This is the Mining Industry - sacollierymanagers.org.za teke.pptx (Read-Only).pdfThis is the Mining Industry “Long Cold winters and Short beautiful summers” Delivered by: Mr. Mike

This is the Mining Industry

“Long Cold winters and Short beautiful summers”

Delivered by: Mr. Mike Teke

Coalsafe 2014

Today’s conversation…

This too will Pass, With great difficulty The Global Mining space The State of South African Mining The Story of Coal The Impact of recent Labour Issues How do we stabilise the industry?

PWC Annual Mining Report Titles •  2005 “Enter the Dragon” •  2007 “Riding the wave” •  2008 “as good as it gets” •  2009 “When the going gets tough” •  2010 “Back to the Boom” •  2011 “The game has changed” •  2012 “The Growing Disconnect” •  2013 “A Confidence Crisis” •  “This Too will Pass!” ,With great difficulty”



Changing World markets…. Since 2008, the global commodities markets have been hit by the multiple effects of:

• The “W” shaped recession-slow recovery in the EuroZone

• The slowdown in economic growth in China.

• The “V” shaped recession- slow recovery in the US economy. • The reduction in quantitative easing by the Federal Reserve. But prospects are stabilising:

• Despite ongoing structural issues the Eurozone is expected to post a modest positive growth rate in 2014.

• China’s economy has stabilised and is expected to grow at >7% in 2014.

• The US economy is recovering, with consumer confidence rising.

• The impact of tapering on commodity markets should ease.

Source: Chamber of Mines

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2010 Urban Pop. China India Other Asia Africa RoW 2050 Urban Pop.

u  Rising urbanisation, 3 billion people to urbanise by 2050 (most of the growth in Africa)

World urban population growth (Billion people)

Source: UN, McKinsey

u  The Global Mining Space Top 6 minerals, expected greenfield production growth for the period 2011-2020

Copper, 27

Iron ore, 21

Thermal coal, 16

Gold, 15

Coking coal, 11

Nickel, 11 Uranium, 1

Citibank - growth projects by commodity on a production volume basis, 2011-2020

Source: CitiBank



u  South African Mining: Challenges Shifting Risks: The Game is Changing (E&Y) – In 2014, Mining companies are more focused on value creation than growth

2013

1.  Resource nationalism

2.  Skills shortage

3.  Infrastructure access

4.  Cost inflation

5.  Capital project execution

6.  Maintaining a social license to operate

7.  Price and currency volatility

8.  Capital management & access

9.  Sharing the benefits

10.  Fraud and corruption

2008


2.  Industry consolidation


4.  Maintaining a social license to operate

5.  Climate change concerns

6.  Rising costs (cost inflation)

7.  Pipeline shrinkage

8.  Resource nationalism

9.  Access to secure energy

10.  Increased regulation

2014

1.  Capital allocation and access

2.  Margin Protection and

productivity improvements

3.  Resource Nationalism

4.  Social Licence to operate


6.  Price and currency Volatility

7.  Capital project execution

8.  Sharing the benefits


10.  Threats of substitutes

Source: “Business Risks Facing Mining and Metals, 2013-2014, Ernst & Young

Manganese: 8.8MT produced in 2012, accounted for >20% of global production, 8646

employees.

Diamonds: 7 million on carats produced in 2012,

accounted for 12% of global production, 12081

employees

Gold: 167.2T produced in 2012, accounted for 6% of global

production, ranked 6th largest in the world, largest

component of mineral exports, 142193

employees.

PGM’s: 254.3T produced in 2012,

with Pt. accounting for 128.6T. #1 producer in the world, 2nd largest mineral

export, 199215 employees.

Coal: 258.6MT produced in 2012,

largest part of mineral sales, 3rd largest

component of mineral exports, 83245 employees.

Iron Ore: 67 MT produced in 2012, 4th largest component of mineral exports, 23368

employees.

u The South African Mining Industry SA’s Mineral Value: 6 main commodities


South Africa has significant geological potential

0 10 20 30 40 50 60 70 80 90 100

PGM'sManganese

ChromiumGold

Alumino-SilicatesVermiculiteVanadium

Zirconium MineralsTitanium minerals

FluorsparAntimony

Phosphate rockNickel

UraniumLeadCoalZinc

SiliconIron ore

% of global .South African reserves for key minerals

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South Africa, is not mature mining real estate! The country still has significant geological potential

Global rank

Source: DMR/USGS

PERCEPTION REALITY

Is a “Dirt Digger”

Another R300 billion and 150 000 jobs created in downstream industries

Is uncaring about the lives of workers and does not pay well 67% reduction in fatality rate, average wages per employee up 12% p.a.

Does not care about the environment, communities –Poverty at the doorstep of prosperous mines

Spent R1.4 billion on communities, R4 billion on skills and R25.8 billion in corporate taxes in 2011.

Profits and benefits exported to a small bunch of Capitalists Shareholders balanced 50% local, 50% offshore, R12 billion in dividends

Resistant to Transformation >R150 billion in BEE deals concluded, good progress on all pillars of Charter

Does not matter to SA- Ingi Saldago- Business Report-”Eskom was right to switch off the Mines”

19% of GDP, 50% of exports, 1.3 million jobs, 94% of electricity, 17.2% of corporate tax

Perceptions & Realities about mining


The recent negative news items have resulted in an underperforming mining index on the JSE

Source: JSE

Unfortunately, mining has been the worst preforming sector of the SA economy over the past two decades

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South Africa: Trends in real GDP (real 2005 rand terms) per sector, base indexed to 1993

Agriculture, forestry and fishing

Mining and quarrying

Manu-facturing

Electricity, gas and water

Construction

Wholesale & retail trade; hotels & restaurants Transport, storage & communication

Finance, real estate & business services General government services

Personal services

Overall GDP

Source: StatsSA

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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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15 Fatalities in the RSA mining industry

§  Health and Safety is Key §  Zero Harm is still the Goal §  Section 54s

Mining Industry Totals

2003 270

2012 112

Coal sector

2003 23

2012 11




“In 2012, revenue from Coal reached R96bn, making it the country’s most important commodity by Sales value”

Rothschild, 2014

Eskom in 2030

SA ELECTRICITY CAPACITY IN 2030 EXPECTED ~ 89 532 MW

40 996 MW

11 400 MW

Mid merit gas (3%)

Peaking - OCGT (8%)

Renewables (21%)

Peaking – pumped, storage, hydro (4%)

18 925 MW

Base-load Coal (46%) Existing 35 515 MW Committed 10 133 MW Decomm. (10 902 MW) New 6 250 MW

Base-load Nuclear (13%)

Base-load Import hydro (4%)

Other (1%) – 890 MW

Source: Eskom presentation 2012

COAL FIRED POWER AS BASE - LOAD TO REMAIN CRITICAL TO

ESKOM’S LONG TERM GENERATION MIX

ADEQUACY OF LONG TERM

COAL SUPPLY THUS CRITICAL TO ESKOM & SOUTH AFRICA

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ESKOM

Eskom’s coal requirement increases to 2480 Mt with power station life extensions

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0 2050 2045 2040 2035 2030 2025 2020 2015

Contracted Not Secured

2 100 Mt

1 970 Mt

Eskom’s requirement is ~ 4 000 Mt of which up to 2 100 Mt coal is at risk

Coal supply requirements [Mt/a]

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2050 2045 2040 2035 2030 2025 2020 2015

2 480 Mt

2 111 Mt

Coal supply requirements [Mt/a]

Eskom’s coal requirement increases to 2 480 Mt with power station life extensions.

Official 40 year plan IRP Green Shoots Scenario

Eskom’s requirement is ~ 4 591 Mt of which up to 2 480 Mt coal is at risk

Based on draft IRP 2010 Update Report and subject to revision

Carbon cap in place from 2025 Eskom’s updated

10 year forecast

Eskom current burn plan has reduced for the next 10 years due to various reasons linking to the production of electricity and its demand;

Source: Eskom

Key RBCT themes

S – RBCT primary shareholder V – RBCT phase V shareholder Q – RBCT Quattro user LTU – Phase V long term user

• Major exporters now control > 69% of RBCT • Glencore/ Xstrata now largest shareholder/ user after the acquisitions of

Optimum Coal (8mtpa) and Xstrata (14mtpa) • RBCT shareholding/ user-ship entitles owner to export coal through terminal • Export entitlement typically used for own coal but can be leased to third

parties • Currently leasing rates ~ US$3/t and frequently used by exporters who do

not own entitlement • Owning entitlement thus not a pre-requisite to obtaining export pricing

exposure • RBCT remains ~ US$8/t cheaper than other export alternatives (Matola,

Durban, Dry Bulk)

• Tonnages below are ‘name-plate’ tonnages showing export entitlement at a full 91mtpa

• 68.3mt were exported in calendar 2012 versus railings to the port of 68.5mt in the same year

• In reality, annual export entitlement is pro-rated with available annualised rail capacity

• Exporters thus have value-in-use of 50% to 80% of their name-plate export tonnage entitlement, depending on their category of shareholding/user ship

• Annually the RBCT board declares export throughput for the coming year factoring expected export coal production, railage tempo, etc

• Declared throughput for Cal ‘13 is 72 mt

Consolidating our BEE coal platform RBCT REMAINS BEST SA COAL EXPORT SOLUTION NAME PLATE TONNAGE VERSUS AVAILABLE FOR USE

TOTAL RBCT ENTITLEMENT AT 91 Mt THROUGHPUT CAPACITY PER ANNUM

Glencore/ Xstrata 24.72 mtpa (S,V,Q) Anglo 19.78 mtpa (S) BHP 17.95 mtpa (S)

Exxaro 6.76 mtpa (S,V,Q) Total 4.09 mtpa (S) Sasol 3.60 mpta (S) ARM 3.20 mtpa (V) Eskom 3.00 mtpa (V) Kangra 1.65 mtpa (S)

Anker/ Mineral 1.00 mtpa (V) Worldwide 0.75 mtpa (LTU) SACMH 0.71 mtpa (V,Q) Tumelo 0.60 mtpa (V) Mbokodo 0.50 mtpa (LTU) Mmakau 0.35 mtpa (V) Various small BEE’s 2.29 mtpa (Q)

MAJOR EXPORTERS 62.5 mtpa

MID TIER EXPORTERS 22.3 mtpa

JUNIOR EXPORTERS 6.2 mtpa

Source: Dedicoal research. RBCT website

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Richard Bay Coal Terminal (RBCT)



Confluence of factors have served to complicate the labour market situation

Rapid urbanisation (fastest in Africa, people seeking jobs in platinum belt)

Inter-union rivalry

Perception that mines are not doing enough to help local communities

High unemployment rates (26.2% versus national average of 24.9%)

Perception that mining companies can pay much higher wages

Increasing levels of protest against poor service delivery (average 8.8 protests per month in RSA)

High poverty rates

Poor service delivery by municipalities, insufficient bulk infrastructure, land for settlement

Workers battle garnishing orders and too much exposure to micro credit

Political opportunists seeking to capitalise on the situation

Labour unrest


Elephants in the Room… •  AMCU is here…

•  Regulatory issues…

•  Safety, Costs, Technology and Productivity…

•  Infrastructure development(Waterberg)

•  Transformation




How do we stabilise the industry?

“To reclaim our Global Competitiveness, Trust from all our Stakeholders and take advantage of the next Commodity Boom, we have to stabilize our Employee Relations environment, create regulatory certainty locally and internationally and be growth orientated. Let’s Coordinate our Efforts South Africa! Let’s Put South Africa First!”

Documents

This is the Mining Industry - sacollierymanagers.org.za teke.pptx (Read-Only).pdfThis is the Mining Industry “Long Cold winters and Short beautiful summers” Delivered by: Mr. Mike