Joel Netshitenzhe:

Executive Director: MISTRA

August 2013

THE PROMISE OF MINING Contributing to national development

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MAIN THEMES

❶ Background: the national strategic

environment

❷ Industry significance: opportunities

for sunrise

❸ Policy discourse: the logic and the

challenges

❹ Towards a long-term vision for

mining

BACKGROUND

National Development Plan – beyond ‘political miracle’,

opportunity to pursue a national vision and detailed

long-term plans (Vision 2030):

► requiring identification of objectives, contribution, benefits,

trade-offs and sacrifices – beyond lowest common denominator

► sector leaders & institutions should identify role in

implementation and take initiative in partnering with others

Mining Lekgotla 2013 a unique opportunity:

► after adoption of the NDP the Mining Sector has a

responsibility to reflect on the role that mining will play in

realising the objectives of the plan – Mining Vision 2030

► on the occasion of the first anniversary of the Marikana

tragedy, the lekgotla provides a platform more comprehensively

to reflect on the trajectory of mining – beyond just obviating the

possibility of a recurrence

Opportunities and challenges

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Understanding the NDP growth storyline

BACKGROUND

❶ Multiplier effect of infrastructure programmes:

► Over R800bn of rolling investment every three years, with many multiplier

effects: jobs, crowd in private sector, supplier industries, Sub-Saharan Africa

❷ Aggregate demand and shared growth:

► Growth (SA and SSA) generates virtuous cycle, with profound opportunities for

manufacturing, and measures such as SME facilitation and skills training

► Balance cost and opportunity: forward and backward linkages and job

opportunities depending on R&D, regulations, procurement and feed-in tariffs

❸ Opportunities in the Green Economy

► Super-cycle anchored in demand from global growth regions; opportunities

for new applications – thus possibilities for mature industrial cluster

❺ Mining as catalyst for new industrialisation drive:

❹ Agriculture and the rural economy (1m jobs by 2030):

► Expand irrigated agricultural land by one-third; expand commercial production;

pick sectors and regions with high potential; access to product value chains

NDP & ‘decent standard of living’

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BACKGROUND

Critical argument of the NDP: interventions should address

totality of socio-economic needs & guarantee a decent standard

of living for all. Beyond a living wage and decent conditions of

employment, a decent standard of living should entail:

► Affordable cost of living: including appropriate management of cost

of basic necessities such as food, and administered prices such as

energy and municipal rates

► Efficient and affordable public services: as with NHI, guarantee

floor of basic services for education, housing, water, electricity,

sanitation, etc.

► Social security net: covering most vulnerable in the form of social

grants and free basic services with quantum increased as resources

permit

► Decent human settlements: spatial settlement patterns that promote

affordable travel, decent community life with requisite social amenities

The real contribution of mining 2005 (2012) data (estimates)

Mining’s direct contribution:

• GDP: R94-billion or 6.2% (9.2%, CC)

• Jobs: 450 000 (500 000, CC)

Backward

Linkages:

• GDP: R35-billion

or 2.3%

• Jobs: 150 000

Forward

linkages

• GDP: R25.8-

billion or 1.7%

• Jobs: 55 000

Total contribution of mining:

• GDP: R246-billion or 16% (18.7%, CC)

• Jobs: 1 260 000 & 25% of total employment

(1 340 000 jobs, CC)

The induced effect:

• GDP: R91-billion or 6%

• Jobs: 600 000

Sources: Chamber of Mines Vice-President, 2006 & CC: Mining Indaba, 2013, Chamsa & dmr

Although there have been ebbs and flows over the years, mining

remains the most critical sector in the South African economy…

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A critical sector of the economy INDUSTRY SIGNIFICANCE

18%-20% of

total private

fixed

investments

18.5% of

corporate

tax receipts

15% of

national

electricity

demand

47% of

exports

China may be reconfiguring its economy; however the

demand for critical minerals will endure, even if

somewhat moderated:

Global ‘sunrise’ dimension INDUSTRY SIGNIFICANCE

Critical to differentiate between cyclical and long-term

structural factors

► Urbanisation in China (and globally, some 3-billion more people

by 2050) and ‘middle class’ growth to drive demand: $80-tr com/res

construction investment (2025); car fleet 2x to 1.7bn (2030)

► India, Vietnam, Bangladesh and Africa: steadily following China

in the industrialisation trajectory, incl. infrastructure and low-end

manufacturing…

► New energy streams (H2ECO): besides catalytic convertors, if the

Hydrogen Economy takes off, demand for PGM-based fuel cells

will increase for mobile and stationary applications

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Proportion of reserves, valued at $2.5-trillion,

underlines SA’s global positioning ● 40% of gold

● 80% of PGM (73% prod)

● 72% of chrome ore

● 80% of manganese (27% prod.)

MISTRA Research – the case for PEMFC (based on PGM):

PGM value chain in hydrogen economy (Linkov, 2011) 8

INDUSTRY SIGNIFICANCE Endowment for positive change

Components Type of PGM used

Platinum to precursors platinum and palladium

Precursor to catalysts platinum, palladium,

ruthenium, iridium,

osmium and rhodium

Catalyst to Membrane

Electrode Assemblies

(MEAs)

platinum, palladium,

ruthenium, iridium and

osmium

High purity hydrogen

generation

iridium and ruthenium

Membranes for

hydrogen separation

palladium

Metal hydrides palladium

Super capacitors and

batteries

ruthenium and iridium

INDUSTRY SIGNIFICANCE Endowment for positive change: H2ECO

Build knowledge-based

networks

Ensure global security of

supply

Trading arrangements that

minimise disruptive price

volatility

Social compacting & stability

Fuel cell demand within SA

Balance self-reliance &

global networking

Develop capabilities in

recycling of PGM

MISTRA Report identifies fundamental decisions required

to meet objective of 25% of global fuel cell supply by 2020:

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BACKWARD LINKAGES

* Specialized inputs

* Machinery and equipment

* Specialised services

Abundant forestry reserves and plantations

SIDE LINKAGES

Related activities

FORWARD LINKAGES

* Roundwood

* Wood products

* Wood pulp

* Paper and cardboard

Source: Ramos 1998 p111

(CEPAL Review, #68, 12/1998);

a: Generates 25% of Finland’s exports;

b: Compared with 25-30m3 per capita in the rest of the world.

Forward value-addition of ferrous minerals and metals, PGM, titanium &

pigments, polymers, and mining inputs

Backward value addition in supply of technologies, services and inputs for

domestic use and export: equipment, turnkey in mine design & operation

Mining-related capital goods for mining and mineral-processing sectors

Ensure access to raw materials to help unlock downstream industrial projects

Ways of exploiting producer power

POLICY DISCOURSE Base logic: cluster development

Develop a mature industrial cluster using resource

endowments – dti IPAP iteration (objective vs. instruments)

e.g. Finland: The mature forestry industrial cluster 1997a

POLICY DISCOURSE

Despite hyperbole, tendency has been to gravitate

towards rationality and synthesis

ANC 2012 National Conference

ANC National Conference, December 2012

❶ Approach to state intervention informed by principle of

capable and effective state with qualifications:

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◙ General: financial regulation & control plus state bank; taxation and

wage & income policies; competition, industrial & trade policies

◙ State ownership: in strategic sectors “where deemed appropriate on

the balance of evidence” (ref. Ready to Govern, 1992)

❷ Approach to the mining industry is to adopt broad

principles in SIMS and leave space for initiative:

◙ Custodianship as in the MPRDA

◙ SMC in strategic sectors & as partner to private sector

◙ Mining as a basis for new wave of industrialisation

◙ Ensure implementation of safety and social & labour plans

POLICY DISCOURSE ANC 2012 National Conference

ANC National Conference, December 2012

❸Approach to the mining industry is to adopt broad

principles in SIMS and leave space for initiative:

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◙ Resource rent tax for skills, research, geological

information & fiscus: only partly a tax – essence is to ensure

reinvestment of mining rent for sector regeneration – and

issue is whether we can attain objectives without it

◙ Strategic and important minerals: about 20 listed and

need to identify the “strategic minerals that require special

public policy measures…” and, in so doing, ensure balance

between certainty and open-ended prerogative

◙ Vertical integration: creative ways of dealing with

challenge e.g. of Eskom coal supply security and costs –

shareholding and vertical integration as one of the

instruments

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Tragedies can be a catalyst for all-round self-

correction if lessons are appropriately internalised

Immediate lessons from Marikana

Managing labour disputes and state-societal relations

Management and labour regime: hierarchy of wage structure (RDO),

consultative platforms at workplace, changing demographics of workforce,

era of testing balance of forces and new cost curves

The social wage: implementation of social and labour plans and

partnership with municipalities & provincial governments

Union dynamics: perceptions of ‘sweetheart’ and patronage; exaggerated

expectations; inter-union rivalry & fight among powerless for power over

one another; closed shop agreements and workplace forums

Eliminate violence in protest action and assert role of the state as

legitimate bearer of weapons – with professionalism and humane conduct

Nip opportunism in the bud – by obviating opportunity, primarily by

enhancing legitimacy

TOWARDS VISION 2030

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Crafting a long-term mining strategy

❶Mature industrial cluster as a basis for new industrialisation drive

with systemic forward and backward linkages, incl. global turnkey

status in mine design and operations

❷ Lessons from other jurisdictions on management of migratory

labour system and job grading e.g. RDO (WSJ, 16/11/2011)

❸ New technology, from rock drills with better damping system,

‘game-changing’ technology with no drill & blast, robotics for narrow

tabular reefs & ultra-deep areas to u/g coal gasification

❹ Implications for labour intensity addressed through mining

industrial cluster and sustainable development approach?

❺ Transformation of ownership should place greater emphasis than

currently on ESOPs so workers feel and become stakeholders

Beyond the immediate responses, a long-term vision

should seek systemically to reconfigure the industry

TOWARDS VISION 2030

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This requires decisiveness, with all mining partners geared

towards tilting the economy and society at large in a

positive direction:

“There is a tide in the affairs of men

Which, taken at the flood, leads on to fortune

Omitted, all the voyage of their life

Is bound in shallows and in miseries.”

Shakespeare (Julius Caesar)

Will the sun to rise

TOWARDS VISION 2030

Revitalise the process to develop a mining sector

strategy in line with NDP, through MIGDETT+ with

senior representation across the board

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END