinion Leader: Roger Baxter

– Chief Operating Officer, Chamber of Mines South Africa, 2000 – present

– Key player in the economics of minerals and mining policy

– Participated in the Chamber team negotiating a new mineral policy with the government

– Participated in negotiating the Mining Charter, the Charter’s Scorecard and the Mineral Royalty Bill

– On the Board of the Precious Metals and Diamond Regulator

– Co-chairs the Regulatory and Investment Task Team for the gold mining industry

– Member of the Platinum Beneficiation Committee


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Source: http://whoswho.co.za/; https://www.linkedin.com; http://www.whartoncapetown08.com/bio-baxter.html

http://whoswho.co.za/

https://www.linkedin.com/

http://www.whartoncapetown08.com/bio-baxter.html

Key Players in the Value ChainOpinion Leader: Sipho Nkosi

– President, Chamber of Mines South Africa, 2007 – 2010

– Chief Executive Officer, Exxaro Coal, 2007 – present (will retire soon)

Previous Positions:

– Chief Executive Officer, Eyesizwe Coal Limited, 2001

– Marketing Director, Alstom South Africa, 2000 – 2001

– Country Manager, ABB Alstom Power, 1999 – 2000

– Managing Director, Power Generation ABB, 1997 – 1999

– Marketing Manager, Ingwe Coal Corporation, 1993 - 1997


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Key Players in the Value ChainInterviews with authorities

Department of Mineral Resources:

– Mosa Mabuza, Deputy Director-General, Mineral Policy and Promotion, Department Mineral Resources

– Ray Masetlana, Director: Mineral Economics

– Nhlanhla Jali, Office of the DDG: Mineral Policy and Promotion

– Department of Trade & Industry:

– Jacob Maphutha, Director: BEE Partnerships; Special Economic

– Zones and Economic Transformation Division (SEZ & IET)

– Chamber of Mines

– Dick Kruger, Consultant: Techno Economics


89

Key Players in the Value ChainInterviews with Mining Companies

– Anglo American Platinum

– Gold Fields

– Norilsk Nickel

– Rio Tinto

– Royal Bafokeng Platinum

– Taung Gold Limited


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Anglo American Platinum Limited - www.angloamericanplatinum.com

Africa Head Office: Johannesburg, South Africa

Contacts: Stephen Bullock, CEO's Office: Technical Assistant

– Anglo American listed on LSE & JSE and is London domiciled

– Anglo American owns 80% of Anglo Platinum which is listed on the JSE

– Segment: Major

– Producer of PGM’s, base metals (copper, nickel, cobalt sulphate, sodium sulphate, chrome) and precious metals (gold)


91

Source: Interviews; Company Website and /or Annual Report

http://www.angloamericanplatinum.com/


Anglo American Platinum - www.angloamericanplatinum.com

Operations in South Africa:

– Mogalakwena - open pit mechanised mine, which is going to be expanded, 100 year life, Limpopo province

– Twickenham Platinum Processing plant – due to be developed to become a mechanised mine, Limpopo Province

– Dishaba is an underground mine - partially mechanised, Limpopo Province

– Tumela is an underground mine - partially mechanised, Limpopo Province

– Production: 2,3-2,4 million ounces of platinum per year

Operations in rest of Africa:

– 1 mine called Unki in Harare, Zimbabwe

– Establishing a smelter in Harare, Zimbabwe

– Production: 60,000 ounces of platinum

– Turnover for South Africa and rest of Africa: R56 billion in 2014


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http://www.angloamericanplatinum.com/


The planned and/or in study phase investment projects for the next five years:


– Expansion of Mogalakwena mine but not expanding for another 2 years.

– Developing the Twickenham Platinum Mine to become a mechanisedoperation. A decision will be taken in 2017 on this capital project but it is in the planning phase.

– We have a Research & Development programme looks at new mining technology, there we are dealing with 1-2 Finnish companies around the provision of new equipment.


– Establishing a smelter in Zimbabwe commencing in 2016, a low capital option about US$34M.


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Gold Fields - www.goldfields.co.za

Head Office: Sandton, Johannesburg, South Africa

Contacts: Sven Lunsche, Vice President and Group Head of Corporate Affairs

– Listed on JSE, NYSE, NASDAQ, NYX and SWX

– Segment: Mid-tier & Developing

– Producer of Gold


94


http://www.goldfields.co.za/


Gold Fields - www.goldfields.co.za


– South Deep underground mine, South Africa – LOM estimated to 2080

– It is the second largest gold ore body in the world

– The only fully mechanised gold mine in South Africa

– It is being developed to deeper mining levels, estimated to 3,500m in final phase

– Production: 8,491 kg (273 ozs) attributable gold equivalent ounces in 2014

– Turnover: US$240M


– Damang opencast mine, Ghana - LOM extends to 2024 (+5 years)

– Tarkwa opencast mine, Ghana – LOM extends to 2024

– Production: Damang: 22,312 kg (717,000 ozs) Tarkwa: 6,772 kg (218,000 ozs)

– Turnover: Damang: US$860M Tarkwa: US$261M


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http://www.goldfields.co.za/



– Focussing on the South Deep expansion only. Invested US$3,5billion.

– Currently 2,500 metres deep but will be about 3,500 metres deep in the final phase.

– Establishing a new tailings storage facility, the deepening and equipping of the ventilation shaft at the Twin Shaft Complex to hoist both reef and waste material, increasing the metallurgical plant capacity and establishing the underground infrastructure to access mineral reserves to the south of the current workings. In order to further improve the confidence in the Mineral Resource estimate of this area, a major surface drilling project is also underway.

– The primary economic target is the Upper Elsburg Reef package, which, due to its geometry, lends itself to a mine design that is fully mechanised, and the Ventersdorp Contact Reef as a secondary economic target.


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Norilsk Nickel Africa – www.nornik.ru/en/about-norilsk-nickel/operations/norilsk-nickel-africa1

Africa Head Office: Bryanston, Johannesburg, South Africa

Contacts:

– Michael Marriott, CEO

– Duncan Ackermann, Manager, Logistics & Sales

– Deon du Plessis, Group Engineering Manager

– Norilsk Nickel is listed on Micex-RTS and the Nasdaq

– Norilsk Nickel Africa is a subsidiary of Norilsk Nickel, African Rainbow Minerals has a 50% stake and is listed on the JSE

– Segment: Mid-tier

– Producer of Nickel


97


http://www.nornik.ru/en/about-norilsk-nickel/operations/norilsk-nickel-africa1


Norilsk Nickel Africa – www.nornik.ru/en/about-norilsk-nickel/operations/norilsk-nickel-africa1


– Nkomati, 50kms outside Machadodorp, Mpumalanga, South Africa (being divested)

– The mine has an open pit, a small underground mine and 2 processing plants, 2 large milling

– operations with associated metallurgical operations and a small chrome plant

– Production: 22,000 tonnes of Nickel per annum

– Turnover: R8 billion per annum


– Tati Nickel Mining Company, Botswana

– Nkomati and Tati Nickel Mining Company are being sold to BCL Limited


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http://www.nornik.ru/en/about-norilsk-nickel/operations/norilsk-nickel-africa1



Operations in South Africa/rest of Africa:

– No planned major investments.

– BCL Limited in Botswana, diamond country. The company is keen to diversify into energy, mining and processing other minerals and metals, so they have ambitions but Norilsk Nickel is not part of that.

– Nkomati and Tati Nickel Mining Company are being sold to BCL Limited

– BCL is a mining and smelting company wholly owned by the Botswana Government.


99



Rio Tinto – www.riotinto.com

Africa & Europe Head Office: Illovo, Sandton, Johannesburg, South Africa

Contacts:

– Nevan Pillay, GM Exploration - Southern Africa & Johannesburg Head Office RTX Africa, Europe Region

– Evy Maimela, Original Sourcing Manager

– Rio Tinto plc – listed on the London and New York Stock Exchange

– Rio Tinto Limited – listed on the Australian Securities Exchange

– Rio Tinto Group owns 74% of Richards Bay Minerals (RBM) www.rbm.co.za

– Segment: Major globally, junior locally

– South Africa: Mining Heavy Mineral Sands to produce iron and ilmenite


100


http://www.riotinto.com/

http://www.rbm.co.za/




– Richards Bay Mining Proprietary Limited undertakes the mining and minerals separation

– Richards Bay Titanium Proprietary Limited is responsible for the smelting and beneficiation process

– RBM consists of 2 dredge mining plants and four furnaces

– Production: RBM's titania slag capacity to one million tons per year and iron production to 555,000 tons per year

– Turnover: Rio Tinto declares its turnover per business unit globally therefore cannot provide figures for South Africa and Africa alone


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– Botswana – exploration in iron ore and copper

– Namibia – uranium

– Zambia and Gabon - current exploration

– Madagascar - Qit Madagascar Minerals (QMM), mining heavy mineral sands (titanium, zircon and pig iron)

– Guinea - an iron ore project in development phase


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– Zulti South, is an extension to the south of Richards Bay Minerals where they mine heavy mineral sands. Will start producing in 2017, allowing Rio Tinto to keep the Richards Bay smelters full and extend the mine life to 2034


– Exploration in Zambia, Botswana and Gabon


103



Royal Bafokeng Platinum - www.bafokengplatinum.co.za

Head Office: Montecasino, Fourways, Johannesburg, South Africa

Contacts:

– Lindiwe Montshiwagae, Investor Relations Manager

– Anthony Durrant, Group Mining Engineer

– Simon Fletcher, Strategic Sourcing Manager

– Royal Bafokeng Platinum is listed on the Johannesburg Stock Exchange JSE

– Segment: Mid-tier

– Producer of PGMs


104


http://www.bafokengplatinum.co.za


Royal Bafokeng Platinum - www.bafokengplatinum.co.za


– Bafokeng Rasimone Platinum Mine (BRPM), located in the North West province of South Africa

– Two twin decline shaft complexes:-

– South Shaft: Merensky Reef and UG2 reefs, LOM 2026

– North Shaft: Phase 3 Project - doing a replacement extending mining underground op-erations at a depth of less than 700 metres, LOM is 20 years

– Bafokeng Rasimone Platinum Mine (BRPM) concentrator

– The concentrator follows a traditional MF2 process and includes a conventional three stage crushing process prior to milling and flotation

– Constructing Styldrift I Project, underground mine

– Exploration of Styldrift II, this is a Styldrift I expansion project

– Turnover: R3.8 billion for 2014

– Production: 294,000 ounces for 2014


105


http://www.bafokengplatinum.co.za/




– Project underway at BRPM to deepen the north shaft infrastructure to the mine boundary.

– Development of a new mechanised underground mine, Styldrift I, at a capital cost of R11.014bn, which will produce 230ktpm at a depth of 758 metres which is expected to reach steady state by the first quarter 2019.

– Pre-feasibility study has been completed on Styldrift II project and once the market turns we will do a feasibility study.


106



Taung Gold Limited – www.taunggold.co.za

Head Office: Fourways, Johannesburg, South Africa

Contacts: Sebastian Chatov, Executive Director

– Taung Gold International is listed on the Hong Kong Stock Exchange HKEx

– Taung Gold Limited is a division of Taung Gold International

– Segment: Junior

– Exploration of Gold

Operations in South Africa (not operational, waiting for funding):

– Evander consists of two adjacent properties, No 6 Shaft and Twistdraai, located within the eastern Evander goldfield area, production has not started, waiting for funding

– Jeanette is located within the Free State goldfield, 270km south-west of Johannesburg. It includes several farms over which Taung Gold holds a single new order prospecting right


107


http://www.taunggold.co.za/




– Jeannette and Evander are ready to start operating.

– Exploration and feasibility studies have been finalised.

– Waiting for funding.


108


Key Players in the Value ChainInterviews with Industry Experts

– Alex Booth, Head of Procurement, Aveng Moolman

– Bernard Swanepoel, Chairman of Jo’burg Indaba

– Martin Cawood, Rock Engineer and Director of New Concept Mining

– Paul Burkhardt, Journalist for Bloomberg, Mining Sector

– Thero Setiloane, CEO of Business Leadership South Africa


109

Key Players in the Value ChainInterviews with Law Firm

Webber Wentzel - www.webberwentzel.com

Head Office: Illovo, Johannesburg, South Africa

Contacts:

– Sean Testa, Mining Lawyer, Business Development & Strategy Manager

– Johan Olivier, Partner

– Jonathan Veeran, Partner

– Patrick Leyden, Partner

– Peter Leon, Mining Lawyer

– Rita Spalding, Partner

– Sipho Methula, Partner

Webber Wentzel Mining Sector Group issues a comprehensive guide over the legal and regulatory environment in the mining industry of 19 African countries: The Mining Law Survey.

www.webberwentzel.com/wwb/content/en/ww/mining_law_survey


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http://www.webberwentzel.com/

http://www.webberwentzel.com/wwb/content/en/ww/mining_law_survey

Key Players in the Value ChainAdditional Source Information

In addition to the professionals that we met with in the schedules interviews, the below people also assisted us with information or advice for this report:

– Martin Creamer, Founder and Editor of Mining Weekly

– Gary Clench, Managing Director, Normet

– Nick Holland, CEO of Gold Fields – “Gold mines of the future” presentation

– Nivaash Singh, Head of Mining Finance – International, Nedbank Capital

– Emily Mphahlele, Director: Europe Regional Organisation – the dti

– Darryl Moss, until recently GM Marketing - Metso Southern Africa (retired)

– Welcome Tshabalala - JSE Ltd (Johannesburg Securities Exchange)


111

Acronyms

HKEx – Hong Kong Stock Exchange

IPP – Independent Power Producers

JSE – Johannesburg Securities Exchange

LOM – Life of mine

MEPC – Mineral and Energy Policy Centre

MPRDA – Mineral and Petroleum Resources Development Act

NASDAQ – American Canadian Stock Exchange

NUM – National Union of Mine Workers

NYSE – New York Stock Exchange

NYX – Euronext Exchange

PMG – Precious Metals Group

SA – South Africa

SAMDA – South African Mining Development Association

TDCA – Trade and Development Cooperation Agreement


112

Acronyms

AltX – Securities exchange under JSE for small and medium-sized high-

growth companies

AMCU – Association Mineworkers and Construction Unions

AMD – Acid Mine Drainage

B-BBEE – Broad-Based Black Economic Empowerment

COMSA – Chamber of Mines South Africa

DOL – Department of Labour

DEA – Department of Environmental Affairs

DMR – Department of Mineral Resources

DTI – Department of Trade & Industry (the dti with lower case)

DWA – Department of Water and Sanitation

EPCM – Engineering, Procurement, Construction, Management

GET – Ground engaging tools

HDSA – Historically Disadvantaged South Africans


113

References

Brooke Pattrick, African Mines brookepattrick.co.za/collections/digital-magazines/products/african-mining-

digital

B-BBEE Codes of Good Practice www.thedti.gov.za/economic_empowerment/bee.jsp

Chamber of Mines of South Africa www.chamberofmines.org.za

Creamer Media, Mining Weekly www.miningweekly.com

Department of Environmental Affairs www.environment.gov.za

Department of Labour www.dol.gov.za

Department of Mineral Resources www.dmr.gov.za

Department of Trade and Industry www.thedti.gov.za

Department of Water and Sanitation www.dwa.gov.za

Eskom Ltd www.eskom.co.za

European Commission ec.europa.eu/trade/policy

Fin24 News www.fin24.com/Economy/Zuma-pushes-for-mining-rescue-plan-20150908

JSE Ltd www.jse.co.za


114

http://brookepattrick.co.za/collections/

http://www.thedti.gov.za/economic_empowerment/bee.jsp

http://www.chamberofmines.org.za/


http://www.environment.gov.za/

http://www.dol.gov.za/

http://www.dmr.gov.za/

http://www.thedti.gov.za/

http://www.dwa.gov.za/

http://www.eskom.co.za/

http://ec.europa.eu/trade/policy

http://www.fin24.com/Economy/Zuma-pushes-for-mining-rescue-plan-20150908

http://www.jse.co.za/

Mining Technology.com www.Mining-technology.com

Mining Charter www.dmr.gov.za/publications/summary/108-mining-charter-downloads/128-

amendedofbbseecharter.htm

Nedbank Capital www.capital.nedbank.co.za

Operation Phakisa www.operationphakisa.gov.za/Pages/Home.aspx

Paralegal Advice Website www.paralegaladvice.org.za

South African Government News Agency www.sanews.gov.za/south-africa/mining-operation-phakisa-start-work-

august

Sabinet Law www.sabinetlaw.co.za/mining-and-energy/articles/mining-phakisa-scheduled-

october

South African Reserve Bank www.sarb.co.za

South African Revenue Services www.sars.gov.za

Trade and Development Cooperation Agreement www.thedti.gov.za/trade_investment/ited_trade_agreement.jsp

Webber Wentzel Attorneys www.webberwenzel.com

The Wharton Global Alumni Forum www.whartoncapetown08.com/bio-baxter.html

Who’s Who SA www.whoswho.co.za


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References

http://www.mining-technology.com/

http://www.dmr.gov.za/publications/summary/108-mining-charter-downloads/128-amendedofbbseecharter.htm

http://www.capital.nedbank.co.za/

http://www.operationphakisa.gov.za/Pages/Home.aspx

http://www.paralegaladvice.org.za

http://www.sanews.gov.za/south-africa/mining-operation-phakisa-start-work-august

http://www.sabinetlaw.co.za/mining-and-energy/articles/mining-phakisa-scheduled-october

http://www.sarb.co.za/

http://www.sars.gov.za

http://www.thedti.gov.za/trade_investment/ited_trade_agreement.jsp

http://www.webberwenzel.com/

http://www.whartoncapetown08.com/bio-baxter.html

http://www.whoswho.co.za

Thank you