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Presentation at the South African Academy of Engineering
Annual Induction Dinner
The contribution of the minerals industry to the
future of South Africa
Presentation by Exxaro’s Chief Executive Officer, Dr Con Fauconnier, at
the South African Academy of Engineering Annual Induction Dinner held
in Johannesburg on 28 June 2007.
28 June 2007
Contents
• The international context
• Current state of commodity markets
• The role of China with regard to mineral demand
• Underinvestment in global mining capacity
• Mineral industry outlook
• Exploitation of minerals in South Africa
• Contribution of the mineral industry to South Africa’s economy
• Role of the mineral industry in the future
• Key challenges
• Sustainability
• Conclusions
The current state of commodity markets
Strong demand and market deficits illustrated by the significant increase in prices
INDEX OF COMMODITY PRICES 1985 - 2007
450
400
Base Metals
Iron Ore
Steel
Steam Coal
350
250
200
150
100
50
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
0
1985
Index (1985 = 100)
300
Sources: I-Net, AME
The role of China
Strong consumption growth in China had a major impact on overall mineral demand
• China has gone from 5-8% of world demand for metals in 1990
to 25-30% in 2005/06
• Even allowing for a slowdown from current growth rates, China is
likely to account for 30%+ of world demand by 2010 and 40%+ by
2020
Source: Macquarie
Relative underinvestment in new mining capacity
The lag in supply response will see market balances restored only in 2008/09
METAL PRICES AND EXPLORATION EXPENDITURE
250
8
Exploration Expenditure
Metals Price Index
Economist Metal Price Index
210
7
6
190
170
5
150
4
130
110
3
90
2
70
50
Exploration Expenditure (US$ billion)
230
• Low commodity prices of
the 1990s and early
2000s resulted in low
investment in new mining
production capacity
• Increased investment
from 2004 onwards will
only result in significant
new productive capacity
with a lag of 5 to 7 years,
due to the long lead times
required to bring new
mines to production
1
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: MEG, I-Net
Mineral industry outlook
A strong possibility that industrialisation, urbanisation and infrastructure development in China
and other emerging economies result in a new “super cycle”
Industrial
Revolution
- UK, Europe
USA, Japan,
Europe
BRICMI+ ?
Note: BRICMI refers to Brazil, Russia, India, China, Mexico and Indonesia
Source: BHP Billiton
Mineral exploitation in South Africa
Has been a cornerstone of the country’s economy for more than a century
• Started with copper mining in Namaqualand in the mid-1800s, followed by the exploitation of
diamonds, gold, coal, iron and manganese ore and the minerals associated with the geological
treasure chest of the Bushveld Complex
• Played a major role in the development of South Africa’s infrastructure
• Important factor in the development of the country’s secondary industries and financial infrastructure
• Instrumental in the establishment of world-class academic and research institutions
• In 2005, some 55 different minerals were produced from 1113 mines and quarries and mineral
exports were made to 101 countries
• In 2006 some 72% of South Africa’s primary mineral sales were destined for the export market
Contribution of the mineral industry to South Africa’s economy
Remains a key industry
MINING'S CONTRIBUTION TO THE SOUTH AFRICAN ECONOMY 2006
60
In addition, accounts for:
• 30% of market value of the
JSE
50
Direct
• 50% of volume of
Transnet’s rail and ports
Contribution (%)
40
Direct plus Indirect
30
• 93% of electricity
generation via coal power
plants
20
10
•16% of electricity demand
0
• About 39% of liquid fuels
via Sasol’s use of coal
GDP
Fixed Investment
Formal Employment
Merchandise Exports
Sources: SARB, StatsSA, COM
Role of the mineral industry in the future
The potential role of the mineral industry in future is
illustrated by South Africa’s resource base
SOUTH AFRICA'S ROLE IN WORLD MINERAL SUPPLY 2005
100
90
80
Reseves %
Production %
60
50
40
30
20
10
Iro
n
O
re
oa
l
Ph
C
nt
im
os
on
ph
y
at
e
R
oc
k
um
A
U
ra
ni
ic
ke
l
N
pa
r
uo
rs
Fl
M
in
er
a
ls
iu
m
ni
um
ta
Ti
di
Zi
rc
on
um
s
te
os
m
in
Va
na
ili
ca
ul
ic
A
lu
Ve
rm
G
ol
ite
d
0
PG
M
an
M
ga
s
ne
se
O
re
C
hr
om
e
O
re
Contribution (%)
70
• In view of South Africa’s mineral resource base and expected demand growth from,
especially, the highly populated emerging economies of the world, South Africa’s mineral
industry will continue to have a decisive impact on the country’s economic future, if the
constraints facing the industry are overcome
Domestic economic growth will also bolster mineral demand
Especially in view of Government and other infrastructure development
SOUTH AFRICA'S HISTORICAL AND FORECAST REAL GDP GROWTH
7
Forecast
6
4
3
2
1
0
-1
-2
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-3
1990
GDP Growth (% Change)
5
Source: Global Insight
Key Challenges facing the mining sector
•
Rising cost pressures eroding benefits of higher prices
– Fuel, spares, labour, cement, steel, timber, etc.
•
•
Meeting health and safety milestones
Infrastructure constraints
– Electricity- impact on operations and safety
– Liquid fuels
– Transport (rail, ports, roads)
•
•
– Water services
Availability of machinery, equipment, fuels and tyres
Regulatory uncertainty
– Beneficiation legislation
– Finalising the royalty bill
– Continued red tape on mining and environmental licensing
•
•
The availability of skills, especially project management, engineering skills
Strong rand exchange rate
An example – the skills shortage
Engineers
Artisans
Source: JIPSA
Impact of the challenges on mining investment in SA
Resulted in a deterioration in fixed investment during times that an investment boom was
experienced in other commodity economies
New capital expenditure in Australia
South African mining real gross fixed capital formation, 1994 to 2006
20000
.
16% decline pa.
R'billions in 2000 money terms
Growth 7.8% pa.
15000
7.2%
10000
5000
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sources: SARB, ABARE
Sustainability
The challenges of sustainable development - illustrated by the issue of carbon dioxide
emissions
World per capita carbon dioxide emissions
•
South Africa is one of the most carbon emissions-intensive countries in the
world
•
It is responsible 43% of total African emissions, three times more than
second largest emitter (Egypt)
Sustainability
Will require innovative solutions from our scientists and engineers with regard to our
soil, air, water, human population and biological diversity
Conclusions
• It is expected that the international and local markets for South Africa’s
mineral products will remain positive for some time to come
• South Africa’s minerals and mining sector is a mature industry that has
demonstrated over a long period that it can consistently and competitively
deliver products of high quality
• The country has a world-class resource base
• The mineral industry has proven in the past that it can tackle challenges
successfully and will need to, in partnership with with Government,
approach the current constraints in the same manner and spirit
• The challenges of sustainability will tax the capacity of the industry,
domestically and internationally, to come up with creative long-term
solutions
• The mineral industry will, undoubtedly, continue to play a key role
in the growth and development of South Africa’s economy and
society
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