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This is the Mining Industry “Long Cold winters and Short beautiful summers” Delivered by: Mr. Mike Teke 4 October 2013 Today’s conversation… This too will Pass! The Global Mining space The State of South African Mining 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!” Today’s conversation… This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry Shifting Risks in the Global Mining Space 2008 2013 2014 1. Skills shortage 1. Resource nationalism 1.Capital allocation and access 2. Industry consolidation 2. Skills shortage 2. Margin Protection and productivity improvements 3. Infrastructure access 3. Infrastructure access 4. Maintaining a social license to operate 4. Cost inflation 5. Capital project execution 6. Maintaining a social license to operate 5. Climate change concerns 6. Rising costs (cost inflation) 7. Pipeline shrinkage 7. Price and currency volatility 8. Resource nationalism 8. Capital management & access 9. Access to secure energy 9. Sharing the benefits 10. Increased regulation 10. Fraud and corruption 3.Resource Nationalism 4.Social Licence to operate 5.Skills shortage 6.Price and currency Volatility 7.Capital project execution 8.Sharing the benefits 9. Infrastructure access 10.Threats of substitutes Source: “Business Risks Facing Mining and Metals, 2012-2013 and 2013/2014 Ernest & Young Changing World markets…. Since 2008, the global commodities markets have been hit by the multiple effects of : • • • • • • The slide into recession in Europe due to the sovereign debt crisis (a critically important market for platinum), The slowdown in economic growth in China (from >10%p.a. in 2008 to 7.7% now), The continued below potential growth performance of the US economy, The global sovereign debt crisis (especially in developed markets – EU, USA, Japan), The impact of quantitative easing (low interest rates and printing money) on commodity prices, The recent drying up of liquidity towards mining projects (concern that quantitative easing is not working and the slower growth levels). Source: Chamber of Mines Rising urbanisation, 3 billion people to urbanise by 2050 (most of the growth in Africa) World urban population growth (Billion people) 7.5 7.0 0.5 6.5 0.8 6.0 0.5 5.5 0.5 5.0 0.4 4.5 4.0 3.5 3.0 2010 Urban Pop. Source: UN, McKinsey China India Other Asia Africa RoW 2050 Urban Pop. The Global Mining Space Top 6 minerals, expected greenfield production growth for the period 2011-2020 Citibank - growth projects by commodity on a production volume basis, 2011-2020 Nickel, 11 Uranium, 1 Copper, 27 Coking coal, 11 Gold, 15 Iron ore, 21 Thermal coal, 16 Source: CitiBank The Fraser Institute Vision: • A free and prosperous world where individuals benefit from the operator choice , competitive markets, and personal responsibility. Mission: • To measure, study, and communicate the impact of competitive markets and government interventions on the welfare of individuals. • • South Africa has fallen down the rankings – 54/93 in 2012 to 64/96 in 2013. Based on existing regulations and practice, S.A. is ranked 77 out of 96 countries in 2013 from 62/93 in 2012. Comments; 1. Canada Canadian mining regulation and legislation are generally easy to operate under - A producer company with more than US$50M, Company president 2. Alberta Strong mining province, open for business. - An exploration company, Company president 3. New South Wales Stable, not corrupt, has technical potential, skilled labour force, not too green, and sensitive to how mining assist remote development and usefulness of royalties. Pro-mining conservative government. - A consulting company, Company president Continued… 4. Australia in general Across Australia, political and regulatory panic is seriously impacting the quality and timeliness of decisions, and certainty about access to land is very concerning. The “Twitter” factor is determining political attitudes and actions, and regulators are reacting to minimize the perceived “risk exposure” of their ministers. - A consulting company, Company president 5. Botswana Can get work done. Reasonable approval process. Not excessive regulations. Clearly pro-mining culture. Honest civil servants - A producer company with more that US$ 50M, Manager 6. South Africa Strikes, demonstrations, military killing workers. - An exploration company, Vice- president Country with an unworkable political structure - An exploration company , Company president 7. South Africa & Zimbabwe Both South Africa and Zimbabwe are driving social experiments not driven by logic and economy, but by ideology. In the absence of reason, primary industries become the cash cows to fund the un-fundable. The rise of oligarchs in both countries evidences decline. - An exploration company, Vice-president Source: Fraser Institute 2012/13 Today’s conversation… This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry? The South African Mining Industry SA’s Mineral Value: 6 main commodities PGM’s: Manganese: 8.8MT produced in 2012, accounted for >20% of global production, 8646 employees. 254.3T produced in 2012, with Pt. accounting for 128.6T. #1 producer in the world, 2nd largest mineral export, 199215 employees. Diamonds: 7 million on carats produced in 2012, accounted for 12% of global production, 12081 employees Source: Chamber of Mines 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. Iron Ore: Coal: 258.6MT produced in 2012, largest part of mineral sales, 3rd largest component of mineral exports, 83245 employees. 67 MT produced in 2012, 4th largest component of mineral exports, 23368 employees. South Africa has significant geological potential South Africa, is not mature mining real estate! The country still has significant geological potential South African reserves for key minerals, 2008 Global rank 1 1 1 1 1 2 2 2 2 2 4 4 5 5 6 8 8 8 9 0 PGM's Manganese Chromium Gold Alumino-Silicates Vermiculite Vanadium Zirconium Minerals Titanium minerals Fluorspar Antimony Phosphate rock Nickel Uranium Lead Coal Zinc Silicon Iron ore Source: DMR/USGS 10 20 30 40 50 60 % of global 70 80 90 100 . Perceptions and realities about mining 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 Source: Chamber of Mines The recent negative news items have resulted in an underperforming mining index on the JSE Unfortunately, mining has been the worst performing sector of the SA economy over the past two decades South Africa: Trends in real GDP (real 2005 rand terms) per sector, base indexed to 1993 (source: StatsSA) Agriculture, forestry and fishing 260 240 index 1993=100 220 Mining and quarrying Manu-facturing Electricity, gas and water 200 Construction 180 160 Wholesale & retail trade; hotels & restaurants Transport, storage & communication 140 120 Finance, real estate & business services General government services 100 Personal services 80 Overall GDP Health and Safety is Key Zero Harm is still the Goal Section 54s 17 Fatalities in the RSA mining industry 700 600 Fatalities 500 2003- 270 2011- 123 2012- 112 2013- 67 to date… 400 300 200 100 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Today’s conversation… This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry? 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 Political opportunists seeking to capitalise on the situation Workers battle garnishing orders and too much exposure to micro credit Labour unrest Perception that mines are not doing enough to help local communities High unemployment rates (26.2% versus national average of 24.9%) Source: Chamber of Mines Perception that mining companies can pay much higher wages Poor service delivery by municipalities, insufficient bulk infrastructure, land for settlement High poverty rates Increasing levels of protest against poor service delivery (average 8.8 protests per month in RSA) Elephants in the Room… • AMCU is here… • Conditions of service, Garnishee orders, Migrant Labour etc • MPRDA Amendment Bill…. • Safety, Costs and Productivity(Work Ethic)… • Transformation… May 2014? Source: Chamber of Mines Today’s conversation… This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry? How do we stabilise the industry? • Acknowledgement that the Game has changed in the Labour front… • Begin to engage on Productivity(Work Ethic) and Growth matters… • Accelerate on economic Growth enablers like skills development, investment , infrastructure development etc… • Eradication of Negative Messages about our Country! • Accelerate delivery on the Transformation agenda- This is about Hope! • This Too will Pass! Putting South Africa First…