Mining Charter and job creation for youths: Public Hearings involving Top 10 Mining Companies

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Mineral Resources and Energy

01 November 2011
Chairperson: Mr F Gona (ANC)
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Meeting Summary

The Portfolio Committee held public hearings on the Mining Charter and job creation efforts targeting the youth, involving the Top Ten mining companies in South Africa. In the first round, it received presentations from Anglo American South Africa (AASA), De Beers Mining Corporation Ltd (DBCM), and Longmin Plc.

The Committee had been concerned that the transformation process was not progressing as expected, and its oversight visits had consistently shown that mining communities were still characterised by the triple evils of poverty, unemployment and inequality. The Department of Mineral Resources (DMR) had placed black ownership of mines at 9%, and this figure was agreed as probably correct, by the unions and other commentators. However, the Chamber of Mines had suggested that mining companies had exceeded the 2014 targets and placed black ownership figures as around 28%.

The same types of issues were addressed by each of those companies, and similar questions were asked by the Committee. Each of the companies commented on its history, track record, broad based black economic empowerment, employee share schemes, corporate social investment, other initiatives to help communities in the area, and suggestions as to how the challenges could be addressed. They also addressed questions of procurement and enterprise development, both of suppliers and surrounding communities, beneficiation, employment equity and human resource development within the companies, housing and living conditions of miners and how to achieve sustainable development in the mining industry. All three companies confirmed their commitment to the transformation process, and South Africa and DBCM dispelled rumours that it was leaving the country. The Chairperson noted that challenges cited included the socio-political environment, youth and community frustrations, and nationalisation. The Committee was concerned that perhaps not enough had been said about job creation and youth development, and the Committee reiterated several times that it was seeing abject poverty and lack of equality on the ground during all its visits.

Members asked a serious of questions on a broad range of topics. These included where the companies were listed and registered, explanations on the classes of shares, who its primary markets were, and what the spend was in South Africa. They questioned the employment statistics, asked if the senior management indeed had all powers that would be expected of them, to avoid suggestions of fronting, how staff would be developed and mentored to get to senior levels, the employment equity, employee wellness programmes and whether the companies were partnering with the government in, for instance, offering free treatment to their own workers, as this was in any event a benefit of the country. They questioned the employee share schemes, the models used, sustainability of its BEE initiatives, flow of dividends, and community development projects. They wondered, in the case of Lonmin, if the BEE partner could properly be described as such, and said that the percentage of BEE ownership was not sufficient. Members were interested in whether community leaders were involved in debates about community affairs and noted that “community” was taken variously to mean the communities in a certain radius of the mines, or those communities from whom workers were drawn. Some particular incidents at mines were questioned, and explained. All companies were asked to expand on their employment equity and procurement figures, and Members commented that written responses would be useful. Further questions addressed rehabilitation of mines, and community benefits and housing, particularly the upgrading of the former hostels and whether the targets would be achievable. Members commented that there were contradictions when so much work was done that the units became unaffordable. Members asked about the land holdings of DBCM, noting that it was selling off most of its land other than that on which mining rights were held, or that it wished to preserve as conservation areas, and it had also donated to communities. It was in the process of finalising a land strategy. Offshore diamond mining and allegations from divers were also interrogated. It was noted that a Diamond Academy was to be started at Kimberley, and Members asked why it was not called a university and whether it would become part of the new university in time. Investments in other countries, particularly Botswana, also came under the spotlight. The Chairperson referred to recent comments about nationalisation, saying that the primary reason behind this was the perception about lack of transformation. He urged that, instead of stressing the negative impact of nationalisation, the industry should suggest what alternatives it could put in place to demonstrate that it recognised that it was exploiting minerals that were the common heritage of all South Africans, and this was the manner in which South Africans would benefit.

Meeting report

Mining Charter and job creation for youths: Public Hearings involving Top 10 Mining Companies
Chairperson’s opening remarks
The Chairperson welcomed delegates, Members and the public, and expressed the Portfolio Committee's appreciation that the leadership of the mining companies had accepted the invitation. He gave the background on why the Committee had convened Public Hearings on the transformation process in the mining industry. The Committee had recently engaged with the Chamber of Mines, the labour unions and other entities on the implementation of the Mining Charter and the issues of transformation. The Department of Mineral Resources (DMR) presented a report on its findings and assessment on the implementation of the Mining Charter across the country, and it was not good. In terms of transformation, DMR had reported that only 9% Black ownership had been achieved since the promulgation and implementation of the Mining Charter in 2004, whilst performance in other elements was found wanting as well. The Chamber of Mines (COM or the Chamber), to the surprise of the Committee, painted a completely different picture and reported that mining companies who were members of the Chamber had exceeded even the 2014 targets contained in the amended Mining Charter. COM calculations placed Black ownership at approximately 28% but it had qualified that by saying it was a weighted average of progress that had been made thus far. However, the South African Mining Development Association (SAMDA) put transformation at almost the same level as the Department had done, and in fact, painted a bleaker picture and pegged black ownership at approximately 5%. The National Union of Mineworkers (NUM), the union Solidarity, and Webber Wentzel more or less agreed with the picture painted by the Department.

The Committee thus felt it was of the utmost importance to invite companies in the mining industry to report on how far it had come in terms of the implementation and measurement of the elements of the Mining Charter.

The Committee had undertaken oversight visits to mining operations in a number of provinces, to oversee the compliance of mining companies with the Mining Charter, and to check its progress on the implementation of its social and labour plans. The Committee had often found appalling results, and had compiled reports that were in the public domain. Mining communities were trapped in abject poverty, and this did not auger well for the future of the country. Whatever information mining companies would present would be evaluated against what the Committee had seen for itself during oversight visits.

Mining companies had also been asked to speak about its efforts towards job creation. The Committee acknowledged that the mining industry was one of the major employers in the country and had made a serious contribution, even though figures seemed to be going down at the moment. The mining industry had, historically, made a serious impact on the employment levels of the country and this was a situation that government wanted maintained, if not improved. In particular, the Committee wanted to know what mining companies were doing in jobs that targeted the youth. When the Committee had conducted oversight, it had deliberately convened meetings in the mining communities at nine o'clock in the morning, and had noted that mostly young people were present. When Members had asked why they were not at school or at work, the response was that they had completed schooling but were unemployed and sitting at home doing absolutely nothing. The Committee thus thought it important to examine what the mining companies were doing in this regard, and their views on arresting unemployment. There was a serious challenge in terms of youth unemployment in the country, given the fact that 75% of the 25% unemployed people in the country were young people. It was an unsustainable situation, which was constantly referred to as a “ticking time bomb” and the recent youth march had to do with the scourge of unemployment. Government wanted to partner with the mining industry in finding a lasting solution to deal with this.

Anglo American South Africa (AASA) Ltd
Mr Godfrey Gomwe, Executive Director, Anglo American South Africa Limited, said that the presentation by Anglo American (AASA) would incorporate three of its operating businesses, namely,De Beers, Kumba Iron Ore and Thermal Core and would also include some of its global corporate service units which were managed from South Africa. He introduced his delegation who would assist in the presentation and noted that  its sister companies and  its colleagues from De Beers would be presenting later. The presentation gave an overview of what the Group looked like at present and indicated progress in terms of the Mining Charter and its revision, as well as appendices which covered the BEE (Black Economic Empowerment) transactions done since 1994, activities in 2010, and the commitment to South Africa.

Mr Gomwe noted that three of the Group’s seven Commodity Business Units were globally managed from South Africa and the Executive Committee (ExCo) was heavily populated by South Africans. 43% of the Group's operating assets, 48% of its revenue and 51% of its operating profit had their origins in Southern Africa. AASA had 91,500 employees in South Africa. The company was listed in South Africa and London.

Mr Gomwe provided a quick overview of the Group's assets strategic to South Africa (see attached presentation for detail) and noted where the Units were based. The Group had a very large operating footprint in South Africa and was a major contributor to South Africa's economy. It was a significant investor in South Africa and in the past 10 years had invested R148 billion. AASA was one of the largest contributors to the National fiscus, and in 2011 it had paid R14.3 billion in direct and indirect taxes. In terms of export revenue, it was a major contributor to South Africa's foreign currency, generating nearly R105 billion in 2010 (see presentation attached)

There was a symbiotic relationship in terms of benefits with other industry partners. Eskom was a major supplier of power to AASA. AASA had spent R3.1 billion with Eskom in 2010. It had supplied Eskom with 32 million tonnes of thermal coal worth about R4.6 billion (US$560 million). AASA also had an equally important relationship with Transnet, with a value of services of R4.1 billion spent with Transnet. These were two of its top suppliers, and they impacted heavily on each other. Efficiency in logistics and an adequate supply of power were critical for the development of the industry in South Africa. Mr Gomwe emphasised that AASA continued to invest in South Africa despite constraints. Currently it had a considerable pipeline project of R30 billion which included the Kolomela Iron ore project which was almost 94% complete, the Zibulo Thermal Coal Project which was producing 6.6 million tonnes of coal, and other projects in the platinum sector.

Mr Gomwe noted that he would report in terms of the Mining Charter's identified pillars and would reflect  progress against each pillar. In terms of Ownership and Joint Ventures, Mr Gomwe wanted to emphasise three points. Firstly, the Mining Charter and the Department preferred AASA to make transactions at the asset level. A number of commentators looked at the figures only at the Stock Exchange level generally, although in fact much ownership sat at asset level. Secondly, the method of measurement of ownership in terms of the Mining Charter was different in many respects. It included equity, and also took into account units of production. Across all of its businesses (Thermal Coal, Iron Ore, Manganese, Platinum and other mining) the AASA had achieved the required ownership level of 26%. This only reflected the mining business. However, he referred Members to the appendices attached to his document for a complete listing of other businesses, and pointed out that the same philosophy to empower applied there too, with many transactions being broad based and involving employees and communities. Thirdly, AASA had achieved the required empowerment credentials and had received the conversions of  its old order mining rights into new order mineral rights. AASA had done BEE transactions, to the cumulative value of  R60 billion (calculated at the time of the deal) since 1994. Major black controlled mining companies had  their genesis with AASA, such as Exxaro Resources, African Rand Gold, Mvelaphanda/Afripalm, Anooraq, and Shanduka Resources. Many of the transactions were vendor-funded by the AASA group companies, which meant that the company had stepped into the breach and acted as a bank in order to support the entities and make the transaction possible.

In terms of broad based transactions, there were two flagship, shared-ownership community schemes. These were Sishen Iron Ore Mine, where the community had a 3% shareholding. The success of this particular transaction, which was under 5 years old, was that the community stake was already fully paid up. The community shareholding was estimated at R6.3 billion. The distribution of dividends in 2011, which benefited 600 000 people, was R668 million. The second scheme was the R3,5 billion Lefa La Rona community share ownership project, which was recently announced by Anglo American Platinum. The beneficiary communities were Twickenham, Mogalakwena, Rustenberg, Amandelbult as well as key labour sending areas. All AASA operations had shareholder schemes. All employees who were not on any other share scheme were on the employee share ownership plan within the group. The Kumba shareholding scheme was coming to maturity and there would be a payout by the end of the year.

Ms Lindiwe Zikhali, Head of Transformation and Regulatory Affairs, AASA, noted the progress AASA had made in terms of employment equity. The original targets for equity were 40 % for Historically Disadvantaged South Africans (HDSA) and 10% for women in mining. At the end of 2009 the aggregate of HDSA management representation was 52%, including junior management. The percentage of women in mining was 12%. The HDSA target for management had increased steadily from 34% in 2005. At the end of December 2010, junior and middle management level had strong HDSA representation, and this was where the future talent lay for development into senior management ranks of the AASA. The senior and top management levels complied with the Mining Charter targets, and progress was being made on achieving the 2014 target of 40%. AASA acknowledged that it had to focus on ensuring equitable representation by race and gender across all the levels, and was currently doing this. Ms Zikhali referred to the slide of the latest statistics as 30 September 2011 which showed the progress to date (see presentation attached).

The Chairperson asked for clarity on the graphs supplied for 2011.

Ms Zikhali explained that the first bar in dark blue represented Top Management, the red bar represented senior management, the yellow bar represented middle management and the pale blue represented junior management. She emphasised that the target was 40% for all management levels.

AASA saw Human Resource Development as a tool for achieving employment equity, and not as an end in itself. AASA offered, amongst others, bursary schemes and Adult Basic Education and Training (ABET). In 2009 about 6% of the payroll was invested in training and development of employees. In 2010 more than R800 million was spent on various human resource development initiatives such as bursaries, ABET and management programmes. Each business unit achieved its 26% target spend on human resource development. The number of ABET learners had decreased significantly in 2010, because the need was lessening as most new recruits had matric before they entered.

Ms Zikhali said that AASA recognised the importance of contributing to the development of the communities where its mines operated. From 2007-2011, over R1 billion had been spent on various community development initiatives, as set out in graphs indicating the spend on Education, Infrastructure and Health and the details of services delivered (see presentation). The projects were spread over four provinces, the Northern Cape, Limpopo, North West, and Mpumalanga, where the bulk of AASA operations were situated.

Mr Gomwe dealt with AASA's enterprise development initiatives. He noted its highly successful model of the Zimele Enterprise Development/Job Creation Funds, whereby it advanced loans to Small and Medium Enterprises (SMEs). The key to the success of the model was that there was a back office of management services that supported the SMEs, through a core of mentorship programmes, to help entrepreneurs ultimately to stand on their own. Delivery of this initiative was done through 32 small business hubs dotted across the country and in some other labour-sending areas. Outside the mining industry, the Zimele initiative had created and sustained 18 267 jobs since 2008. There were about  1 300 businesses across the Fund, each generating about R1 9 billion turnover. The AASA investment had been R519 million. Mr Gomwe noted that the cost of creating a job was just under R30 000. AASA was committed to generating employment in the SME sector. The SMEs were located in the areas around the mines in the poverty nodes, where opportunities existed. There would be an increased focus on the development of female entrepreneurs in the future. At present 35% of entrepreneurs were women, and 48% were youth. There was about 90% repayment of loans. AASA had made a specific commitment to the Call to Action by the United Nations (UN), and by 2015 it would have created 25 000 employment opportunities in this particular initiative.

Ms Linda Wedderburn, AASA representative, reported on the progress on reaching the local procurement targets. AASA's growth in BEE procurement rose from R1.1 billion in 2000, to R23.5 billion in 2009, through a number of active interventions, including transformation of its existing suppliers and enterprise development. AASA was currently achieving the 2010 targets, and was working towards the 2014 targets. The BEE national procurement initiatives were seen as important, but it equally prioritised localised procurement around its operations, as publicly declared in 2010, in a global local procurement policy. This commitment included supplier development, comprising active development to enable suppliers to support the industry, setting  appropriate payment terms for SMEs, and improving accessibility and visibility of its procurement opportunities, by ring-fencing or set-asides. AASA believed that procurement at a national, regional and localised community level was making a difference to social and economic development outside of the mining area, and would continue to grow employment at all levels including women and youth.

Ms Zikhali said that the original Mining Charter required the establishment or improvement in the living conditions of employees, and said that AASA fully acknowledged that there had been poor living conditions of mineworkers. AASA was committed to the eradication of apartheid style living arrangements for its employees. 80% of hostels had been converted into single rooms or bachelor flats, and hostel occupancy had been reduced from about 22 000 in 2004 to 12 547 in 2010. Over R2 billion had been committed towards employee housing initiatives. In 2008, its platinum business entered into a Memorandum of Understanding (MOU) with the Department of Human Settlements (DHS) to provide 20 000 houses for employees in Limpopo and North West Province. AASA would achieve the target of the one person per room occupancy rate by 2014, through hostel conversions and facilitating home ownership. Each business unit supplied its employees with allowances and subsidies to afford quality accommodation.

Mr Gomwe presented the Beneficiation and Research Development component. The principle point of beneficiation was seen as its effect downstream, and often the contribution at the mining industry level remained forgotten or unacknowledged. He highlighted the development at Sishen. Here, AASA had invested billions to develop a plant that converted waste material into high grade iron-ore for export, which would bring in over R1.5 billion of foreign currency. Project Khanyisa, which was nearing completion, utilised converted dumped waste material for power generation purposes. The power station would generate 50 megawatts of power, and involved an independent power producer. These would be expanded on in beneficiation hearings.

Ms Zikhali noted that Safety was a new pillar of sustainable development in the revised Mining Charter. AASA was committed to collaborative efforts to address the safety of workers. Both the fatality and injury rates had dropped by 50%, whilst Anglo American Thermal Core recorded a fatality free year in 2010  

AASA was committed to addressing key environmental concerns associated with mining activities. The presentation contained further details. In respect of research, AASA spent R722 million on research and development, with 50% spent locally in South Africa.

Although the revised Mining Charter did not contain indicators for migrant labour, AASA nonetheless tabled its employee nationality breakdown and said that programmes for employees were applied irrespective of country of origin. AASA also contributed to other causes and initiatives in various areas. Anglo American operated the largest private sector HIV/Aids treatment programme in the world, and 94% of employees participated in voluntary counselling and testing. About 4 000 employees and families were on free ARVs, and it had efforts to manage TB. A number of healthcare facilities had been built or provided in communities. The Khumba fund handed over 9 Batho Pele Mobile Health Units in the Northern Cape. Total Corporate Social Investment spend was R482 million in 2010, of which 73% was spent on social and labour commitments in its host communities. It was also contributing to capacity building, and had entered a contract with Development Bank of Southern Africa (DBSA) to strengthen the capacity of municipalities in the areas in which it operated (see presentation attached).

The Chairperson thanked AASA for the elaborate presentation, but noted that Members had received it only that morning. He commented that not much was said about job creation, and AASA had  not quantified the jobs created as part of its social investment and enterprise development. He reiterated that the Committee, through its engagement with the mining companies, wanted to address “triple evils” of the high level of unemployment, the unacceptably high level of poverty, as well as inequality in the country. South Africa was seen as the world’s most unequal society.

Mr Gomwe replied that he had a three part comment to these issues. Firstly, the AASA Zimele Initiative was a specific job creation initiative that was outside of its normal mining activities. AASA had, through this, created and sustained 18 267 jobs. Secondly, in its core mining activities, the project pipeline, involving investment of R30 billion would generate 19 800 jobs. Finally, through its various Corporate Social investment (CSI) projects, AASA had generated another 3 000 jobs. He would collate information as to what was included in the social and labour programmes, to quantify the jobs created as well as indicate the numbers affected by the spending. He estimated that, overall, 40,000 jobs had been created.

Mr E Mtshali (ANC) noted that AASA had highlighted its investments in communities and wanted clarity as to who was “the community”.

Mr H Schmidt (DA) said he was impressed by the list of ownership and joint ventures, the way in which AASA had grown, and also the employee share ownership schemes. They seemed to indicate BEE on three different fronts, whilst the employee share ownership schemes indicated a broader reach. He would have liked to see more employee share schemes as that, in his view, came closer to broad based black economic empowerment (BBBEE). He asked if there was anything in the legislation or departmental regulations or in communities that prohibited or prevented more broad based empowerment.

Mr E Lucas (IFP) thanked AASA for the presentation and remarked that it was important to share information. The major concern in the mining industry was sustainability, and stopping the practice of companies going in, taking out and leaving. He gave the example of Vryheid mine, where the situation had become pathetic when mining had stopped, and said that consideration must be given to addressing the situation when the mine stocks were depleted.

Mr Lucas said that beneficiation could be understood at different levels, and could extend to the end products. He suggested that, for instance, jewellery manufacture from gold should occur in South Africa.

Mr Lucas referred to the AASA's healthcare initiatives and noted that the emphasis was on HIV/Aids but little was said about tuberculosis.

Ms B Tinto (ANC) said that when the Committee had gone on oversight visits to mining companies and communities, it discovered a different picture to what had been presented. There was high unemployment, particularly amongst the youth. Members who had visited Limpopo were nearly assaulted by the community, which had high expectations and was disappointed that Members could not give answers.

Ms Tinto referred to Ms Zikhali's comments that ABET levels had gone down, and asked if AASA required its employees to have matric, noting that it was still a battle for people to get a senior certificate, and this might be contributing to unemployment.

Ms F Bikani (ANC) asked for an explanation on the 45.% "B" shares indicated for De Beers, and how these were distinguished from others. She alluded to the rumours that De Beers was leaving the country and asked what its commitment was to the country and the implications for the South African government.

Ms Bikani referred to the Pipeline Project and job creation, and asked what percentage of jobs would be at management level, lower management level and for ordinary workers. She commented that while statistics for women and employment equity were given, a clear picture had not emerged on how many people were South African and how many people from the lower levels were being upgraded.

Ms Bikani asked if AASA was luring highly qualified and newly qualified personnel away from government with better salaries.

Ms Bikani noted that there was an improvement in the figures for women in mining, but asked how many, especially at lower management level, were South African Black Women, and how many were eventually able to become self sufficient by benefiting from the company. She also wanted to know at what management levels women were represented.

Ms Bikani noted that AASA had bursary funds but there was no indication where students receiving bursaries ended up being employed, and she asked if AASA would employ them, or if they had to source their own employment and repay the funding.

Ms Bikani referred to the AASA community health initiatives, commenting that the same health services were available from government for free, and wondered if the Department of Health was duplicating the efforts of AASA. Furthermore, she commented that ARVs were available free from government, and she wondered if AASA was funding those it gave to its employees. She also asked if health services were prioritised to those particularly prevalent in the mining industry, and if there were statistics on TB and silicosis and other health hazards.

Ms Bikani said the slides were impressive, but asked if all living conditions were the same, or if this depended on salary and position. If there were areas where housing had not improved, she wanted to know what was being done. She asked what benefits were available to employees laid off or retiring, and noted that the Committee, on its oversight, continued to see people living in desperate poverty.

Mr M Sonto (ANC) said his questions related to sustainable transformation, job creation, skills development and gender equity. The country was in its seventeenth year of democracy yet was still grappling with economic emancipation. AASA was one of the largest, most diversified mining and natural resources group, and South Africa was looking to it to provide answers on the economic situation. He reiterated that South Africa was regarded as the most unequal society in the world. Mining was the principle contributor to job creation and to the fiscus. There were suspicions that some large mining companies were starting to disinvest and this would have to be addressed. He asked if AASA was producing the scarce and requisite skills necessary for sustainable development. If it was poaching personnel from other companies, it was merely recycling skills and not producing skills. He agreed with comments from other Members on their observations during oversight visits, and commented that the pace of transformation was slow. He asked for an indication of the main problems that prevented the country from getting where it wanted to be, in terms of social and economic development.

Ms Bikani asked for more information on the Woman's Development Bank and the Community Trust issues and noted that information was missing in connection with the De Beers, Conlog and Boschendal listing.

Mr C Gololo (ANC) commended AASA on reaching the 26% targets set in the Mining Charter in its various business units and also on its current community shareholding at Sishen, estimated at R6.3billion. He asked for more information on the community development projects that were benefiting from this.

Mr Gololo referred to the Kumba Iron Ore's Envision broad-based employee share participation scheme. He wanted more information on the payout to 5 000 employees in the Northern Cape, and in which categories of employees they fell.

Mr Gololo referred to the local procurement initiatives and Anglo American BEE initiatives. He asked if they amounted to real empowerment, not merely a front, or lower-paid services, and asked what was being supplied.

Mr Gololo noted that AASA was subsidising housing for its employees, presumed that this was near the mine, but wondered what happened to their housing benefit if they lost their jobs or could no longer work, due to an accident.  

Mr Gololo referred to AASA's social investment and its contribution to the communities around the areas of its operations, and asked if it extended its hand to struggling communities outside its areas of operation.

Mr Gololo noted that little information was provided about employment for physically-disabled people, and asked if there were opportunities.

The Chairperson noted the level of investment made by AASA in the country, but asked where its primary listing was, as its name indicated that it could be mostly foreign-owned.

The Chairperson asked for more clarity on the Pipeline Project. The Kolomela Iron Ore project was 94% complete, with the completion date set for the third quarter of 2011, and he wondered if this deadline was met. This Pipeline project was set to deliver 19 000 jobs and he asked how many had been created thus far. He observed that Zibulo Thermal Coal Project was set for full production in the fourth quarter of 2012, and asked if this meant the project was not yet implemented. He also referred to projects such as Thembalani and Mogalakwena, and said that the last time the Committee had visited these areas there were challenges in Mogalakwena, and he asked if these had  been resolved.   

The Chairperson referred to AASA's ownership and joint venture initiatives, but wondered how sustainable these BEEs were and whether “26% equity” meant 26% unencumbered ownership. Meaningful transformation and participation also included the level of debt to which people were exposed.  Sustainability was vital, as illustrated by Mvelaphanda which had since folded. The targets must be seen as minimum requirements, and the main question was whether participation gave people wealth and the opportunity to participate fully.  

The Chairperson raised the issue of the Kumba Employer Share Scheme and commented that it sounded too good to be true if each employee was to receive R500 000. He understood that the Employer Share Ownership Plans (ESOPs) were based on the life of the mine. He asked what dividend was paid to each individual, and whether R500 000 was the net or gross figure, and what deductions would be made. This was the first scheme of its kind, had been confirmed by the labour unions, must be applauded and replicated elsewhere in the industry. He commented that some BEEs and ESOPs did not live up to expectation and the dividends were so low as to be an insult.

The Chairperson also commented on equity, noting that progress was made, and he noted the number of women in the delegation. However, he questioned whether the people in leadership were given the corresponding powers, and there was not mere tokenism. Some people bore the responsibility of interfacing with government, and sometimes decision making was found wanting. He asked for comment on the position in AASA.

The Chairperson addressed the issue of procurement raised by members and asked whether the BEE initiatives resided in capital goods or, as more common, in consumer goods. The figures reported were high in respect of the procurement spend. He asked how many jobs had been created.

The Chairperson noted AASA’s commitment to the target of one person per room occupancy rate by 2014, and the hostel conversions. He asked for more details on the arrangements for houses, the costs, and noted that some employees had complained that the houses were so good that their bond repayments were very high.

The Chairperson said that the Committee would not ask questions on beneficiation at this meeting.

The Chairperson reiterated earlier questions as to whether AASA was bearing the cost of providing ARVs, and if this was done jointly with government or as a sole initiative.

The Chairperson asked for more information on Project Alchemy, a community share scheme. He commented that overall, AASA was doing well.

General Responses from AASA
Mr Gomwe noted that the questions reflected the substance of the issues faced by the organisation and the things it was trying to deliver.

Commenting broadly on the principle issues around investment and commitment to South Africa, and the questions about De Beers, he noted that there was nothing different about the "B class shares" but these  just conferred different benefits to shareholders in De Beers. There was no question but that Anglo American was committed to all investors in South Africa. Two years ago it had made the announcement that  its core commodities would be diamonds, thermal coal, manganese and platinum. It had invested R30 billion in the Pipeline Project. The investment at Sishen was presently being commissioned, and it would take time to get to full production in 2012. It had to be borne in mind that the logistics side had to be ready as well. The level of spend of R30 billion was a South African spend. Over the last 10 years, its  South African spend had been R148 billion.

Mr Gomwe said that AASA’s primary listing was in London and the secondary listing was in Johannesburg. As a consequence of that listing in 1999, the share register changed and local investors sold their shares. Currently, 34% on the register were local investors. The balance of the register was externally owned. There had been a substantial inflow of money into South Africa because of the change in the register. R124 billion was the actual capital inflow consequent to the shift in the share register.

Mr Gomwe stated that when AASA spoke about HIV/AIDS, it was not speaking of it in isolation, as it also manifested itself and was linked to Tuberculosis (TB) and other related diseases. AASA had a holistic approach to wellness and covered all aspects in the treatment of HIV/AIDS. Affected employees and their families were treated. There were community health centres such as the Bhubezi Community Health Centre in Bushbuckridge, Mpumalanga which was co-funded by Virgin Atlantic and others.

Mr Gomwe noted comments from the Committee members that the presentation painted a glossy picture, and he invited the Committee to arrange an oversight visit to inspect the situation on the ground.

Mr Gomwe referred to the questions raised about ESOPs, and noted that all its companies had ESOPs and this was not limited to Khumba Iron Ore's Envision share scheme. It was a model used for broad-based ownership of the organisation.

Mr Gomwe said that De Beers would address the concerns members had raised when it did its own presentation.

Mr Gomwe responded to questions about sustainability of its BEE initiatives. He noted that many of the BEE transactions were funded by AASA itself ,and this was in recognition of the fact that if there were sustainability issues in the future, it could always rearrange the funding transactions in order to make the structure sustainable. It was already a major commitment for the company to provide the funding that was necessary, some through equity. BEE players usually could not obtain external funding from the banks. By providing vendor funding, AASA helped those BEE companies to be sustainable. Many of the BEE organisations reflected in the presentation had not come back for more funding, and that was a testimony to their sustainability. AASA was always happy to assist and support companies to ensure that they were sustainable and successful.

The Chairperson asked about the funding arrangement and asked if there were dividends flowing to BEE partners within the period of the loan, and the terms of repayment. In the past this had been a serious problem and that was why ventures such as Mvela had gone under.

Mr Gomwe replied that his understanding was that Mvela had simply unbundled its business. The issue of triple dividends came into play with the new Mining Charter, and many of the transactions it had done after the new Mining Charter had triple dividends in the structure, as this was a way to support the BEEs.  

Mr Gomwe commented in respect of training, that one of the young graduates had accompanied him today. AASA mentored  its graduates for leadership positions.

Ms Yvonne Mfolo, Executive Head: Public Affairs, Kumba, outlined some of the Community Development Trust projects, and the 3% shareholding that the Community Trust had in Sishen Iron-Ore. Community projects ranged through health, education, early childhood development, laboratories, libraries and maths and science interventions. A project was approved recently on ostrich farming in the Northern Cape, which would create about 850 jobs, and Kumba was looking also at other farming projects. Job creation projects were important to generate income and keep communities going. There were also Co-ops with groups of women and youth, and other CSI interventions, and sustainability was a priority. Some projects were undertaken in partnership with the relevant Government departments and the municipalities, to ensure that the project would still be sustained and taken care of by the municipality and the relevant government structures if funds were depleted. These were noted in the Integrated Development Plans (IDPs) of municipalities, and it was understood that they must benefit the broader community.

Ms Mfolo commented that Kumba's Envision employee share scheme payouts of R500 000 were indeed real, but the final amount would depend on the share price on the final day of 17 November 2011. At the AGM, shareholders would vote to approve the final payout. This was a net value as the shareholders would have to pay tax. In the past month, Kumba had been educating employees on financial responsibilities and stressing that the gains would put them in a different tax bracket.

The Chairperson asked how many employees were involved.

Ms Mfolo replied that there were 5,800 employees, all of whom were not on the normal share incentive schemes that were afforded to management.

Mr Sonto said that it was interesting to note the detail as nothing had been said earlier about tax.

Mr Gomwe said every citizen had to pay tax. The distribution was a calculation made in a certain point in time. The final amount would be dependent on the share price on the final day, and each employee would receive an amount net of tax. The amount also depended on employees’ length of service, since those with the company for five years and more would receive more.

Mr Mtshali asked who “the community” was, and whether this was a leader speaking for the community.

Mr Musa Mabuza, Head: Government Relations, Anglo American Platinum, responded that “community” was understood in the mining industry to be the “mine host community” or a combination of communities which were in close proximity to a mine. For instance, in the Anglo American platinum sector, the sphere of influence that defined “the community” in which this company invested was a 50 km radius around  its operating mines. This was reflected in the Integrated Community Development Framework, which aimed at improving the lives of people in that community. There were a number of programmes, such as the traditional leader development programmes, for those communities that did have traditional leaders. There were also had capacity building programmes with municipalities, the South African Local Government Association (SALGA) and the DBSA. Local procurement was encouraged and the company would address infrastructural needs within the 50 km radius.

Mr Mabuza responded to the issues of broad-based ownership, ESOPs and BEE entrepreneurs. He noted that Project Alchemy was a R3,5 billion broad-based economic empowerment ownership transaction in the four main mine areas, in the communities of Twickenham, Mogalakwena, Rustenburg and Amandelbult, as well as the major labour-sending areas. AASA was in consultation with the beneficiaries and roadshows had been held to engage with the communities about the Project. Progress was made towards finalisation and implementation in 2011.

Mr Mabuza responded to the concerns about Mogalakwena and said it had been characterised by very tense relations between Anglo American Platinum. AASA had been working tirelessly to improve relationships. The Minister established a government-facilitated task team which was chaired by the Department of Mineral Resources. There were about 20 community representatives on the task team, as well as Anglo American Platinum representatives. They were dealing with a host of issues, and there was progress. The task team had a meeting in the following week and would report back on progress.

Mr Mtshali asked if AASA took its proposals of investment to a Committee or to a traditional leader.

Mr Mabuza said it recognised all the community based structures, and traditional leaders had a particular role. Where there were traditional leaders, they were recognised as legitimate community based leaders. In Project Alchemy, traditional leaders were amongst the key role players, had been engaged with, and offered support. Other structures of government, such as local municipalities, also interfaced as a key stakeholder. All community-based structures would be consulted on community investment programmes.

Ms Zikhali gave a breakdown of AASA’s employment equity statistics. At the top management level, there were four African females, two in each of Kumba Iron Ore and Anglo American Platinum. There was one Indian female at that level as well, two African males, one Indian male and six foreign national males. At the senior management level AASA had 27 African females, eight Coloured females, 10 Indian females, 112 African males, 16 Coloured males and 41 Indian males. There were 168 persons with disabilities, of whom 14 were female and 154 were male. The total foreign national employee complement was 6 255 across all the bands from the top to contract workers. There were 64 female foreign nationals. African females accounted for above 7 000 of the employee complement, with 339 Coloured females, 117 Indian females, and 1 846 White females. The total number of African males was 45 379. There were 1 289 Coloured males, 195 Indian males and 6 758 white males.

The Chairperson said that this information was very important for assessment purposes and asked for it to be sent to the Committee Secretary.

Ms Wedderburn responded to the questions on procurement. There was a wide range of procurement in  the R20 billion procurement spend. This included large mining services companies, and the big-spend areas included Barlow World Logistics and African Explosives and other companies that manufactured  its requirements in South Africa. They were involved in construction and upskilling people in this field and repairs and growing artisan skills such as welding. Maintenance of buckets and bolts was done through local suppliers. Unbundling, a key area, involved assembling, maintaining and repairing closer to the local community, and AASA was consciously looking at how to unbundle and restructure  its different contracts and ensuring that its investment and procurement spend was done strategically, to upskill people and build communities. She noted that AASA did not factor in the number of jobs that it was creating through  its suppliers, although this should be done, as it was a large number. It was currently counted in Zimele Enterprises, but not in procurement, although it was now starting to get some information on employment and employment levels.

Mr Gomwe referred to the Zibulo Thermal Coal Project and said that new coal developments in South Africa would be vendor funded by AASA. This question was very valid and raised issues that AASA was dealing with internally, and it would report back formally in writing.

Ms Bikani said it would be useful to get back a written response document to all questions, for the Committee’s future reference.

The Chairperson thanked AASA and said it would certainly be invited back, as the issues were of utmost importance. Transformation and job creation were serious matters of public debate. He noted AASA’s successes, and said it had set a high bar for the presentations to follow.

De Beers Consolidated Mines Ltd (DBCM) submission
Mr Phillip Barton, Chief Executive Officer, De Beers, apologised for the absence of Mr Barend Petersen,  its Executive Chairperson, who was in Kinshasha with a government delegation for discussions on the Kimberley process, which was key to the company, and to the health and sustainability of the diamond industry.

He noted that De Beers Consolidated Mines (DBCM or De Beers) was 123 years old. He wished to dispel the perception that De Beers was leaving the country. De Beers mined a very special product, which some might see as superior returns for its shareholders. However, fulfilling a diamond dream was different for people in poor communities, employees and other stakeholders, and that was why De Beers was committed to South Africa and its problems, including the triple threat of poverty, inequality and unemployment. In response to an earlier question posed by a member, he said that DBCM was not poaching from government; rather government was poaching employees from De Beers, but this was a contribution that it gladly made to training people and investing in their skills.

Mr Barton gave an overview of De Beers’ operations. In Limpopo, its flagship mine was Venetia. De Beers would be doing a R15 billion investment over the next eight years, which would sustain that mine beyond 2050. He said that this factor was one of those that should dispel the notion that it was leaving South Africa.  and this was one of the factors that would dispel the notion that DBCM was leaving South Africa. Voorspoed mine near Kroonstad in the Free State had been reopened, after being closed in 2006, and it was building a brand new mine. De Beers was still very active in the Kimberley Mines. Ownership of Finsch Mines was formally transferred to Petra Diamonds in September 2011. Namaqualand Diamonds and South African Sea Area (SASA) operations continued. DBCM had employed 2 801 people but, with the transfer of Finsch Mine to Petra Diamonds, the figure was now about 2 000.

Mr Barton outlined De Beers’ Mining Charter Scorecard and indicated that Health and Safety and Environment Pillars still required a lot of work, which he would expand upon more fully.

Mr Barton reported on the DBCM ownership and Joint Ventures and indicated the majority shareholders of the Oppenheimer Family (40%), Anglo American (45%), and the Botswana Government (15 %). He responded to the earlier question of "B" shares and said that Anglo American owned 45% of all of De Beers and the shares were split. The "A" shares referred to the holdings of De Beers, and the "B" shares referred to the holdings of the South African assets. He noted that DBCM Ltd was listed in Luxembourg.

Mr Barton expanded on the broad based black economic empowerment deal which had been concluded in 2006 (see presentation attached). There were two key groups, the Employees and Ponahalo Capital. There was a 35% shareholding Structure, the Equal Allocation Trust. They were not a listed company and the 35% share holding was owned by all employees, from truck drivers to the Chief Executive Officer. There was no discrimination between those at management and those working in the mines. The Key Employees Trust, which had a 15% shareholding, was a Trust put in place for its more skilled employees. The main intent was ownership but it was also to create a retention mechanism for skilled black employees in the company.

Ponahalo Capital had a 50% shareholding and the shareholding structure was comprised of Manne Dipico, the ex Premier of the Northern Cape and the Deputy chairperson of DBCM (18%); Barend Petersen, the Chairperson of DBCM, (13%); Moss Mashishi, Chairperson of the Governance and Assurance Committee and Treasurer of the Investment Committee (8%); Peotona Holdings (16%), representing Cheryl Carolus who was on the DBCM Board, Dolly Mokgatle who was part of the DBCM Executive Committee, Wendy Lucas-Bull, and Thandi Orleyn, who chaired the De Beers Fund. There were three trusts in the Ponahalo Structure. These were the Ponahalo Women's Trust for disadvantaged women beneficiaries (17.5%); the Ponahalo Disabled Persons Trust (10%); and the Ponahalo Community Trust for community beneficiaries (17.5%). These Trusts were active in the areas of De Beers’ operations. De Beers did not define its communities by distance from the mine, but by the places from which it sourced the labour, even if this was far removed from the mine itself.

Mr Barton outlined De Beers’ BEE performance and its BEE procurement spend for the year to date, noting that 35% of procurement was spent with HDSA owned companies, and 32% on HDSA empowered companies. 96% of the spend was “proudly South African” (see presentation attached).  

Mr Barton noted that there were no females in De Beers’ top management structure. This was of concern and a person had been identified and was being developed. De Beers was committed to transforming its Executive Committee gender balance. He noted that Mpumi Zikalala was the General Manager of Voorspoed Mine, where she had managed to turn it around and solve some of its major problems.

Mr Barton indicated the employment equity statistics elsewhere, indicating that the representation of women in mining was growing rapidly in DBCM, as it was developing female engineers, geologists and females at the operator level, who operated heavy equipment successfully. DBCM was also at the forefront of developing the disabled, having run a pilot project at Voorspoed mine, and were assisting other mines and companies to benefit from its experiences.

Mr Sakhile Ngcobo, Head of Public and Corporate Affairs, DBCM, responded to earlier comments by members on tokenism and dispelled any misperception that it occurred in DBCM. He gave an overview of the Human Resource Development in DBMC and noted that 5.5% of the payroll was invested in HDSA expenditure. The HDSA development expenditure for 2010 was R60.1 million. This included learnerships, ABET, apprenticeships, bursaries and scholarships and school support and post matric programmes. De Beers had a training centre in Kimberley and had a partnership with the University of Johannesburg.

Mr Tsepo Monaledi, Public Affairs Manager, DBCM, dealt with the DBCM's community related initiatives and indicated programmes it had engaged in, which were key to assisting with sustainable development in the selected communities. The education programmes included maths and science tuition, a rural schools programme and partnerships with the University of Johannesburg and the Vaal University of Technology to prepare students for university. There were also infrastructural projects and DBCM had built roads in Kroonstad.

Mr Ngcoba noted that DBCM had no hostels and it tried not to impact on family life by moving people out of their normal environment. Where it had hostels, as there had been at Finsch mines, it had spent a lot of money in past years to convert these into family based units. DBCM had engaged with the National Union of Mineworkers (NUM) to facilitate housing opportunities for employees.

Mr Barton noted that safety was prioritised and reducing fatalities in DBCM was of primary concern. It had been three years since DBCM had a fatality. There were five injuries for 2011. Mr Barton expanded on its safety record and explained that DBCM was pro-active in alerting employees to potential dangers and in promoting a safety-first culture (see presentation attached).  

Mr Ngcoba noted that healthcare of its employees was a fundamental focus in DBCM and it was the first company to supply affected employees and their partners with ARVs. DBCM was not exposing its employees to as many healthcare-related risks as was the case with other forms of mining. De Beers was on the lookout for instances of TB, and there had been one case of asbestosis, in Botswana. Generally there were no major health related incidents in South Africa.

Mr Ngcoba said that the environment was a critical focus area, and DBCM’s scorecard indicated the areas that had to be addressed, such as the Environmental Management Plans (EMPs). It was actively engaging with communities and government in order to come up with well-aligned EMPs. There were gaps in its financial provisions, especially in the older operations such as Namaqualand and Kimberley, but it was liaising with the DMR on these issues.

Mr Ngcoba noted that Mr Barton would deal with the sample analysis and DBCM's interest and commitment to exploration in the country. DBCM believed that South Africa would remain prospective, and it would continue to invest resources to find new mines. He commented that it was unfortunate that the size of its business had changed dramatically in the last three years , because this had implications for how many people it employed, and its footprint in South Africa.

Mr Barton said the current focus areas in DBCM was exploration and looking at its existing mines, including the investments it had in Venetia Mines, and the initiatives at the Kimberley mines, where there were lots of training resources that were not paying at the moment. At Voorspoed mine DBCM was looking at lower levels. It had found an economical way of extracting that could extend the life of this mine by a further six or seven years. There were other possibilities, but it had to curtail stealing and too many people benefiting from what DBCM had worked hard to find.

There was a lot of focus on exploration. DBCM’s database went back many years. With more modern techniques it was hopeful of finding a mine hidden away. Over R3 million had been spent in flying over and observing the areas over Finsch mine to find anomalies, and its drilling exploration in the next year would hopefully find another mine.

Mr Ngcoba addressed issues of beneficiation and cited initiatives. DBCM was actively involved in various training programmes for designers, whose work was showcased around the world as part of creating consumer confidence and demand, especially in strategic markets such as China, India and the USA, which was responsible for 40% of its sales globally. In partnership with the government of the Northern Cape, it had established the Kimberley International Diamond and Jewellery Academy, to be opened in this week. Cutters and polishers would be trained, to create opportunities in that space. In terms of marketing the KYA brand was run and DBCM was launching the “Forever” mark in South Africa, which had already been launched in strategic markets elsewhere. This was being done in partnership with African Romance, an empowered jewellery entity who would be distributing this product.

DBCM was looking at ways that industrial diamonds could be beneficiated in South Africa. Mr Ngcoba indicated the statistics for beneficiation for promoting diamond equity (see presentation attached). DBCM had sold 735 895 carats to the State Diamond Trader, to the value of $76 million, in 2010. It was also running a reality show with Mzanzi Magic Channel on DSTV. In the past it had used models from elsewhere in the world, but it wanted to find local talent as a brand ambassador to represent the good that diamonds could do in the world.

Mr Ngcoba addressed the issue of job creation. He conceded that the industry might not have done enough, especially for younger people, to ensure that they had hope and opportunities. DBCM  had adopted Anglo American's Zimele model, and it had a target of creating 5 000 jobs by 2014. It had started the programme a year and a half ago. It  had funded 106 companies and employed about 600 people.  50% of these companies were owned by young people and 36% were owned by women. DBCM had disbursed R15,6 million with a loan recovery rate of 92%. DBCM had entered into a partnership with Industrial Development Corporation (IDC). It would be funding as much as R100 million in future. DBCM had created five strategic hubs in strategic areas near its operations. The biggest challenge in these areas was unemployment, and it provided alternative opportunities. DBCM realised that it was not going to be creating more jobs directly in mining, and that was why it had embarked in this very extensive programme (see presentation attached).

DBCM was making use of its land to create alternative industries, and it had done an extensive feasibility study, especially in Namaqualand and in Kimberley, and had many potential projects in the pipeline. It had invested in solar energy initiatives in Kimberley and elsewhere, as well as wind generation projects. It was looking into fisheries, as for historical reasons it owned about 10% of the northern parts of the South African West Coast. There was an Abalone project in Namaqualand. It was making progress on this, together with the BEE partner Ponaholo.

Mr Ngcoba indicated that DBCM's CSI spend was not legislated, but it believed that this was the right thing to do. It focused on education and healthcare (see presentation attached)

Mr Barton added that its CSI spend had been R355 million over the past 10 years.

Mr Ngcoba noted that DBCM had been accused of being too dominant in the diamond industry and so it had decided to concentrate on fewer but better assets. As a result, it had sold a number of assets such as Cullinan and Namaqua, to ensure that the industry was not monopolised by one entity. Smaller operations had also been sold to community groupings such as that at Jagersfontein.

Mr Ngcoba reaffirmed DBCM's commitment to South Africa and said it was “here to stay”.

Mr Barton noted that Venetia mine was one of the top five diamond deposits in the world, with a world-class operation. There were more diamonds still in the ground than had so far been mined. However, without more investment, it could reach the end of its lifespan by 2020. All investment for the building of a mine was needed up front. DBCM was completing a feasibility study, which would be taken to the Board for a decision in May 2012, and if this proved successful, the mine’s life could be extended to 2050.

Mr Lucas was pleased that DBCM was not leaving South Africa, and noted that it had gone through difficult times with the economic downturn. Mr Lucas noted DBCM’s contribution to education in South Africa in the past, especially in KwaZulu Natal (KZN), and commended the development initiatives in Kimberley, especially the International Diamond Academy and job creation. He wanted to know more about the rehabilitation process it had spoken about.

Mr Gololo noted that the Committee was happy that DBCM was not leaving and that it was going to invest more in the country. He was concerned about its deal of US$500 million with the Botswana government on rough diamonds, noting that it would be investing more there than it had done with the South African State Diamond Trader in 2010, and asking for reasons.

Ms Bikani noted the time constraints hindering the Committee and suggested that more time should be allocated in future.

The Chairperson noted that the next session would be the whole day.

Ms Bikani referred to the acronym SASA, and said there had been complaints about lack of parity in marine mining, with comments that DBCM was doing “buying through the back door”. She asked what relationship DBCM had with government in terms of marine mining, to ensure development here.

Ms Bikani appreciated the comments on the equity scorecard, but said the breakdown did not give a clear picture of women, disabled and the different racial groups. She also said that DBCM had not expanded on its commitment and CSI plans, nor the Mining Charter benefits, opportunities and progress.

Ms Bikani said that there was also a lack of information on Housing, saying that more information was needed since the Committee had found living conditions unsatisfactory when the Committee did oversight visits. DBCM had also not indicated the level of progress in respect of mining community development, and more detail was needed on this.

She also asked for more detail on the environmental scorecard.

Ms Bikani noted that DBCM had not received accreditation for its training facility to be recognised as a university, and asked if this was for failure to meet the relevant criteria, and, if so, then asked how government could assist it through the process to get accreditation. She was not sure why it was not coming up to standard, in view of the money it was making. She also asked how the trainees through the International Academy would sustain themselves, and where they were likely to end up.  

Ms Bikani referred to the Abalone project in Namaqualand, asking what the gains were and who the actual owners of the project were. She questioned if this was a community based project that was meant to benefit that particular community.

Ms Bikani said that two key questions went to the relationship between DBCM and government and the payment of royalties. She called for responses on both.

Mr Sonto said he had been impressed by the commitment to South Africa expressed by DBCM, but commented that “where there was smoke, there was fire”, and looked forward to seeing evidence of its commitment. He noted that Finsch Mines had changed hands and his queried how this had affected its workforce, as the Committee had received a lot of complaints about the job security aspects in change of ownership.

Mr Sonto noted that DBCM had adopted the Zimele model from Anglo American and asked for that connection to be explained.

Mr Sonto referred to its environmental scorecard, and echoed questions of other members. He asked what DBCM would be doing to address the compliance issues.

Mr Sonto said he had been impressed by DBCM's job creation and its commitment to sustainability and asked when it would be embarking on the proposed job creation initiatives it had indicated in the presentation

Mr Sonto noted the extensive list of SMMEs that DBCM had funded, but wanted to know what was the difference between those marked with an asterisk and those that were not.

Responses from DBCM
Mr Barton noted that there had been a number of questions on rehabilitation, the environment and housing. He commented that over the years DBCM had learned a few lessons. He would like to invite the Committee and DMR to visit the Oaks mine which it had rehabilitated. The old historical mines, like Kimberley and Namaqualand, had been built with no rehabilitation in mind so there was a substantial amount of catching-up to be done. DBCM was doing rehabilitation at the Namaqualand mines, and was also looking at alternative land use, where the cost of rehabilitation far outweighed the economic benefits of rehabilitation. There had to be a balance between money spent on historical rehabilitation and a consideration as to whether that money could be better spent elsewhere to benefit the community. At mines like Venetia and Voorspoed, DBCM had introduced a programme of concurrent rehabilitation, and in most cases it had caught up with the backlogs.

Ms Bikani asked what the budget was for the rehabilitation of mines.

Mr Barton said he would have to get back to the Committee on that, but its total rehabilitation liability was in the region of R1.2 billion. He noted that two of its mines were fully guaranteed and it had just secured guarantees for all its commitments, so there was financial backing for the R1.2 billion, to ensure that it followed its full rehabilitation responsibility.

Ms Bikani noted that DBCM owned a lot of property in Gauteng and Limpopo and asked if these were still mining interests, or what the land was used for.

Mr Barton replied that DBCM owned no property in Gauteng, and DBCM used the building of one of its sister companies. In the Venetia region, there were 3 000 hectares of which less than 10% was disturbed by mining activity, and that was the portion that it had to rehabilitate. Diamond pipes had a very small footprint and were much easier to rehabilitate. Around Venetia, DBCM had secured 32 000 hectares, and it was working on this towards the government’s drive of enlarging South Africa's protected conservation areas, so it was run as a nature reserve, with elephants, rhinos and lions, as part of DBCM's contribution to future generations.

Mr Barton stated that in the Kimberley area DBCM had three conservation areas. One of these, of 42 000 hectares, had mining rights. Two other smaller areas, which had been part of the company for over a century, were nature conservation reserves. Voorspoed mine was the only property it owned in that region. In Namaqualand it owned about 300 000 hectares, of which more than half was a mining area, but not all was being mined, and that had to be rehabilitated. DBCM had sold about 150 000 hectares to TransHex. A large part of the remaining hectares had been leased to South African National Parks (SANParks) on a 99 year lease. The rest of the land had been sold to the existing tenants, as many had been renting from DBCM, generation after generation. DBCM had also donated to the communities around Kleinzee and Keimoes. It was retaining land on which it had mining rights, as well as the areas it wanted to conserve for future generations, but was disposing of the remainder, either on commercial terms, or through donations. 35 000 hectares outside Kimberley had been sold to the Northern Cape Government as part of a project to establish emerging farmers.

The Chairperson asked if Mr Barton could confirm that DBCM was the largest landowner, after the State.

Mr Barton replied that it was rapidly reducing its land ownership, especially in the Northern Cape, but in a responsible way. DBCM had a land management plan and where it had wanted to dispose of land, it had worked closely with the Northern Cape Government. The footprint of land ownership would be reduced.

The Chairperson asked if the Committee could get details. He asked when De Beers was established.

Mr Barton said it had been established on 12 March 1888.

Mr Sonto queried DBCM's practice of creating game farms and wild game areas, as he had the suspicion, that there were minerals there and there would come a time when it might say that it wanted to extract the minerals.

Mr Barton said none of these areas had been declared protected areas, so those who believed there were minerals there could apply for prospecting permits, and apply for mining rights if something was found. He noted that DBCM had prospecting rights on Rooipoort, one of the nature farms outside Kimberley, and it had converted that into a mining right, but it was a very small deposit. He acknowledged that there were stories that DBCM was hiding another five “Venetia Mines” in its game reserves, but it was happy to make available the results of its investigations. The reason why DBCM had itself applied for the mining rights on its land at Rooipoort was to ensure that responsible mining was carried out. The 34 kilometres was riverine terrain, and was the only part of Vaal Riverine forest still intact on the whole of the Vaal River. DBCM had a strong conservation ethic and there was an open invitation to anybody to measure its performance. The coal companies were very interested in the Venetia Reserve, as it was seen as part of the Limpopo Coal belt. DBCM unfortunately could not keep anyone out, and if a successful application was made for prospecting rights and mineral rights, this would override its efforts to conserve that land.

Mr Ngcobo confirmed that DBCM was in the process of finalising a land strategy, and part of the process was dealing with the requests for land. Requests were made from Northern Cape communities. DBMC had  made donations. It was asked to assist, and was discussing how it could do so, with the building of a Northern Cape university. It did not intend, in the future, to retain land just for the sake of retaining it, but it was willing to assist in creating opportunities in agriculture and other areas.

Mr Ngcobo said he had spoken about solar and wind energy projects. One of the conditions of attracting investment into those areas was that those companies must be BEE companies. This was restricted to the people of Namaqualand and Kimberley, and communities in and around those areas. In the case of the Abalone business project in Namaqualand, the community currently owned 10% and up to 20% would be owned by the people of Namaqualand. The dividends gained would make a significant impact on these communities.

Mr Ngcobo responded to the query about SASA and the complaints expressed by divers, and said that DBCM had responded to them. He noted that it did not own any concessions. DBCM's sources of business were 15 kilometres offshore, and the areas in which it had an interest were within 500 metres of the coastline, where the major owner of those concessions was TransHex.

Mr Barton emphasised that DBCM did not buy any diamonds from the divers who had made the complaints.

Mr Ngcobo responded to the query on the connection between DBCM and Anglo American's Zimele model and said that this was adopted as an example of best practice in Anglo American, developed over 20 years, and was proven to work. It showed proper assessment criteria for prospective businesses and  its recovery rate had been above 90%. This was far superior to other attempts.

Mr Barton added that DBMC was using some of Anglo American's administrative support and was in the position where it could lend money to entrepreneurs with 6% interest, which could not be found anywhere else. Traditionally, people accessing capital for small ventures went to micro-lenders whose interest rates were exorbitantly high, to cover costs and risks.

Mr Ngcobo responded to the query on the Academy at Kimberley. The regulatory compliance requirements prevented it from being called a university, basically because of its size. The intention was to align the Diamond Academy with the new university that was to be built in the Northern Cape. It was hoped that, through this academy, people would be able to eventually do PHDs in diamond mining or marketing, and that there would be a department dealing with diamonds, as the community deserved something of such significance.

Mr Ngcobo responded to the query about DBCM's investment in Botswana and the possibility of relocating there. He said Botswana was very different to South Africa. It had produced 30 million carats per year, whereas South Africa produced 6 million carats in 2011. The size of the business was very different.  DBCM was setting up a State Diamond Trader for Botswana, using its experiences in South Africa. This structure was formulated in conjunction with the DMR, and it was 100% owned by the South African State. It had made sense to move the aggregation facility to Botswana, as it had the right volumes and facilities. There were opportunities opening up, and he thanked the DMR for its competency, guidance and assistance with trading and export issues.

Mr Barton added that DBCM was striving for a minimum of 40% in local sales and beneficiation, while the relocation from London to Botswana only allowed for a 15% beneficiation in that country.

Mr Barton responded to the query about royalties and the relationship DBCM had with the South African Government. He noted that it had a very good relationship with government, could raise issues frankly, and had received both praise and comments as to where it could improve in return. DBCM was paying royalties and fully understood the reasons behind this.

Mr Ngcobo added that ideally DBCM would like its royalty payments to be utilised solely where the mines were situated, as currently those payments did not benefit the communities directly. It would like to make a formal proposal to the Committee that this should happen, and that at least 20% must go to those communities.

Mr Monaledi, in answer to questions on trainees from the diamond academy, responded that it was hoped that their training would provide them with the financial means to buy diamonds themselves, polish them and supply them to the local market.

Mr Barton said that there had been a number of questions on the DBCM’s scorecard, such as employment equity and he would address these in a written response.

Mr Barton then addressed the issue of job security and the sustainability of jobs. The Zimele enterprise development hubs had already caused a number of these entrepreneurs to come back for additional funding, once they expanded their businesses, which clearly demonstrated the success of the business. He did not think that “work for life” could be guaranteed any longer in the world. That was why it was critical for DBCM to focus on employees setting aside money for pensions. Much of the spend of DBCM was on training and development, to give people skills that would enable them to be employed for life, even beyond jobs at DBCM, which was the best that DBCM could offer for job security.

Ms Bikani asked what DBCM's relationship was with Petra Diamonds, in terms of investors and investments.

Mr Barton commented that there had been numerous questions about this and DBCM had been accused of spinning Petra Diamonds off, as a low cost operator, by the unions. Petra Diamonds had been asked to open its register to demonstrate that DBCM did not have any relationship with Petra Diamonds, did not own any shares in it, and DBCM’s own shareholders also did not hold shares in Petra as well.

Mr Sonto reiterated his query about the Finsch Mine, asking how the workforce was affected on change of ownership, and what might have happened to the housing.

Mr Barton responded that Finsch mine was sold as a going concern under Section 197 of the Labour Relations Act, and therefore every employee was transferred from DBCM to Petra Diamonds. Section 197 required that all employees be transferred with the same, or substantially similar benefits. Petra took over the full employment contracts and the workers were earning the same salaries, although they had to join a different Pension fund and Medical Aid. Petra had to demonstrate that the benefits were substantially the same. Because Petra was a listed concern, there was a limit as to how much consultation could be done with employees in advance of the sale. Much of the consultation had to take place after the process, as some of the issues could not be disclosed upfront, in terms of the Companies Act requirements. Many people who had been happy to join Petra as it gave them security. DBCM had only intended to mine at Finsch till 2014, and then rehabilitate the mine. Petra had indicated that it would develop the mine and there would be a number of years left for the mine under its leadership. The secondary industries around the mines had been secured for a number of years to come.

The Chairperson thanked DBCM, noted that the Committee would engage further. He asked for more information from mining companies on job creation possibilities in relation to mine rehabilitation and also to address the potential around mine dumps.

Lonmin plc submission
Mr Ian Farmer, Chief Executive Officer, Lonmin, gave an overview of the company and the unique attributes of platinum group metals, as well as summarising the challenges posed by today's investment climate, Lonmin's transformation progress, and future employment creation opportunities in the company. He noted that the information was based on the 30 September year end results.  

Mr Farmer reported that Lonmin was the third largest primary producer of platinum in the world. It had had significant low cost reserves and resources in the world's primary PGM (platinum, palladium, rhodium, rithinium, iridiam) area. It was listed on the London Stock Exchange and was a member of the FTSE 100, where it had recognition for sustainability. It was also listed in the JSE, where it was a Top-40 member. Lonmin was a member of the International Council for Mining and Metallurgy (ICMM) which set standards for sustainability in the industry. Its operating assets and headquarters were based in South Africa. Marikana was its main asset, with concentrating, smelting and refining capabilities, and this was located 100 km west of Pretoria. It had significant potential, with its other assets at Pandora, Limpopo and Akanani.

Over the last five years that had invested $1.3 billion in South African operations and it would continue to invest $4 000 million per year moving forwards.

Lonmin was currently employing around 27 000 full time employees and 9 500 contract workers, as platinum mining was very labour intensive. This figure was up from 22  000 full time employees in 2009. Therefore, 5 000 jobs had thus been created in the past two years.

The shareholder base was largely international and 19% of shares were held in South Africa, Xstrata had a 25% shareholding and the rest of the shareholders were from other countries.

Shanduka was its Black Economic Empowerment (BEE) partner through the Incwala Structure. Mr Farmer noted that Lonmin's values underpinned its culture

Lonmin had generated $2 billion export earnings during 2011,and about 90% of the money remained in South Africa. Employees shared the largest slice, as the industry was labour intensive.

Mr Farmer referred to the company's financial profile and performance, and noted the effects of the economic downturn of 2008/09, when no dividends had been paid out (see presentation attached).

Mr Farmer commented that South Africa's bushveld complex was unique in the world in terms of platinum group metals (PGM) and associated minerals. He added that in addition to the minerals listed earlier, Lonmin also mined nickel, copper and chrome, which were all contained in the same ore. 25% of South Africa's mineral revenues come from PGMs and South Africa controlled about 78% of the world's platinum supply and 42% of the world's palladium supply. PGMs were clearly a sunrise industry. Competent stewardship of the PGMs would provide a source of wealth creation for the country for decades to come. These were rare metals, and the main future supply competitors for South Africa were Zimbabwe and the recycling market. However, reliability of supply was seen as vital by its customers. This was a niche market that catered for the highly specialised use of these metals in high-tech consumer goods.

Mr Farmer expanded on the most important use for PGMs, including autocatalysts in exhaust systems, to convert noxious fumes into harmless gases. Platinum was used in diesel engines, which were popular in Europe. Palladium was best suited to gasoline engines, which were popular in the USA, China and the rest of the world. Jewellery had been successfully developed over the past two decades through South African industry corporations. Other demands for PGMs lay in chemical processes and electronics. Platinum supply had been tight, particularly since the 2008 Eskom power disruptions. Mr Farmer indicated the prospects for long term platinum demand, saying that the autocatalyst demand would probably continue for several years as car manufacturers would continue to rely on the internal combustion engine.

Mr Farmer emphasised that the platinum sector required continual capital reinvestment. Rising labour and electricity costs also compounded this. He tabled the cost escalations from 2003 to the present (see presentation attached).

Mr Farmer identified challenges faced by Lonmin in the past 18 months. There had been some violent strikes. Lonmin had made international headlines as the security tenure of its mineral rights was threatened by parties exploiting ambiguities in the law. This had damaged its reputation and South Africa. In addition, the nationalisation debate was particularly harmful to the company's reputation, given that all evidence and international experience pointed to the disastrous consequences of such a policy to the country. Perceptions of increased country risk and the increased costs to capital would in turn reduce investment, thereby risking the chances of growth and of successfully employment recovery.

Mr Farmer noted that Lonmin was the first PGM company granted new order mining rights in 2006, and it was fully committed to transformation. This was supported by shareholders and the Board. A  transformation sub-committee of the Board was chaired by Mr Cyril Ramaphosa, who oversaw delivery. Mr Farmer referred to Lonmin’s transformation scorecard and its actual performance against 2011 targets, as well as progress towards  its 2014 targets (see presentation attached). He noted that it was regularly audited by the DMR and it was audited officially by KPMG for external assurance purposes.

Mr Farmer addressed ownership, and noted that Lonmin's share prices were highly volatile. 18% of its primary assets were currently owned by Shanduka via the Incwala Structure. In July of 2011, its original employer participation scheme distributed R198 million to about 22 000 employees. A roadmap had been set up with DMR to get it to the 26% target set in the revised Mining Charter.

HDSA representation across all management levels was progressing well, currently being at 32%, excluding White women. He noted that there were different ways to report the statistics. Significant progress had been made at junior management levels and this would provide a pipeline for promotion into middle and senior management over time. Senior Technical Managers were a challenge, as there was a skills shortage in these disciplines and a real danger of  job poaching of HDSA personnel by mining companies, with a natural spin-off of cost escalation. Lonmin had made significant progress in creating an enabling environment for women in Lonmin, but physical requirements was still a challenge.

Mr Farmer noted that it had undertaken a comprehensive and integrated review of its human resource development chain. In 2011 the spend was around R200 million per annum.

Mr Farmer expanded on Lonmin’s investment in community education initiatives. It offered supplementary maths and science programmes. 40% of its 2012 bursary allocations would come from the greater Lonmin community. A critical skills pipeline project, which was a bursary and graduate development programme, existed. Lonmin addressed youth unemployment through skills training, and it had recently employed 643 local youth.

Lonmin was addressing housing and living conditions of employees (see presentation attached) It had a hostel conversion programme and 47% of hostel blocks had been converted into bachelor or family units. The 68 remaining blocks would be converted by 2014, at a cost of R300 million. The provision of mass affordable housing remained a major challenge. Lonmin was continually evaluating new approaches to make this affordable.

In terms of community development, Mr Farmer reported that R194 million had been invested in projects from 2007-2011 (see presentation attached) Projects were delayed by capacity constraints in local municipalities, whilst other challenges were visibility and sustainability. Education and Health projects were more successful, due to the greater responsiveness of these departments.

In terms of procurement, Mr Farmer reported that Lonmin’s targets exceeded those set by the revised Mining Charter (see presentation attached). In 2011, its BEE spend was R4.3 billion, or 45% of its total spend.

In terms of Lonmin's beneficiation involvement, Mr Farmer reported that in 2006, Lonmin was integrally involved in the establishment of the Platinum Beneficiation Committee (PBC). a partnership with the DMR, in which the industry had appointed industry experts to do an in-depth study of downstream and upstream beneficiation opportunities, to identify opportunities. One particular success story was the autocatalyst industry in Port Elizabeth. The creation of an enabling environment and coordinating industrial policy, incorporating taxes and trading benefits, would be fundamentally important if beneficiation was to work in South Africa.

Mr Farmer summarised Lonmin's progress in terms of the transformation goals (see presentation attached). It should achieve most of its targets by 2014, based on the good foundations it had laid over the past few years. The success and visibility of accelerated community development projects was fundamentally important. The greatest challenges for transformation were, firstly, affordability of individual home ownership, and secondly, employment equity in terms of representation at top management level and women in mining.

In conclusion, Mr Farmer noted that the local and international investment climate impacted on Lonmin’s  ability to be successful on both the transformation and job creation fronts. A volatile socio-political environment created uncertainty, and eroded share holder confidence. Transformation was a journey and while it was making steady progress, challenges still remained. However, he stressed that pushing ahead in an imprudent manner would be inadvisable, and would impact on commercial viability. Maximisation of the contribution of the PMG industry’s contribution could be achieved only through stability and predictability. Lonmin would work with others to do better. He estimated that the demand for platinum would grow by about 50% in the next decade, and South Africa had to be ready to exploit this opportunity. The industry had the ability to create direct and indirect jobs and Lonmin would do its share.

The Chairperson asked for clarity on Lonmin's job creation initiatives.

Mr Farmer said it was a growing company and the numbers of full time employees had risen by 5 000 in the last three years. Lonmin intended to create a further 2 000 full time jobs over the next three years, to reach optimal capacity. As it grew, it also used more contractors and it worked on capital projects with specialists. It was also looking to job creation through its community development programmes. There were also roads required in its mining areas, and this could create jobs as well.

Mr Lucas asked the reasons for the sharp increase in 2008, followed by a rapid descent in 2009, in the Lonmin dividend yield.

Mr Lucas said he was pleased that auto-catalysts were being manufactured locally and asked if these were exported.

Ms Bikani noted that it would have been useful to have all the information in the written presentation. Lonmin appeared to be a very strong company, given its international backing. She asked if Lonmin thought that there was sufficient BEE compliance through the partnership with Shanduka, and wondered if this would not be of greater value if it had more BEE partners.

Ms Bikani referred to the HDSA statistics and said, once again, that these did not give a picture of how the company was progressing on employee equity requirements. She asked about the exclusion of white women, and if that gave a true reflection of how the relevant targets for HDSA were met. She would have thought it more relevant to state how many women, especially Black women, were in top positions and in Senior management. She asked what positions the White women held.

Ms Bikani asked how old the company was. She noted that many of the community development projects were still to commence and asked if there was a commitment from the company to put its plans into action.

Ms Bikani noted the plan to launch an artisan college in 2012. She wondered if this was an initiative from Lonmin, or was done in partnership with government and if the actual needs of the community were identified.

Ms Bikani noted that Lonmin was an international company but asked what it was doing to meet local needs and ensuring that more was produced in the country. South Africa was one of the largest sources of platinum in the world and this wealth should be reflected in the communities around the mines and the people who were working for them. She asked to what extent its CSI would benefit communities.

Ms Bikani referred to the community development programmes and said that the government provided a lot of free services, and the mining companies had not indicated how much they did in partnership with government. This was important to determine the extent to which they were really contributing to community development, beyond what government was doing.

Ms Bikani queried the low spend on procurement through Black owned companies and asked if these companies were around the mining areas. She noted that when the Committee went physically to those areas, it had seen much poverty. She would like to see that South Africans would benefit.

The Chairperson raised the issues of ownership and posed a number of questions. He asked if Shanduka was the only BEE partner, who it was, and if it could truly be regarded as a BEE company if a substantial portion was owned by Glencor. He noted that Cyril Ramaphosa was one person, but he partnered with others in his business, and whether, without his contribution, it would be BEE-compliant. He also asked about ESOPs, asking if the employees participated in shareholding schemes and received dividends. More information was required in order to unpack the transformation information. It must also indicate clearly how many HDSA occupied executive positions, and whether they had powers to go along with those positions.

The Chairperson noted that Lonmin’s primary listing was on the London Stock Exchange and that its investment in the country amounted to $1.3 billion in the past five years. The Chairperson said the Committee needed to have an indication of its commitment to the country in the future and how much it would be investing into its operations.

The Chairperson noted that challenges cited included the socio-political environment, youth and community frustrations, and nationalisation. Lonmin had not said how it intended to address those. The Committee had asked it to address the issue of job creation initiatives, especially for youth. He reiterated that the Committee had seen abject poverty in the mining communities, and the community frustrations arose directly from this.

The Chairperson said that the mining industry had declared how bad nationalisation would be. However, the primary reason behind the call for nationalisation was the perception about the lack of transformation within the mining industry, as well as the fact that the primary communities were not benefiting, other than through taxes and royalties paid to the national fiscus, so there were no tangible benefits from the mineral wealth of the country.

He urged that, instead of stressing the negative impact of nationalisation, the industry should suggest what alternatives it could put in place to demonstrate its recognition that it was exploiting minerals that were the common heritage of all South Africans, and to state how South Africans would benefit, and how the industry would contribute to addressing the pre-democracy social-economic backlogs. If people believed that democracy had not yielded the expected results after nearly 20 years, they could be expected to start raising serious questions. The mining industry had to come up with alternatives that would address the needs of the people.

The Chairperson noted that the other challenges mentioned by Mr Farmer were being addressed such as infrastructure. The ambiguity in the law was being addressed by the Department through amendments.

The Chairperson asked whether Lonmin's target to convert the remaining 68 hostel blocks into bachelor and family units by 2014 was realistic, and asked how long it had taken to convert the 47% completed already.

The Chairperson asked for more detail on Lonmin’s procurement spend, saying that the figures did not convey in which areas the money had been spent, and questioned if this was on capital goods or consumer goods or on services.

The Chairperson referred to Lonmin's employee housing information and noted that it had indicated that affordability and access to finance were key challenges to promotion of home ownership. He thought that this was a contradictory statement, since it was pushing for conversion of  its hostels into bachelor and family units. No occupancy rates for the hostels were given.

The Chairperson asked about the equity targets and what the challenges were in terms of women in mining. They had been given the time to develop skills in this area and a follow up was necessary.

The Chairperson said that the Committee, in its research, had learned that Lonmin had not spent about R5 million of the amount earmarked for Social and Labour Plan projects in North West Province, and asked for clarification on this. Some of this money, if spent, would have resulted in job creation and if it retained and did not spend this money, it was retarding progress in job creation.

Lonmin responses
Mr Farmer said that the dividend drop in 2008/09 was the direct result of the credit crunch period. The platinum price fell from about $19 000 to below $1 000. In the auto industry in North America, General Motors, Ford and Chrysler had been in serious trouble and it had been a difficult time in the industry. Lonmin had had to lay off employees and closed down some operations, it shrank its office in London and cut the size of the Board and management team, and it had to take quite drastic action to keep the company viable through that period. During this traumatic time, shareholders received no dividends and Lonmin had to raise money to keep the company solvent.

Mr Farmer noted that the origin of the company was British. It was floated in the United Kingdom (UK) in 1909, but it became a mining-focussed company only about 15 years ago. 18% of its South African assets were held by Shanduka through Incwala. Shanduka would argue vociferously that it was indeed a BEE company as more than 50% of the shares were in black hands. Mr Farmer agreed that 18% BEE partnership was not enough and Lonmin was working on getting to 26% by 2014. It had submitted a concept paper to the DMR suggesting how it would do this. The majority of that remaining equity stake would come from broad based schemes in one form or another, by employees or communities. Lonmin was in dialogue with various parties on the best way to construct a new ESOP, and it wanted to avoid the pitfalls that others had experienced when an ESOP did not work well. It was also keen to do a community ownership scheme in the areas in which it operated.

Mr Farmer said that there were two ways to tackle women in mining and employment equity generally. If the figures for White women were added in, the targets were easier to reach. He noted that transformation was only complete when it reflected the demographics as a whole. He did not believe that the 40% target was the end goal. If White women were added, then HDSA representation was at 43%, but if they were excluded, the representation was at 33%, indicating that there was quite a way to go. He noted that women were represented on ExCo, with two women, and they had full executive powers.

Mr Farmer noted that Lonmin had been investing in education in communities for a number of years and was recruiting 40% of the bursary-holders from the local mining communities. This was quite an achievement, as in the past there had not been sufficient students of the right calibre. Lonmin was putting money into local schools, not only for infrastructure, but was also assisting the educators with training, science laboratories and extra maths and science tuition after school, and it was seeing progress in matric results which were higher than the national average.

Mr Farmer confirmed that it was in the process of establishing its own training facilities for artisans at the moment.

Mr Farmer agreed that the beneficiation project, resulting in the manufacture of autocatalysts in Port Elizabeth, was a success story. He noted that 16% of material was sold locally into the industry and that the products were also being exported. The manufacturers had been encouraged through a special tax incentive scheme.

Mr Farmer said Lonmin was working in partnership with government in terms of its development projects and it consulted with that company on where the money could be used most effectively. For example, the building of clinics had been endorsed by the local government.

Mr Farmer noted that the R5 million underspending on social and labour plans had resulted from municipal delays, since the funds had been intended for a water reticulation project.

Mr Farmer said that he would provide full details of the procurement spend, and said the DMR had been checking the credentials of its suppliers and the figures. The challenge was that there not many 100% black owned companies and there were not sufficient suppliers in the local areas. As Lonmin was only 100 km from Johannesburg, it was difficult for small start-up companies to compete with established companies in Johannesburg.

In terms of ESOPs, Lonmin had paid out R198 million in the current year from its original ESOP scheme and that went to 22 000 of its workforce, based on the number of years employees had worked for the company. The average payout had been about R8 000 and this was well received by employees. ESOPs schemes were directly linked to share prices. He noted that in the case of Kumba Iron Ore the prices had sky rocketed and the employees were benefiting from that.

In terms of future investments, Mr Farmer said Lonmin was currently producing 700 000 ounces of platinum and associated metals and it intended to grow its capacity to 950 000 ounces by around 2015. Its ability to grow at that pace would depend on  its ability to generate cash. That would create employment over that time frame and it would cost R3 billion per annum in investment.

Mr Farmer responded to the questions raised by the Chairperson in terms of the socio-political challenges it was facing. He noted that it had a good relationship with the NUM, and a long track record of no disputes. However, in May 2011, there had been an internal union dispute at one of its mines, which resulted in a strike that lasted 10 days. The only way the strike was broken was through the firing of 9 000 employees, but most had been re-hired. NUM had tried to get rid of corrupt union officials who in turn intimidated workers to go on strike.

Mr Farmer reported that local communities also had shown some community unrest and this happened because of unemployment of youth in the areas in which Lonmin operated. It had established a development team, which met every second week and it had recruited 600 youth from the local vicinity.

Mr Farmer agreed that poverty in the mining communities was a challenge for the industry and the country. There was an influx of people who were attracted to the mining areas because of economic activity, and this resulted in informal settlements and an increase in crime.

Mr Farmer noted the Chairperson's question on what the alternative was to nationalisation. The mining industry was well aware of the inequality that existed in the country and the need for transformation. There was a need not only to share the cake more fairly, but also to ensure that the cake grew rapidly. Investment had to be made possible and attractive, and a balance had to be found between what would allow the country to be competitive and attract growth, and how the wealth could be distributed in an equitable manner. The sooner government decided where that balance was, and communicated a clear set of rules, the sooner that investment would follow. Investors did not like uncertainty or a constant shifting of goalposts, as this made it impossible to do an economic evaluation. If the rules were clear, investors could make their own judgements. The nationalisation debate, security of tenure, constant strikes and even debates about transformation and the rules of the game, made investors jittery. His advice was that nationalisation was not the right debate, but the correct way forward would like in how  the country used its resources to create the right capacitating environment, and shared the wealth fairly and set the rules.

Mr Farmer gave the assurance that Lonmin would meet the target in terms of the hostel conversion process. It had accelerated the process in the current year and it had the budget to do so, of R100 million per annum, and was on track.

Mr Farmer responded to the question of home ownership and said that single family units were a challenge, as they cost about R200 000, assuming that this did not also involve individual ownership of land, which brought them outside the realm of many. It was difficult to make them more affordable. Lonmin had built 11 000 houses, and it had a revolving fund, and continued to build more. Rolling out masses of houses was not affordable, and it had to find ways to contain costs.
Mr Farmer addressed the issues of employment equity relating to the "F" band of senior management in the company. He noted that the challenge lay in engineering skills in particular. If Lonmin grew good candidates, they would soon be poached and it had to develop its bursary-holders, who could eventually fill these positions.

The Chairperson thanked Lonmin and said it should supply the outstanding information. He noted that the main issues were around transformation, and urged Lonmin to show that it was, in practice, transforming.

The engagement with the mining companies would continue in the following week.

The meeting was adjourned.


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