Chamber of Mines on Mining Charter, State-Owned Mining Company, Health and Safety issues, Beneficiation, Job Creation

Meeting report

Chairperson’s Opening Remarks
The Chairperson was pleased to convene a long outstanding meeting and he thanked the Chamber of Mines for coming to engage meaningfully with the Committee. The discussion would centre on presentations made by the Chamber of Mines on the Mining Charter, State-Owned company and job creation. He hoped that this would be the beginning of future interactions to follow as these issues were not matters of event but issues that were evolving.

Mr Bheki Sibiya, Chief Executive: Chamber of Mines, stated that he would always respond to the Portfolio Committee since they were a key component of government. The Chamber of Mines had engaged with the Committee but it might not have been at a level that the Committee wanted. The issues that were going to be presented were issues that had been blessed by the Chamber of Mines Executive Council. He went on to stress that the mining industry was the key to the economy and that it was a goose that laid the golden egg. He added that they were not supposed to kill the goose that laid the golden egg.

Mr Frans Barker, Senior Executive: Chamber of Mines, said that the country was united behind the challenge of trying to create jobs. He stressed that he hoped that they would be united on the issue of transformation. He said that the role of mining was often underestimated. Mining was the key foundation industry that would enable South Africa to become the most industrialized country in Africa. The sector was a large employer of semi-skilled and skilled workers. The industry was an important net generator of foreign exchange. Equally important was that it was very a large magnet for foreign investment inflows which would help fund the current account. In addition it was a significant contributor to transformation in the economy. Mining was directly responsible for 8% of the GDP and nearly 20% of direct corporate taxes. Mining was said to contribute 50% of direct and indirect contributions to exports and it also attracted more than 30% of foreign savings on the Johannesburg Stock Exchange. The sector was an important provider of jobs. Further mining was responsible for 93% of electricity generation via coal power plants and a third of liquid fuels supplied via Sasol’s use of coal. Mining played a complementary role deep in the rural areas due to remittances and the establishing schools, clinics and community centres.

South Africa had some significant geological prospects and it was the number one reserve holder of manganese, chromium, gold and alumino-silicates and number two for vermiculite, vanadium and titanium minerals. A brief expenditure for the industry was given. Goods and services cost 48% of the expenditure of the industry, labour 17%, capital expenditure 12% and dividends 7%. The Chamber was a strong supporter of transformation in order to ensure a more inclusive industry, and the Chamber was committed to co-operating with other stakeholders for the benefit of the country and dealing responsibly with an important national resource.

The way the Chamber operated was described. The Executive Council was in charge and the Chamber represented about 90% of the mining industry. The Chamber had no life of its own. The Chamber’s staff transformation was given: black persons in management and professional jobs constituted 50%, women in management and professional jobs constituted 40% and 50% was the total percentage of women at the Chamber of Mines.

The revised Mining Charter contained a number of new targets and some targets had been expanded upon and strengthened. Reports would be given on an annual basis and a proper score card had been provided. Furthermore there were provisions to deal with companies that did not comply. The new and improved targets were: beneficiaries of ownership and required cash flow, procurement targets, contributions by multinational companies, employment equity, human resource development, decent accommodation and health and safety.

In terms of health and safety, the vision of the Chamber was one of zero harm which meant that every mine worker was supposed to return home each and every day unharmed. The 128 deaths in 2010 was unacceptable. In 2011 the increase in deaths was a major concern and he listed some short term actions they followed to deal with this. There was a decline in incidents of all occupational diseases including Tuberculosis (TB). Since the 2003 Tripartite Agreement there had been a fall in the fatality rates.
In terms of preventative actions, the Chamber was working with government and unions on a Tripartite Action Plan. The core elements were part and parcel of the Mining Charter.

The Mine Health and Safety Council was developing a Culture Transformation Framework. Leadership was critical and the Chamber team was visiting each and every Chief Executive Officer (CEO) to discuss solutions to challenges such as company contribution, production bonuses and leading practices. He added that the CEO roundtable had been planned prior to the Tripartite Summit. The Chamber would deal with issues of racism in an effort to achieve cultural transformation.

The Chamber had established a Learning Hub in order to encourage mining companies to learn from pockets of excellence and the four focus areas would be Falls of Ground, Machinery and Equipment, Dust and Noise. The Chamber had conducted its own Seismicity Study in order to look at technologies, people issues and management system issues. More than R250 million had been spent on R&D on Falls of Ground from seismicity and changes had been made in mining methods and design and deaths had reduced from 48 in 2003 to 10 in 2010.
 With regards to initiatives around lung diseases, a dust team had introduced leading practices such as the fogger system, footwall and sidewall treatment. A TB review had been done in 2010 in order to address shortcomings. There was an Ex-mineworker project in Kwa-Zulu Natal (KZN) and the Eastern Cape (EC) dealing with this. However, the compensation needed urgent improvement in terms of benefits and administration.

The Chamber had supported the creation of a state mining company, and it had indicated so in public. What it did say was that there should be a level playing field. The Minister had even announced that the exemption that the current state mining company had enjoyed was being withdrawn. The Chamber of Mines welcomed that because that meant not only was there a reality of a level playing field but also the perception of a level playing field. Even though those exceptions were never applied in practice, the perception of a level playing field was very important. Why? Because the state was both a referee and a player. Levelling the playing field would also prevent the perception that the taxpayer would fund inefficiencies and losses. Lastly, it was important that the state should not be viewed as acting above the law.

Mr Barker noted the importance of foreign investment. Investment was critical for growth and in updating technology, infrastructure and machinery. An investment rate of about 25% of the GDP was required for a 5% growth rate. In relation to the state mining company, one had to have realistic expectations. He noted that about 89% of mining had already been captured locally and only an additional 3 to 8% remained. The state mining company could play an important role being an industry incubator, funding exploration and other activities and creating a sovereign wealth fund. However, one had to be aware of the potential pitfalls. Mining was very volatile and risky and lower efficiency was found in state owned companies plus one would be squeezing out BEE investment.

Mr Barker concluded saying the contribution of mining to South Africa could be enhanced by its economic contribution in the form of jobs and growth in a constrained economic environment and social contribution in the form of the new Charter’s transformation power.

Mr Roger Baxter, Senior Executive: Chamber of Mines noted that the issue that had preoccupied government was that of job creation. Since the last 17 years, the country’s growth rate was about 3.3% which he said was not enough. The level of unemployment was too high and the level of income inequality was very high. All parties recognized that higher levels of sustainable, balanced and labour absorbing economic growth was the key to reducing unemployment. Government had developed the New Growth Path that focused on economic growth and employment creation. While the growth rate in South Africa had risen to 3.3% per annum from 1994 to 2009, it was just too slow to meaningfully tackle unemployment and poverty. Too much of the economy’s recent growth had been driven by the credit fuelled non-tradable demand side and tradable export sectors had languished. The non-tradable sector growth was said to have sucked in imports and had created imbalances such as large current account deficit. Hence in order to ensure more balanced and higher levels of growth and job creation the country needed its tradable export sectors to grow at a much faster pace. This was where mining fitted in since mining offered very large employment, foreign exchange earnings and was a GDP multiplier.

The tripartite Mining Industry Growth Development and Employment Task Team (MIGDETT) set up in December 2008. The short term mandate was to focus on limiting the negative impact of the global financial crisis on the South African mining sector and the long term mandate was to reposition the industry for sustainable growth and meaningful transformation. There was an agreement by the tripartite MIDGETT leadership to develop a “strategy for sustainable growth and meaningful transformation of the South African mining sector”. Which was to better understand the real potential of the South African mining sector, unpack the competitiveness and transformation constraints, agree on a set of key priorities that needed to be addressed and implement the agreed solutions. Substantial work had been done in the past 14 months.

With regards to the true economic potential of South Africa mining was the essential core of the South African economy since it created 500 000 direct jobs (and 500 000 indirect jobs), and it accounted for 18% of the GDP. In addition it was a critical earner of foreign exchange and it attracted significant foreign savings. It contributed to 50% of the volume of Transnet rail and ports and 93% of electricity generation via coal power plants.

South Africa had significant geological prospects. The mining and beneficiation cluster remained key to South Africa’s export performance and it could be significantly enhanced. South Africa’s mining industry was the world’s fifth largest by GDP value and South Africa had most of the world’s top mining companies participating in the country. South Africa had exposure to most of the top 10 minerals that were in demand at a global level such as coal, copper, iron ore, gold and nickel. For the period of 2010-2020, conservative modeling indicated that a 3 to 4% growth rate and another 100 000 jobs for the South African mining sector was realistically possible.

In terms of its current economic performance, the South African mining sector had performed poorly versus its global peers. In addition South Africa’s share of the global exploration expenditure had declined from 6 to 3% of global spend between 2003 and 2008. A graph was shown of the fall in employment.

MIGDETT had unpacked the constraints to growth. In terms of assessing the competitiveness of the South African mining sector, there were both controllable factors (such as infrastructure, regulatory environment and management efficiencies) and uncontrollable factors (such as geology, grade and location). The competitiveness assessment looked at six key areas such as general competitiveness, inherent potential, market context, product demand, regulatory environment and enabling factors. At a general level, South Africa was ranked the 54^th most competitive economy out of 139 countries in a World Economic Forum 2010-11 report. Plus South Africa compared relatively favorably with 12 other key mining countries on problematic factors for doing business (such as inefficient government bureaucracy, inadequately educated labour force, crime and theft and restrictive labour regulations). The country had significant geological potential and human capital potential. However, in terms of the human capital challenge, challenges emained such as a shortage of engineers which imposed a constraint on growth. South Africa’s market context was seen generally as being competitive. The financial markets were world class since the JSE was ranked as the world’s 18^th largest stock exchange and it was ranked number 1 on the quality of regulation. Commodities markets are back to the “Boom” as urbanization and industrialisation in certain emerging economies drives growth in demand for most minerals.

There was general agreement that the objectives of Minerals and Petroleum Resources Development Act (MPRDA) of promoting a sustainable, safe, environmentally responsible, growing and transformed industry were important and globally aligned. However, certain gaps in the mining laws, inconsistent application of the laws and long processing times had created uncertainty. Other regulatory areas had presented challenges (e.g. environmental permits). The lack of a functioning mining cadastre system had compounded the negative perceptions about the regulatory framework. Recent court cases and the nationalisation issue were causing uncertainty. Despite the country’s significant policy potential, it had slipped down the global rankings to position 67 out of 79 countries in the Fraser Institute Survey for 2011 for prospecting potential.

SA ranked reasonably well in ease of doing business. South Africa was ranked 34th easiest place to do business (out of 183 economies). All the stakeholders agree that transformation was a key component of promoting stability and a long term licence to operate. At a general level, SA’s infrastructure was ranked as reasonable, but specific constraints had emerged (rail & electricity). The country had adopted prudent macroeconomic policies, but volatility in the exchange rate was an issue affecting long term planning. As a constitutional democracy, South Africa had political stability.
 
Looking at infrastructure challenges, the rail challenge was highlighted which negatively affected coal exports. Getting rail right presented significant opportunities for unlocking growth in bulk commodities. The competitiveness analysis showed that South Africa was unable to take advantage during the commodity boom mostly due to domestic issues. Mining production declined in period 2006 to 2009 due to:
- Binding infrastructure constraints (electricity, rail,)
- Regulatory framework challenges
- Policy uncertainty (uncertainty regarding possible changes to the rules of the game)
- Human capital constraints
- Stagnant productivity and rapidly escalating costs
- Lack of Greenfields exploration and R&D
- Volatility in rand-dollar exchange rate
- The global financial crisis (GFC)

MIGDETT stakeholders had recognised these challenges and were working on the appropriate solutions. Realistic assessment of the constraints had been completed. Work was underway to resolve the constraints. By 2012 South Africa should start doing better on the global rankings (such as the Fraser Institute Survey). By 2014, MIGDETT focus was on getting South Africa back into top half of the rankings.

MIGDETT milestones, so far had been the revised Mining Charter finalised in September 2010. And the sectoral growth strategy had been completed and submitted to Cabinet in December 2010.

Noting that mining was back on the top five sector priority list of Government, there had been proposals to move RSA mining on to a Growth Path with a substantive tripartite declaration on 13 topics:
1. Promoting sustainable growth and meaningful transformation
2. Resolving infrastructure constraints
3. Promoting innovation, productivity and cost competitiveness
4. Promoting sustainable development in mining
5. Encouraging beneficiation
6. Enhancing the regulatory framework
7. Developing skills
8. Enhancing employment equity
9. Enhancing mine community development
10. Upgrading housing and living conditions for workers
11. Broadening procurement
12. Broadening ownership for meaningful transformation
13. Monitoring and evaluating the progress annually

Substantial work was being done to get the “rubber” to “hit the tarmac”
• The regulatory task team was working on amendments to MPRDA.
• There was a review in DMR of problems on licences.
• The infrastructure task team was working on a matrix of infrastructure constraints per commodity.
• There was an investigation into issues holding back exploration and R&D.
• A state owned mining company had been launched to compete on a level playing field with the private sector.
• The stakeholders were cooperating on wide range of areas to promote competitiveness and growth.
In conclusion, mining and minerals mattered for the growth, development and transformation of South Africa.

Discussion
The Chairperson asked if there were any plans to help Transnet upgrade its railway infrastructure. He noted that in terms of mine safety, there were still a number of challenges. He asked what action was taken on a company that failed to comply with safety regulations and what corrective measures were meted to companies that failed to comply with the Mining Charter.

Mr M Sonto (ANC) stated that South Africa had a lot of mineral reserves that could not be tapped. He asked why South Africa could not explore the possible options they had. In terms of the revised Charter, the mining industry was littered with non-compliance. He asked what punishment was given to companies that did not comply with the regulations. He asked what was not being done right since it had been said that the death toll was rising. He asked why there was a disjuncture between the Chamber and the Mine Health and Safety Inspectorate in terms of understanding TB cases. He also noted that anything that related to state ownership was related to inefficiency. He asked why there was such a perception and from what analogy was this derived and how did one deal with such a mindset.

The Chairperson stated that the figure of 100 000 that had been given was low especially in light of the fact that most of the world’s reserves were in South Africa. He asked how best they could explore this. In terms of the revised Charter, the Chamber of Mines would be engaged more during public hearings. However, the Chamber had made a positive advance in terms of the Mining Charter. He noted that 128 deaths was a very large number. The Chairperson asked how the Chamber was cooperating with the Geoscience Council in terms of seismic studies. The Fall of Ground (FoG) picture that had been painted by the Inspectorate was bleak and he asked if the Chamber had seen the report. With regards to the state owned mining company what other reason had the state for thinking along those lines? There was nothing that insulated South Africa from an uprising such as the ones seen in Egypt and Tunisia. There was a need to look at social programmes that could be funded by the state mining company. A lot of exploration rights had been granted but this had not resulted in the exploration of minerals. There was once a high economic growth rate but it had been “jobless”, hence economic growth had to grow together with job creation. He asked if the Chamber was in a position to capitalise and create jobs during a commodity boom.

Ms F Bikani (ANC) asked what relationship was there between the Chamber and the investors. She asked what role the Chamber could play in order to ensure benefits in terms of rural development. She asked how the Chamber could ensure that mine workers also benefited.

Mr C Gololo (ANC) stated that foreign investment in any country was pivotal for economic growth. He asked what would happen to an economy that was solely reliant on foreign investment.

Mr Sibiya responded that the Chamber supported the state owned mining company. it was important that they avoid making decisions that they would regret later. In terms of helping Transnet  that they had engaged with the CEO of Transnet and the CEO of Eskom to make sure that power was available to industrial consumers. With regards to the geological prospects of South Africa  that South Africa had minerals worth trillions of United States dollars. He however stated that some problems were controllable and others were uncontrollable. He further stated that the issue of nationalization of mine prevented would be investors and even the super tax that the Deputy Minister of Economic Development talked about or Transnet’ increasing it rates by 30%. He responded to the issue that had been stated about the mining sector being littered with non compliance  that target that had been set by the Mining Charter was up until 2014 and hence to prejudge the Chamber now was premature hence they were supposed to be judged in 2014. He responded that it was not a perception that everything that was related to state ownership was inefficient but it was a reality. if one failed to perform in the private sector one would be forced to leave the sector. In terms of jobs the labour environment in South Africa was flexible. This was said to create mechanization and automation and hence it would be difficult to employ people.

Mr Frans Barker, Senior Executive: Chamber of Mines, responded to the question what was the Chamber doing in order to assist members to perform by saying that they had sent teams to visit each and every CEO and it had a good impact since they would name and shame in the meetings. In terms of the culture of transformation framework they looked at the extent to which mining companies that were compliant.

Mr Bheki Sibiya, Chief Executive: Chamber of Mines, responded to the question on fatalities by saying that the statistics had been collected by the Department of Mineral Resources in 2009 and the number of deaths was 168 and in 2010 the number of deaths was 128. for the year 2011 the Chamber was hoping that the fatalities would be less than 100. However there had been a decrease in the number of fatalities.

Mr Barker said that in terms of the Charter, they were networking with one another so that mining companies could learn from one another. To achieve compliance, it was important that the Department analyse the reports that were going to be submitted, score the reports and give mining companies feedback. In response to the question on the benefits of labour, the previous charter was soft but now it was robust. The exact form and nature of the state owned mining company needed to be investigated as it was important that South Africa benefit from the state owned mining company.

Mr Baxter said that a number of jobs had been created but some of them were temporary. The private sector had responded to the inefficiencies of rail transport by putting their goods on the road. Transporting goods by rail was uncertain and it was important to get their costs down and their efficiencies up. In terms of the geological prospects, there were some infrastructure constraints and uncertainties on the regulatory side. South Africa was not good at venture capital funding and investors in the country were risk averse. It was an area that the JSE was looking at and it was a role that the state owned mining company could help with. He pointed out that the Chamber engaged on behalf of the industry with the investment community.

The Chairperson stated that there was need for another engagement on the issues discussed. These were issues that had a direct impact on the policy directives of the country.

Mr Sibiya thanked the Committee for the opportunity to present and he thanked the Committee for engaging with the Chamber of Mines.

The meeting was adjourned.