Mining Charter compliance: BHP Billiton, Impala, African Rainbow Minerals, Exxaro and Xstrata

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Mineral Resources and Energy

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

BHP Billiton presented the company’s current progress on compliance with the Mining Charter, saying BHP Billiton’s Transformation Policy was part of a global approach as a multinational company. The empowerment ownership target of 15% had been exceeded, meeting the Mining Charter’s 2014 target of 26%. This was through BEE partnerships and Employee Share Ownership Planning. Targets for housing and living conditions, procurement and enterprise development and employment equity had all been exceeded. Human resource development had met the targeted 3.5% of payroll. Planned projects for mine community development had been implemented and expenditure was on track. Beneficiation was expanding with the planned investment of R100 million in a new energy efficient manganese smelter. Planned expansions and new projects included a R6.8 billion expansion of the Douglas Mine and a new mine in Klipsrpiut that would create 916 jobs.

Members asked how often figures were reported and requested the Net Asset Value of the company and further information on empowerment ownership patterns, Community Trust trustees, its BEE partners and community mining projects. Members asked questions about the new energy efficient smelter, job creation projects and figures and BHP Billiton’s investment in South Africa, and why figures were expressed only as percentages in the presentation. Members criticised the lack of detail and expressed concern that answers to question may have been evasive. The Chairperson asked that further detail be supplied in follow up documentation.

Impala stated that it had gone beyond the Mining Charter’s 26% for empowerment ownership and had one of the largest unencumbered empowerment ownership structures in the industry. The Royal Bafokeng community ownership model had been a particular success. Employment equity had seen considerable improvement, but would still be improved on, particularly at top levels. Focus was placed on training current employees so as to be brought up the ranks. Skills development was at 5.3% of payroll and spend focussed on engineering learnerships, bursaries and technical skills development. 55% of overall procurement came from BEE companies. Home ownership was incentivised and hostels had been converted to single room dwellings and members were invited to visit.

Members expressed appreciation for the detailed presentation and the evidence of transformation taking place. Questions were asked about the number of permanent jobs created, the decrease in bursaries and employment equity for the disabled. Information about procurement challenges was requested and clarity on the term ‘discretionary expenditure’. Members asked question about imported skills transfer, job creation and age segregated accommodation.

African Rainbow Minerals said its company was 41% black owned and was 13% owned by a broad-based empowerment BEE trust made up of BEE beneficiary trusts. Targets for empowerment ownership had been met at every operation. Targets for procurement had been exceeded in every category though not at every operation. The board was 40% black and 13%  black women. Employment equity targets at all levels had been met or exceeded. Human resources spend was 6.4% of payroll, above target and over R92 million had been spent on training. R142 million had been invested in mine community development. Home ownership was actively facilitated and hostels had been upgraded in all but one mine. Sustainable development targets had been exceeded. Since 2008, employment had more than doubled reaching 28 704 in 2011 and it aimed to create a further 10 000 jobs in the following ten years.

Members asked if there were any compliance regulations for any of the company’s foreign operations and asked why employee spending had increased at the peak of the 2008 financial crisis. The focus on rural development and the role of traditional leaders in beneficiary trusts were discussed. Clarity was requested about the status of training academies and the input from government in community projects. Members expressed concern that its website created the impression of white male leadership. Suggestions for improving the energy crisis were requested. Members asked questions about the success of African Rainbow Mineral’s strategy to empower black women and the benefit of tradable shares. Information on the value of debt was requested.

Exxaro said its empowerment ownership target of 15% had been exceeded at 52.1% empowerment shareholders. This equated to R34.9 billion net value. Exxaro’s
Employee Share Ownership Planning (ESOP) scheme had 9 200 beneficiaries and each would receive R114 000 at the end of the five year scheme. Exxaro was on target for housing and living conditions and 232 employees had benefited from an ownership subsidy. Exxaro was above the 15% 2010 target for procurement and enterprise development, except in the category of services which was 24% against a targeted 30%. Employment equity targets had been exceeded at all levels of management. Exxaro spent 6.2% of annual payroll on human resource development. This was spent on learnerships, training and bursaries. A total of R222.9 million had been spent on community development since 2007 and the progress was above target. Sustainable development and growth was on target and Environmental Management Plans were in place as were energy and water management plans. Exxaro had a number of beneficiation projects and was conducting research into the development of further projects. An enterprise development strategy for youth job creation was proposed and a new Grootegeluk Medupi Expansion Project would create 11 470 jobs starting in 2012.

Members asked for clarity on the number of fatalities and the apparent dominance of white males on the board of directors. Questions were asked on the Net Asset Value of the company, the problem of ‘fronting’ and the empowerment of women. Information was requested on the annual Research & Development spend and how housing beneficiaries were selected. The relevance of ABET training was discussed and members asked for clarity on the ratio of contractors to employers. Members asked further questions about noise induced hearing loss and the danger posed by the possibility of a takeover. The procurement graphs and Exxaro’s unusually high achievement in services procurement were discussed.

Xstrata’s empowerment ownership targets had been met across the business and BEE partners included communities, broad-based groups, an Employment Share Ownership Plan and entrepreneurs. Progress had been made in procurement and enterprise development particularly on capital goods and services where targets had been far exceeded. 40% of discretionary spend had been spent with Historically Disadvantaged South Africans. Employment had exceeded targets in all levels of management with the exception of senior management at 23%. Three per cent of company profits were spent on human resource development. All mine community development projects were now based on baseline studies and R154 million had been spent on community projects focussing on education, health and community service centres. Targets were exceeded for sustainable development and growth and a beneficiation strategy was in place with R8.5 billion spent to date on beneficiation initiatives. Three beneficiation initiatives had been established. Hostels had been converted to family units to meet housing and living condition targets. Several large-scale projects and investments would lead to significant job creation in the future, including the Eland project which would generate 3 650 employees from a capital expenditure of R4.5 billion. Key investment risks were the country’s limited rail capacity, lack of secure energy supply and the proposed tax on the carbon content of commodities. Discussion was postponed for the following week.


Meeting report

The Chairperson opened the meeting by contextualising the reasons for the Committee’s wish to engage with mining companies which stemmed from the findings of the initial public hearings on the implementation of the Mining Charter and the Committee’s further oversight visits to mining communities across the country. Mining communities were trapped in abject poverty and mining companies were unable to explain why this was the case. Employment equity in many companies was found to be behind targets. The Chamber of Mines reported high Historically Disadvantaged South African (HDSA) ownership levels in the industry, however further probing revealed that only 33 of 54 of their members had in fact reported their ownership patterns. Other members of the industry painted a bleak picture suggesting that many BEE deals were based on long-term loans that burdened the BEE companies, as a result many would default and the deals would collapse. With this picture, the Committee decided to make its own assessment by engaging directly with at least the top ten mining companies in the industry. So far this had revealed that a number of companies were falling short on transformation. This was a serious matter; the general public was rising up to claim their share of the mineral wealth that was the common heritage of all South Africans. Communities felt that government was not doing enough and were making demands on mining companies in their areas. Therefore this was not a public exercise but a serious process where government needed to be seen to be acting and providing opportunities for communities to benefit from their natural resources. South Africa was faced with ridiculously high levels of poverty, and yet was one of the most resource-rich countries globally. The juxtaposition of vast wealth and uncontrollable poverty was obscene. High levels of unemployment were another challenge for the country and the mining industry had historically played a significant role in job creation. Half a million people were currently employed in the industry and double that benefited indirectly. In its heyday, the industry numbers had been even greater. Of particular concern was the percentage of unemployed youth; this was a time bomb. South Africa was the world’s most unequal society and this could be traced to the historical racial segregation of colonisation and apartheid. Dramatic steps were required to redress the divide.

BHP Billiton submission
Mr Ravi Moodley, Chief Executive Officer of Manganese South Africa for BHP Billiton, represented BHP Billiton on behalf of Dr Xolani Mkhwanazi, BHP Billiton South African Chairman who could not attend for medical reasons. Mr Ravi began saying that BHP Billiton took the issues expressed by the Committee Chairperson very seriously and wished stress that transformation was a fundamental approach to business for the company, both globally and locally. BHP Billiton remained humble in their efforts on community development and spend; it was a complex area. There had been remarkable progress and the company was proud of its initiatives and did its best every year.

BHP Billiton operated in 25 countries and employed more than 100 000 people. The company mined three major commodities in South Africa: manganese in Northern Cape, aluminium in Kwazulu-Natal and coal in Mpumalanga. The three divisions reported under Dr Mkhwanazi, Chairman of the South African region.

The approved Transformation Policy was driven globally by the Melbourne head office and BHP Billiton was committed to going beyond compliance. The policy was integrated into all business policies and procedures as evidenced in the company charter values, sustainability being one. BHP Billiton viewed transformation as a crucial business imperative required for both the growth and stability of South Africa. Transformation implementation would be evaluated against the following objectives:
▪ A meaningful increase in the number of Historically Disadvantaged South Africans (HDSAs) who have equity ownership, managerial positions and access to business opportunities.
▪ Improved access to infrastructure, increased acquisition of skills, and increased participation in productive economic activities in under-developed areas where BHP Billiton had operations as per the Mining Charter targets and beyond.

Diversity was managed globally by the BHP Billiton group.

BHP Billiton’s Mining Charter progress as at October 2011 was presented in terms of the charter scorecard. 26% HDSA ownership had been achieved against a 15% target for 2011. Shareholders participated in the board and influenced company strategy. The coal business empowerment deal was close to completion. The target for housing and living conditions had been exceeded. Procurement from BEE entities had exceeded targets in all areas. Employment equity targets had been exceeded at all levels of management. All BHP Billiton businesses had had employment equity policies in place for some time and regarded this as critical for transforming the workplace and creating further platforms for transformation in the areas of community spend, development and ownership. Human resource development expenditure was measured as a percentage of total annual payroll. This had met the target of 3.5%. In South Africa R100 million had been spent on community development and R200 million had been spent globally. This was an integrated plan not limited to any one sector of the business. The training system included bursaries and learnerships, overall staff training and overseas stints for graduates. Mine community development was a tough job. Projects to conduct ethnographic community consultation and collaboration to delineate community needs analysis had been implemented and expenditure to date was R84 million of a R160 million approved budget. Material progress had been made and baseline studies had been conducted in areas of operation with ongoing stakeholder engagement continuing. A beneficiation strategy had been developed. 25% of manganese produced went to metal alloys smelters. R100 million would be spent over the next twelve to eighteen months on expanding the smelter which was very ‘smart’ and would be electricity neutral. Large scale investments in new operations and the expansion of others would have job creation opportunities in the future.

Discussion
Mr H Schmidt (DA) asked if figures were reported annually or quarterly and when they had last been reported.

Mr Moodley answered that figures were reported internally on a monthly basis. The figures were reported to the Department of Mineral Resources (DMR) annually, as per their requirements, and were audited annually. He did not have the exact month in which the numbers were last reported, however the BHP Billiton was compliant with the required reporting period.

Mr Schmidt referred to statistics provided by the DMR dated 10 November 2010 that indicated HDSA ownership was 8.9% Net Asset Value and was indicated as -2%. What was the current Net Asset Value of HDSA participation?

Mr Moodley responded that he was not sure to what the figure of 8.9% referred. The numbers given had been the audited numbers consolidated for the coal mining and manganese mining divisions.

Mr Schmidt clarified that the figure was given by DMR pertaining to ownership patterns overall in South Africa and the Net Asset Value of such ownership schemes was -2%. He wished to know the Net Asset Value of HDSA ownership patterns in BHP Billiton.

Mr Moodley responded that BHP Billiton was a 26% fully empowered company in the manganese division. The coal division was soon to complete its transaction also at 26% The Net Asset Value of community trust in the manganese division was 5% and the community trusts in terms of HDSA ownership was 26% and the same for the coal division.

The Chairperson added that the question had asked for the Net Asset Value, or the net value of the shares.

Mr Moodley responded that it was 26% of the value of the company in both manganese and coal.

Mr Schmidt thought the number related to unencumbered value. He wished to get a feel for the validity of the argument. Could Mr Moodley indicate from his perspective what the Net Asset Value of BHP Billiton was?

Mr Moodley responded that he thought there were two questions; the first was on ownership and had been answered. The structure of the ownership for the manganese division was a combination of equity; the BEE partner had come in with land to be mined in the business and the BEE partners took a stake in the business. There was no vendor finance involved because they came in with equity. Other players had joined using vendor financing. This meant BHP Billiton paid in a committed trickle dividend to the player. It was a company-financed loan and dividends and profits from the company went to paying off the loan. The period of repayment was shortened or lengthened in accordance with the profitability of business. The percentage therefore would change dependent on the profitability of the business. The coal business was still to be completed but it would much the same. The specifics of the vendor finance structure could be supplied because this was yet to be concluded. It would be made public as soon as it was complete.

The Chairperson commented that in other words the coal division was not yet compliant.

Mr Moodley responded that four of six tenures were in place for compliance and the completion of the deal was largely administrative. DMR had been closely involved and BHP Billiton was convinced it was a well put-together initiative.

The Chairperson asked for clarity of what the community stake was of the 26%. What percentage was Employment Share Ownership Plan (ESOP)? And of those, what percentage was unencumbered? Could the share be traded? Of the 26% how much was entirely owned with full rights? The Committee needed the overall picture.

Mr Moodley answered that this definition of unencumbered related more to the ESOP. The manganese division did not have an ESOP but had a community trust of 5%. It was not in the form of a BHP Billiton share; tradable on the stock exchange by an individual. Rather it was an independent trust with independent trustees who then spent the money in community. This was independent of the company’s community spend. The other shareholders are normal shareholders and were not broad based, but narrow based.

Ms Bikane asked who the trustees of the community trust were.

Mr Moodley answered that he would happily supply the Committee with the names of the trustees at a later stage.

Ms Bikane said she was concerned about the evasive answers being given. Perhaps the expectations of the Committee had not been known. More direct answers were needed if the Committee was to understand how well BHP Billiton was starting to comply with the Mining Charter. Perhaps they would need to engage again. Was BHP Billiton really applying any transformation processes at present?

Mr Moodley answered that 26% HDSA ownership would be achieved for both manganese and coal by the end of the year. Manganese had reached 26% some years ago and coal was in the final stages of completion and the deal would be publically announced in the near future. The manganese BEE partners were
Ntsimbintle Mining with 9%, Iziko at 5%, NCAB at 7% and Hotazel Community Trust at 5%. He did not currently have the names of the trustees but could happily supply these. The figures had been supplied in percentage format because this was the format required by the Mining Charter.

Mr C Gololo asked if enough was being done on the issue of procurement.

Mr Moodley answered that this was a difficult question to answer as it what hard to say when enough was enough. BHP Billiton knew it was doing its best.  Huge strides had been made to ensure that skills transfer took place on a daily basis. BHP Billiton was far beyond mere compliance but had not stopped there. Local community spend was closely measured as was procurement spend. Strategies were in place to ensure future procurement from black owned entities. There were also strategies to support black owned suppliers because there was a fast turnover in the market. Business hubs had been put together to support the development of black-owned suppliers. These hubs gave assistance to small business and drew from a R14 million fund for small businesses in the community. That was an example of how BHP Billiton tried to help sustain small businesses and suppliers.

Mr Gololo asked for further information on the mining community development projects. Were there any success stories? Practical examples would be useful.

Mr Moodley responded that there were many examples. One was a school in the Northern Cape which had started with 80 pupils and now had 290 three years later. BHP Billiton had built 200 houses in the same community. 

Mr Gololo asked for further information on what jobs were created through the job creation initiatives. Were these permanent jobs?

Mr Moodley responded that the number given was not using a multiplier model which was often used in calculating job creation figures. The multiple model would include the jobs created as a result of each job created by the establishment of a new plant, for example. These numbers referred only to the permanent jobs created in that specific mine [slide 16].

Mr Gololo asked with reference to the ‘smart’ smelter that had been procured, if BHP Billiton used electricity from Eskom and if so, how much.

Mr Moodley responded that the complex was currently using electricity from the national grid, and had been using Eskom power for 50 years. The new furnace was a 40MW furnace that would not require additional power because the off-gasses would move into a co-generator plant which would offset the amount of mega watts used. There was currently a co-generation plant running at about 30MW and this would be expanded.

Ms F Bikane (ANC) commented that more detail was needed on the structure of the organisation, particularly the South African division. Employment statistics were needed in order to assess employment equity. The information given did not give a picture of where the company stood at present.

Mr Moodley answered that all the employment statistics given had been of South African employees and had been presented in accordance with the Mining Charter format. 500 people were employed at BHP Billiton Energy Coal South Africa (Becsa), with 5 500 contractors and  3 000 were employed in the manganese division. Women comprised 18% in total of mining and 30% of management. This detail was not required on the scorecard and this was why they had not been presented; it was not a desire to be evasive.

Ms Bikane asked for clarity on the figures for BHP Billiton’s Mining Charter progress. The percentages given did not help the Committee understand the actual figures and what strides had been taken to close the gaps in compliance.
 
Mr Bikane asked if BHP Billiton had invested in South Africa and its people or only elsewhere?

Mr Moodley answered that BHP Billiton was compliant but aimed to move beyond compliance. HRD learners were part of the company’s feedstock in terms of skills. Mining skills globally were in shortage wherever BHP Billiton operated and the company was very committed to developing more skills.

Ms Bikane commented that the presentation had given an overview at an international level rather than for South Africa. A clearer picture was needed on what was being done for the living conditions of workers in South Africa.

Ms Bikane commented that large sums had been spent on human resource development. Further information was needed on what happened to learners after their training; did they get employment elsewhere or did they remain in South Africa? And how did it benefit the status of unemployed and HDSA people in South Africa? The community development projects being undertaken were appreciated but evidence was still required on compliance with the Mining Charter. She asked if BHP Billiton’s audits were submitted for public publication or only to the Chamber of Mines.

Mr Moodley responded that the numbers were submitted to the relevant authorities in South Africa; the DMR and the Department of Labour.

Mr Bikane asked how BHP Billiton stood in terms of the present Royalties Act.

Mr Moodley answered that BHP Billiton did not have such instances of royalties, but did contribute to local government where certain royalties were required.

The Charperson added that the question had been in relation to the Royalties Act. Was BHP Billiton paying royalties to the state as was required by the Minerals and Petroleum Royalties Act (MPRA)?

Mr Moodley responded that they were.

Ms Bikane asked what these figures were and when they were last paid.

Mr Moodley answered that he did not have the amount at hand, but that it was paid twice a year and that he could supply the exact figure.

Mr M Sonto commented that the mining industry was pivotal for changing the economic scales of South Africa. The Committee had called these top ten companies in order to hear if they were part of the process or not. Therefore a realistic picture was required so that steps could be taken in areas where companies were struggling. The presentation suggested that community initiatives were an area of complexity; what was the complication? What critical complaints did these communities have and how did BHP Billiton address these?

Mr Moodley answered with an example from the Northern Cape where BHP Billiton had partnered with local government to build an access road. There had been community engagement and a meeting with the chief and the mayor and agreement was reached. But when the work was due to start, there had been a protest over where the road should be. BHP Billiton as a mining company could not determine what the town planning would be and aligning everyone’s expectations was not always easy.

Mr Sonto asked what core skills HDSAs were being trained in. If these people lost their job with BHP Billiton, would that person be employable elsewhere? The Committee wished to see this.

Mr Moodley answered that the training focussed on engineering and artisan skills in line with the work of BHP Billiton. These skills were portable; in fact transferability had to be demonstrated for any skills programme to be approved.

Mr Sonto asked for clarity on what percentage of the bursaries and learnerships was for locals and what was for international use. The focus needed to be more local if South Africa was to be improved.

Mr Moodley responded that there was a local training initiative aimed to equip unemployed youth with the technical skills required to gain employment as an artisan or technical assistant. A high school artisan project was an ongoing investment and it recruited learners from grade ten and provided them with bursaries. This was a spend of about R1million a year.
 
Mr Sonto asked for examples of BHP Billiton’s job creation projects.

The Chairperson commented that the questions asked indicated that the presentation had been more of an executive summary and lacked detail. This may have been due to time constraints, but it was hoped that the details would be filled out with further input. He commented that the South African company structure looked impressive, but it was unclear how much decision-making power was given to the local executives.

Mr Moodley responded that the executive decision-making lay entirely with the local CEOs given in slide 5.

The Chairperson asked how the 26% HDSA ownership target was constituted. How much of it was BEE? How much was community ownership? How much was ESOPs? And what was the nature of the ESOPs?  This detail was needed to establish how broad based the 26% was and if it met the requirements of the Mining Charter. Similar detail was required for employment equity; how many women were in top management? And how many people from formerly disadvantaged communities were represented at all levels?

Mr Moodley responded that employment equity had been given in the Mining Charter format with a compliance target of 25%. Performance was 46%. BHP Billiton was very much an empowered company at senior, middle and junior management levels.

Ms Bikane requested that with the information still to be supplied, the CEO include a breakdown of the actual numbers and demographics of employees at each operation so that the Department could get a clearer picture of the transformation levels.

Mr Moodley responded that this would be fine, it was part of the Department of Labour report and not the Mining Charter, but could certainly be supplied.

The Chairperson asked what the financial period was for the approved budget for mine community development (slide 11).

Mr Moodley responded that this was the budget for the financial year starting July 2011 and ending June 2012. The figure of R160 million was the total budget and the R84 million was expenditure to date, meaning within the current financial year.

The Chairperson asked for further detail on the transformation position of the coal sector particularly and for an update on a women’s group in Mpumalanga who had approached the Committee with frustrations relating to Becsa. The matter had been referred to the DMR.

Mr Moodley asked for clarity on the specific issue.

The Chairperson responded that the Committee had been approached by women in mining during the public hearings in Mpumalanga. They were frustrated by Becsa’s lack of assistance in helping them participate in the mine. They had given the Committee documentation. Had these women been assisted to date? Were they still excluded from operations?

Mr Phil Mohare, Head of Human Resources for BHP Billiton South Africa, answered that he was not familiar with the details. He asked that he be given the opportunity to further investigate and come back with a response. He had not seen the report; perhaps it was not very recent.

The Chairperson commented that the investment of R6.8 billion was impressive but that the job creation numbers seemed extremely low. Was it true that this investment had only created 100 jobs? What did this say about the future commitment of BHP Billiton in South Africa? Was South Africa not being prioritised as an area of investment?

Mr Moodley answered that the business was deeply involved in manganese and coal in South Africa and wished to stay. He did not think there was another manganese company that would be spending a R100 million on another smelter in an electricity-short country; this indicated their level of commitment and interest in South Africa . The large-scale investments in new projects and expansions further indicated that BHP Billiton intended to stay in South Africa. 

Ms Bikane asked what BHP Billiton’s JSE relationship with Rio Tinto was about.

Mr Moodley answered that BHP Billiton did not have a joint venture with Rio Tinto in South Africa. What they had were investments in companies, but no operational partnership.

The Chairperson asked that BHP Billiton come back to the Committee with the details requested, particularly on ownership patterns.

Impala Group submission on implementation of the Mining Charter
Mr Johan Theron, Impala Group Executive of People and Sustainability, explained that the CEO would have loved to be present but was tied up in board proceedings in Zimbabwe.

Impala operated in Zimbabwe and South Africa, with two mining operations in Zimbabwe. The majority of the business in South Africa was largely in Rustenburg and this business constituted roughly 60% of the company revenue. It was hugely labour intensive because it was deep level underground mining. Impala employed 57 000 people and had made capital investments of R37 billion in the last ten years and intended to spend another R535 billion in the next five years. R29 billion of that would be spent in Rustenburg on another shaft complex for a potential platinum mine that could employ up to 5 000 people. By February Impala hoped to have further clarity on that operation. In the last financial year the company had returned R2 billion in taxes to the fiscus and R1 billion in royalties and R3 billion to the shareholders and banks. Another R6 billion had been invested in capital. This gave an indication of the size of the business.

Transformation was about more than compliance at Impala and Mr Theron hoped that the delegation present would leave the Committee with that impression. Transformation was a challenge, however Impala could not walk away from their history. The company had been in Rustenburg for 40 years. Ten years ago only 40% of its employees were from South Africa with the rest from surrounding countries. Of the 40% most were from labour-sending communities with a devastating impact on the communities. It would be unjust to the country not to work to fix the problems of poverty and unemployment. The business had to be sustained and grown, it was also important to grow the industry as a country. Impala accepted shared responsibility for the key issues of the Mining Charter starting with ownership. Impala’s shareholding structure was fully broad-based with a community shareholder component and it would empower employees with ESOP schemes. Where possible BEE entrepreneurs would be brought in. Impala presently had empowerment above the 26% Mining Charter target for 2014 and had one of the largest unencumbered empowerment stakes. Rustenburg was known as the Bafokeng’s land and Impala had been guests of the Bafokeng for a number of years and had had to get to grips with some of these issues a long time ago. It was not always an easy relationship but had given Exxaro an appreciation for a partnership model where real change had to happen. The mining industry was different to other industries because the impacts were concentrated where they operated, making this model particularly important. For this reason Impala endeavoured to empower at each one of the operating levels in its structure. The Impala Rustenburg operation was 26% empowered, belonging to the Royal Bafokeng Nation holdings and an employee ESOP. The Marula Platinum mine was 73% owned by Impala and the BEE holding was 9% owned by the communities in the area and 9% was owned by BEE entrepreneurs from the area. The Leeuwkop project was still only at the study stage; the model was for 26% community ownership with no other partners at this stage. Should the mine go ahead it would take ten years to see returns. Impala owned 45% of Two Rivers. The current market capitalisation of the Impala group was approximately R120 billion. The 26% empowerment ownership at group level would equate to R31.2 billion. Royal Bafokeng Holdings had no debt. The ESOP also had no debt and the scheme ran over ten years. Employees could sell 40% of their shares after five years and after ten years they could sell the rest. Leeuwkop  had no debt. There would be no debt on the first R1 billion of expenditure. The only empowerment ownership with some debt was that of Two Rivers mine. This was why Exxaro had what was probably the largest unencumbered empowerment ownership share. The Marula operation was a small operation and had been open more than five years. Impala had assisted with the BEE transaction and had given favourable financing terms to its partners. Unfortunately, revenue had been impacted by the global financial crisis and the productivity of the mine had not been what was hoped. This had meant the partners had not been able to pay off their debt and Impala had had to come in and pay interest on their behalf. The debt was currently R1.2 billion. Impala was focussed on making the business profitable and had taken dramatic steps; 26% of no profit is was not really empowerment. The Marula Chrome community project had given 50% ownership of a chrome extraction plant to the community. The plant was up to R10 million profits which could be used by the community to pay off debts or do as they chose. Impala did this because they had to find more creative ways and innovative solutions to resolve the empowerment challenges.

Employment equity and transformation was a numbers name and this was where Impala found it hardest for many reasons. At the top level, Impala was endeavouring not to go and ‘buy black faces’; it was the stated intention to look to the Impala employees and develop them and bring them through the ranks. A key part of this process were the bursary and learnship programmes. The target for these was 80% HDSA and 40% women for those youngsters being brought into the organisation. These numbers were reflective of the demographics of South Africa and would go a long way to addressing the issue of black women in the company. For Impala Platinum, the management team was not a big team. This was because Impala tried to empower their managers and keep things simple. Top management was currently at 26% employment equity with 40% for senior, 41% middle and 54% junior management. There had been strong improvement but Impala would have liked to do better and had not outperformed the industry in this regard.

The board of Marula was 62% HDSA and there was need to do more at the executive management level which had no employment equity. The operation was isolated and in an underdeveloped part of the country and it was particularly difficult to attract women.

At the groups level, women comprised 6% of the top level and 10% of the bottom. This was particularly challenging for deep manual operations like those of Impala. There was also a lack of qualified experienced black female engineers, but many were now at university and time would change the picture.

R357 million had been spent on skills development in 2011. Since Impala was a manual labour intensive operation, people were of central value and skills development had always been a high spend area.
Youth and unemployment programmes had been evaluated and greater amounts had been invested recently. Key initiatives were engineering learnerships which had increased to nearly 300 and bursaries had increased. The focus for bursaries had shifted in order to try and help pupils from poor areas reach university, focussing on the areas from where Impala sourced labour. They would then be managed and supported throughout their university education because they entered the system at a disadvantage. This made it more complex than simply paying the fees for students who would pass and finish on their own. There was also concern that he youth gained qualifications but then could not access the job market, so an experiential internship program gave them 18 months work experience at Impala. They were then at an advantage for vacancies that came up within the company and most secured jobs within the period. The number of school level bursaries had decreased because the system now focussed on bringing employee’s children from rural areas to areas where there were better schools. This was more expensive and so it was hoped that more funding could be obtained.

Ms Daleen Cloete, Procurement Manager for Impala, presented the procurement statistics for the Impala Platinum operation for the last five years. There had been a year-on-year continuous improvement with R4.5 billion,  55% of purchases, spent with BEE companies in 2011. Overall Impala was proud of what had been achieved in procurement. On the question of whether they were doing enough, she could say they were doing more than their best, though there was always room for improvement.

Mr Theron added that the key challenge for Impala and the country would be that the easy parts had been done for procurement. The next level was the multinationals. If they did not reach the 25% threshold they could not be treated as empowerment spend. Because multinationals operated in a different environment it would be difficult to move to 100% empowerment procurement.

Home ownership was the cornerstone of its strategy to help communities and employees because employees who could live safely and securely with their families were better workers. When the process started, less than 5% of Impala employees lived in decent accommodation with their families. Home ownership was now incentivised and employees were encouraged to bring their families to live with them. Owning property created wealth and BEE construction companies were brought in to do the construction.

Mr Dali Duma, Sustainable Development Manager for the Impala group, presented the progress on housing, living conditions and community development. The focus for housing had been to convert hostels into residential areas with one man per room, and to facilitate home-ownership. In Rustenburg the strategy had started in 2007 when the board approved a R2 billion budget. 1 500 houses were now occupied by owners and 2 600 people had moved into single rooms. The conversions would be finished within the current financial year; if the Committee wished to see the contrast and beauty of the conversions, they needed to visit soon. This would accommodate 5 500 employees. Different generations were separated in the single room housing. Impala had negotiated a discounted interest rate for Impala employee home-owner loans to make the houses affordable to employees and the houses were a of a quality standard. Approval had been given to build a school in the area, construction would begin in 2012. About 800 houses had been constructed and others upgraded.

R26 million had been spent on income generating projects, and R1.4 billion on housing, R22 million on infrastructure on projects such as roads and clinics. Income generating projects was a challenge. Impala tried to focus on projects that would benefit the greatest number of people. The biggest spend at Marula mine had been the Chrome project which was 50% owned by the community. This was the second year the Impala Group had been honoured by Sunday Times for its performance in corporate social investment.

Mr Theron added that he hope the enthusiasm of his colleagues came through. Nothing could have been achieved without the partnerships with the DMR, National Union of Mine Workers, the board and local government. Impala had done well in the area of ownership and would grow this with time. Employment equity could be better, particularly with regard to black women. Impala would continue to over-invest in skills development. The success of the Marula Chrome plant had opened their eyes to the potential for such projects. He invited the Committee to come and visit. Unemployed youth was a serious problem; 389 people had been put through the Novice Training Program and it was hoped 140 youth a month could be put through the program, this was partly based on the bet that Leeuwkop would go ahead and some of this labour would be needed for the new shaft. It was equally valid if they went to competitors.

Discussion
Ms Mjobo asked if the 57000 jobs created were all permanent jobs.

Mr Theron answered that 40 000 people were employed by Impala and17 000 were permanent contractors. The permanent contractors were treated in the same way as the employees.

Ms Mjobo asked for clarity on skills development; there had been 267 in 2007 and this year there were 155, Why was this?

Mr Theron answered that the focus had shifted in the bursary scheme and pupils were now being brought from remote areas to stay near better schools. This was more expensive and meant fewer students could be accommodated. But the bursaries went to children more desperately in need of assistance. More funding would be found.

Mr Gololo thanked Impala for the presentation; he would rate it at nine out of ten. He commented that it seemed that little was being done for disabled persons regarding employment equity.

Mr Theron responded that this was a fair point. The mining industry was regulated by clear instructions on physical capability which meant that a large percentage of jobs on mines could not be done by people with disabilities. But there were opportunities in certain areas and the issue should be addressed.

Mr Gololo congratulated Impala on the Sunday Times Leadership Award. When people receive houses, what happened if the owner later changed or lost their job? Would they need to leave the house?

Mr Duma answered that owners had insurance that would cover the bond repayment for six months. If the owner could not find employment after six months he could sell the house. However, the intention was not to take the house back if an employee left.

Mr Schmidt commented that he always tried to understand why ESOPs were always such a minor percentage of HDSA ownership.  Was it a financial decision? Were labour unions opposed to ESOPs? What were the arguments against ESOPs? They appeared to be the best way to do it.

Mr Theron responded that this was an interesting observation. At the Impala level their ESOP was in fact 4% so it was a larger percentage at that level. The reason for the low use of ESOPs might be because the mechanism had emerged quite late in the process. There was a need for resolution between the unions and the employers because the model did bring some complexity with it. Some union members felt it could align workers too strongly with the employers and not with the union association. There were also different models of ESOP schemes and some worked better than others for both parties. There needed to be further resolution on what was best.

Mr Schmidt commented that the Royal Bafokeng was an excellent example. If the community could get themselves organised to the extent they had with the assistance given then many others could too.

Mr Theron answered that the Bafokeng model had worked well for Impala. Having paid off their debt they were now able to put in the order of R800 000 back into their community annually. This stood out as a model of empowerment.

Ms Bikani commented that there was evidence of transformation and change for the better. This was encouraging to see. She asked for clarity on the difference between discretionary and procurement expenditure.

Ms Daleen Cloete answered that discretionary expenditure referred to spend such as water, power and tuition fees where Impala had the discretion to buy from more than one company.

Ms Bikani asked for an indication of what the procurement challenges were at the Marula plant. What were the strategies to improve? She wished to compliment them on their work.

Mr Sonto commented that he was encouraged by the boldness of the invitation to visit and see what was happening. He commented that Impala was extracting labour from far-flung areas and offering them housing elsewhere. They wished to go home and be able to plough their fields. Would they consider buying tractors for labour-sending areas and creating co-operatives to provide work and benefit for the families of miners?

Ms Bam responded that Impala had started a collective. Forty families were the co-owner of this project. It was doing well and a trust was being set up for the families. 

Mr Theron added that it was a viable model to be considered. As a mining company Impala would be concerned about what would happen to the tractors once left in the care of communities. If assurance could be given from the local agricultural departments and the co-operatives that the tractors would be maintained, preserved and used as they should be it would be an easy project to support.

Mr Sonto commented that skills import had been mentioned in the presentation. This was not bad, but it did indicate that South Africa did not have such skills. Was there an effort to develop these imported critical skills in South Africa?

Mr Theron answered that this was a valid question. It would be wrong for a company not to ensure that imported knowledge and skills were retained within the company and was not repeatedly imported.

The Chairperson commented that Impala had certainly provided detail. Their investments in the country were impressive. He asked for clarity on what was meant by ‘normalisation’ of wealth.

Mr Theron responded that the ownership structures of capital in South Africa were distorted. A key part of Impala’s efforts was to normalise this at a high level to something more reflective of society. At a lower level it was fair to say that some jobs had better earning potential than others and created more wealth. These jobs had historically been in a narrow set of hands. Normalisation of wealth was also to do with ensuring that broader society was better reflected in management. Traditionally, mineworkers had not been homeowners, but rather came from rural areas where they had access to land and housing but did not own the land and so could not use it to raise capital. The consequence was that over time wealth accumulated for people with access to finance and assets that appreciated over time. This was a major tool for wealth building that should not be cut off from particular sectors of society.

The Chairperson commented that he had thought it might have been a typographical error meant to be ‘nationalisation’ rather than ‘normalisation’.

The Chairperson wished to echo the query over the percentage of ESOPs in empowerment ownership patterns. Impala indicated it was working on strategies to become compliant at a group level; but no timeframes had been given for this. When would 26% be achieved? By 2014? Or before?

Mr Theron responded that the number had been reported because that was how it was reflected on the Johannesburg Stock Exchange. The focus was on the operational level which would grow in to the top level over time. Owning equity and simply earning monthly dividends was a form of empowerment and Impala would not discount it but it was not the favoured approach at Impala.

The Chairperson asked if white women were considered a part of the HDSA numbers.

Mr Theron answered that this was an important point. He wished to assure the Committee that white women were not counted in transformation figures. Their numbers within the company meant that it could be argued that transformation had happened as their representation was proportionate to that of broader society. It was true that there were more white women in the job market than black women and that some companies used this to push up their transformation figures, but this was not the approach at Impala.
 
The Chairperson that the housing allocations seemed problematic with certain single quarters set aside for graduates. The mining industry had been notorious for segregating people even in accommodation with a block for different ethnic groups. Were they not falling back into that trap by targeting graduates and skilled workers? Accommodation was accommodation and differentiation made for unhealthy competition. 

Mr Duma responded that the issue was that graduate recruits requested that housing be provided. Because the accommodation was subsidised, it was cheaper and needed to be retained for those with low incomes. If it was flooded with people earning better, it would cut off those who had no other option. Certain housing was also retained to be used for recruitment, this helped ensure employment equity and skills supply.

The Chairperson commented that Impala’s job creation possibilities did not look good. A few 100 did not make a serious contribution to the targets set by government to change the desperate unemployment situation.

Mr Theron responded that Impala approached job creation in two ways. One was imparting skills using training facilities and giving youngsters the ability to access the job market. If Impala did not grow as a company there would not be job opportunities to offer. Traditionally companies have trained just enough people to meet their own needs. Impala had moved beyond this. The figure of 140 was per month. The aim was to give 1 500 people annually access to the mining job market. These were people who would not otherwise have access to the market. The company would need to grow at a substantial rate to be able to absorb them into the business. If not, they would be available to the larger job market. As skilled workers on mines get older there would be more positions for these trainees opening up. Over the past ten years, Impala had grown had at an annualised rate of 4% per year, jobs had grown at this rate too. The predicted growth rate for the next few years was 3%. This was still a good achievement and would create many jobs. Leeuwkop would create 5 000 new jobs and many other jobs in the process of developing the project. Assistance was needed from the Committee on what it would take to increase growth. There were not clear answers on that in the industry or organisation. Transformation was certainly something that should push this up. But it was something to be explored because anything that could be done to enhance growth would speed empowerment. 

African Rainbow Minerals (ARM) Implementation of the Mining Charter
Mr Mangisi Khule, ARM Chief Executive Officer, said ARM was committed to making a meaningful contribution to poverty alleviation, job creation and the promotion of skills, education and business opportunities to women, youth and disabled persons. ARM also sought to improve living conditions in rural and poor urban areas. ARM had been in the industry a relatively short time. Founded by mining entrepreneur, Patrice Motsepe in the 1990s, there had been no empowerment in the early days. The current ownership structure was 41% black owned, 13% broad-based empowerment trust and 51% free float. The 41% was debt free. Beneficiary trusts had been set up for seven of the nine provinces, the Western Cape and Gauteng were excluded on the ground that mining affected rural areas in particular. The provincial beneficiary trusts were led by trustees who were key leaders in their respective communities and provinces, to ensure effective partnership between the communities and the ARM BBEE Trust. Traditional leaders assisted in identifying community needs. Trust projects included anti-poverty initiatives with a focus on self-help initiatives such as training and agriculture. A total of 73 projects has been completed over the last four years in various provinces amounting to R51 million.


New schools and crèches had been built and bursaries were given to support education. Health care and welfare had been areas of focus. Opportunities for self-employment was a key focus of enterprise development, plus providing funds, assets or other resources including training to small business was a multiple strategy. The provinces had been grouped into five trusts with additional beneficiaries including investment companies, the National Women’s Upliftment trust and church groups. The Net Value of the trusts was R2.5 billion with R1.2 billion in debt. ARM had facilitated the creation of an ARM Mining Consortium for the creation of the Modikwa Platinum Mine where ARM owned 83% and the Modikwa Local Community companies owned 17%. The value of the Modikwa Local Community Companies’ investment in the Modikwa Platinum Mine was approximately R400 million.

All ARM operations individually submitted their Mining Charter reports to the respective regional Department of Mineral Resources (DMR) as required by legislation. The DMR had audited Khumani Iron Ore Mine on its submitted Mining Charter report in September 2011. Copies were also submitted to the Chamber of Mines to enable them to consolidate the report on behalf of the industry. ARM had met and exceeded the 2010 targets for ownership with an average of 39% empowerment ownership. Targets for procurement and enterprise development were met, though total BEE procurement had reached 44% against a target of 57%. There were some problems in the area of procurement of services for operations and this was being addressed. Employment equity figures were 47% on the board with black women constituting 13%. The latest Employment Equity Report had been submitted to the Department of Labour in September 2011 and had been found to comply with the Employment Equity Act. In 2005 female employment had been 6%. This had now increased to 14% woman, HDSA employment had been 28% in 2005 and was now 48%. Of the 14% female employees, 11% were black. ARM had increased spend on training for human resource development, spending over R92 milion on training in the 2011 financial year, a significant increase from the previous year. Learnership academies were being developed to focus on management and supervisory leadership, mining skills, engineering and operational skills. This would have a centralised e-learning component with practical training and evaluation. The mining, engineering and ABET training centres were accredited by the Mining Qualifications Authority (MQA).
 
In 2006 ARM had 175 learnerships and 84 bursaries; these had increased to 231 and 220 respectively in 20. Bursaries were given to ARM’s employees, the children of employees and members of the community. Human resources development expenditure as a percentage of payroll had exceeded the 2010 target of 3% in most operations. Over and above training expenditure, the company had supported South African based research and development with R1 047 409, Minerals Education Trust with R1 816 920, given external bursary support to individuals worth R1 798 882 and supported talent development programs such as internships and vacation work with R5 520 233. This additional training expenditure amounted to R10 million.

In the 2011 financial year ARM invested R142.5 million into mine community development in surrounding communities through its Social Labour Plans, Local Economic Development, and the ARM Broad-Based Economic Empowerment Trust. In the preceding five years, ARM invested approximately R300 million in the upliftment of communities. This had gone largely into improving infrastructure, subsidies for home ownership and the conversion of hostels.

ARM subscribed to sustainable development and was doing well in the areas of health and safety and operated the safest mine in South Africa, with no fatalities in the last five years. For environmental management all mines had approved Environmental Management Plans and each operation had a Conservation Trust Fund. Most operations were ISO 140001 certified and underwent annual systems audits as well as legal compliance audits by external specialists and the ISO certification body.

For health, good progress had been made in reducing the number of noise-induced hearing loss cases from 58 cases to 33 cases. Occupational health was included in induction training programs. All employees and contractors underwent medical surveillance. Employment had increased from 11 805 in 2008 to 28 704 in 2011. Between 2009 and 2011 the number of contract workers had increased, many were later taken up permanently.

In conclusion, ARM was committed to meeting the legislative imperatives of the Mining Charter and aimed to do better. ARM continued to invest in South Africa, having already invested more than R13 billion in the last ten years and were prepared to increase this by R5 billion in the coming five years. ARM was committed to increasing beneficiation but wished to stress that the energy crisis was a critical challenge for beneficiation in South Africa.

Discussion
Mr Gololo thanked ARM for the presentation asked if there were any compliance regulations on ARM’s foreign operations and how they compared to the South African Mining Charter.

Ms Klaas answered that their only other project was in Zambia. There was legislation with regard to the environment. The mine remained in the planning stages and ARM wished to work closely with the government on it. Once the mine was up and running there would be other regulations.

Mr Gololo commented that employee spending had been highest in 2008 at the same time as the financial crisis. Why had it gone up at such a period?

Ms Jongisa Klaas, Head of Investor Relations, responded that ARM had a June financial year end and the slump could be seen in the 2009 graph.

Mr Gololo commented that he understood that Black Rock Manganese Mines would be fully converted by 2014 from hostels to fully fledged family units. Was this already happening or would that start in 2014?

Ms Mashiane, Human Resources Manager, responded that ARM was not waiting for 2014 and had started one of the key elements of human resources policy in terms of what was happening and what was needed.

Mr Gololo commented on the procurement of services. He had heard complaints about predominantly white transport of goods at Khumani mines.

Mr Peter Steenkamp, Executive Director of Operations answered that transport to and from the mine was out sourced to individual taxis and ARM had assisted the procurement of their vehicles. It had been a transparent contract adjudication process and employment equity had played a major part in the decision.

Mr Sonto commented that the focus on rural development was a good thing, but he questioned why Gauteng and the Western Cape were given so little consideration

Mr Gule responded that the focus on only seven provinces was not out of any dislike for the other two. The mining industry operated in rural areas and these were the areas ARM had chosen to focus their efforts.

Mr Sonto commented that the beneficiary trust trustees included traditional leaders to help in identifying community needs. Some traditional leaders might try to control the process rather than let people speak for themselves. How was this dealt with?

Mr Sonto asked what drew ARM’s attention to church groupings as they were not miners.

Mr Gule answered that churches with aligned projects were identified. Many had good projects but lacked funding or capacity. ARM identified those with a proven record of benefiting the community.

Mr Sonto asked for clarity on whether training academies were still being established or whether they had already been established; the presentation had been ambiguous (slide28).

Ms Mashiane answered that ARM was in the process of developing academies. They did already have accredited training centres in areas across the country but the academies were still in process.

Ms Bikane commented that no indication had been given of government’s partnership in projects such as schools and crèches. How much was ARM contributing and how much was government contributing? This created the impression all the work was being done by companies without any input from government which was not the case.

Mr Gule responded that the clinics had been set up with R5 million all from ARM. ARM had put the equipment in place and government had paid for two doctors there and the nurses.

Ms Bikani asked for further information of what significant rural upliftment ARM was involved in, because little was evident in areas such as the Eastern Cape and parts of the Free State.
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Mr Bikane asked how many women were involved in the National Women’s Upliftment Trust. What support was given to them? Small-scale miners were always complaining to the Committee, particularly the women’s groupings. What role was ARM playing in ensuring an improvement in this sector?

Ms Bikane commented that the images on the website created an impression of many white men in the top level positions. What was being done to shift this?

Ms Mashiane responded that the current structure was a challenge. The employment equity plan had to change because candidates could not be found, to meet the targets. A system of understudies had been developed to train understudies for take over after a period of three to five years. This strategy was currently being implemented. These understudies were not reflected on the website and this created the inaccurate impression.

Ms Bikane asked how ARM had increased their HDSA female employees to 48% from 43% in 2011. Something must been done right. What was the strategy?

Ms Bikane commented that there had been progress in Human Resource development. What relationship was maintained with DMR to ensure that the skills developed were aligned to the needs of the country. If there was such a relationship, how often did the parties meet and check up?

Ms Mashiane responded that ARM did check in with relevant organisations and stakeholder organisations. The company had taken the step of registering themselves but felt they did not get all the support they needed. The relationships were there but could be strengthened.

Ms Bikane asked if ARM poached employees from other companies or the public sector.

Ms Bikane asked how the pay rates of young employees compared with standard government employment rates.

Ms Bikane commented that the energy crisis mentioned was something of an eye opener. Were there any suggestions about what there might be in the MPRA to improve the situation? Sometimes it was a case of the Committee being unable to see what was needed from the perspective of industry in order to meet beneficiation targets.

Mr Gule answered that ARM did have some ideas. Everyone had to agree that the cost had escalated. The most important need for dealing with the crisis was to open the market for competition to ensure things were done well and there was choice. It was also crucial to skill employees at Eskom. Skills development was key.

Mr Schmidt referred to an article by a JSE broker relating to the liquidity of shareholding by HDSA owners. He asked if tradability would not create an additional benefit to HDSA shareholders. Or was the converse true?

Ms Klaas answered that tradability was determined, based on whether a company was listed. Therefore the level of empowerment would determine liquidity. ARM’s focus has been on the listed entity and ensuring tradability.

The Chairperson commented that according to the presentation on ownership patterns, 41% was unencumbered. It was indicated that within the 13% empowerment trust there was some debt, but not how much. What was the percentage of debt? What did ‘free float’ mean? Was this in the open market? He also requested information on the participation of employees in ESOPs.

Ms Klaas responded that the free float were shares listed on the Johannesburg Stock Exchange and was made up of a number of investors.

The Chairperson asked for clarity on the other beneficiary trusts listed on slide 13.Was ARM contributing to them or were they invested in ARM?

The Chairperson asked how indecision and disagreement on matters in community trusts were dealt with and resolved.

The Chairperson commented that ARM appeared to be doing well on employment equity, though the website did create a different picture.

Exxaro submission on the Mining Charter
Mr Sipho Nkosi, Exxaro Chief Executive Officer, summarised Exxaro’s position on the Mining Charter, saying that all areas had made good progress and were on track with the exception of procurement and enterprise development which was listed as ‘in progress’. He was pleased to say there were no ‘risky areas’.

Progress on the Mining Charter was reported on annually to the DMR. The board was still looking for another director and the focus was on finding another woman.

Exxarro was currently 52.1% held by empowerment shareholders grouped as BEE companies. This was broken into 15% Industrial Development Corporation, 55% Eyesizwe, 9.5% Eyabantu, 9.5% Tiso, 11% Basadi Ba Kopane, 9.7% Anglo American, 52.10% BEE Holdco, 2.97% Exxaro MPOWER and 35.23% Minorities (free float). This equated to R34.9 billion in HDSA hands and far above the target of 15%. Since the company was formed four and half years ago, a total of R2.86 billion had been paid out to empowerment shareholders. This was 50% of the dividends with the other 50% having been used to service loans. Every Exxaro employee was part of an ESOP scheme – there were 9200 beneficiaries and each had received approximately R9 210. Put together, R81 million had been paid out to employees. That ESOP had a five-year life and Exxaro would make a full payment to all participants. Each employee would receive R114 000. Exxaro was developing a new scheme so that employees could continue to benefit. 

Ms Rietta Piater, Executive General Manager for Human Resources, presented Exxaro’s progress on housing and living conditions. The focus had been on home ownership and employees received a housing allowance or living-out allowance. R137 million had been spent on housing in 2010 to assist owners with their first five years of bond repayments. Family accommodation had been an area of focus and hostels had been converted to flats. Eco-friendly housing had been built in Lephalale and the project had won the Nedbank Green Mining Award in 2010 for the project. Grey water was recycled and an evaporative cooling system was installed. The construction had used 50 to 70 % local labour. All future Exxaro housing projects would follow this model.

On procurement and enterprise development, Exxaro emphasised procurement from women’s enterprises. Targets for procurement of consumables and capital good had been far exceeded, however the procurement of the services target of 30% had not been attained, it being 24%. This would be a focus area moving forward.

The overall target for employment equity for the management category was 40% which had been achieved. The 2010 Mining Charter targets had all been exceeded except at the level of senior management. Specific plans including a fast-tracking program and retention strategies were in place to alter this. Targets for women in employment had been met, but the disability target of 2% had not been met with the actual being 1.6%

6.2% of payroll had been spent on human resource development against a target of 5%. This had been spent on artisans and learnership programs. An average of 430 engineering learners received training each month. For 2011, 76% of learner-intake was HDSAs. Over the last five years, Exxaro had qualified over 500 artisans and 208 engineers. Adult Basic Education Training had ensured that 83% of all employees were functionally literate. 156 employees were currently in ABET. This was an opportunity given to all at company cost. 103 bursary recipients were studying full time at universities at a cost of R11 million per annum: 66% of these were HDSAs and 20% were women. 88 professionals in training were participating in internships at a cost of R40 million per annum. 30 bursary recipients were in the bridging program, and a total of 210 students had been put through the programme. R85.3 million was spent on management training and development.

Mr Mongezi Veti, General Manager for Safety and Sustainable Development, presented the expenditure on community development. From mid 2007 to September 2011 a total of R222.9 million had been spent on community development. 36% on sustainable development, 21% on enterprise development, 17% was spent on infrastructure, 9% on skills development and 1.8% on health and welfare. During 2010, R39 million was invested in socio-economic development. 

For sustainable development and growth 70% of actions as per the targeted 2014 tripartite action plan for Heath and Safety had been implemented. All employees and contractors underwent medicals. R14.9 million had been invested in HIV/Aids programmes between 2008 and 2010. Since fall of ground had been identified as a major contributor to fatalities in the industry, Exxaro industries had implemented a pilot project to reduce this and the initiative had proved positive and would be rolled out at all Exxaro mines. Exxaro was fully compliant in Environmental Management Plans. All closure plans had been submitted and there was focus on sustainable closure of mines. 16 water use licences had been approved. Exxaro had an energy Carbon Management Programme to reduce and manage its CO2 emissions and a Water Management Programme to reduce water usage and pollution. Exxaro had won several sustainability awards for its work.

Exxaro had a Research and Development (R&D) project that scientifically assessed the needs of beneficiation. It had conducted medium to long-term research in partnership with the
South African Minerals to Metals Research Institute (SAMMRI) on beneficiation. The aim being to develop value-adding technologies and broaden the skills base in South Africa. Beneficiation was an integrated part of Exxaro’s core business strategy in addressing business growth and industry transformation and it had a number of potential and existing operations producing char and market coke char from coal.

Mr Ramesh Chhagan, Manager of Risk and Sustainable Development presented the enterprise development strategy for youth and job creation. Education was the starting point; ensuring that schools were functioning well and had professional career guidance. Skills development and tertiary education was required in the form of technical skills centres and bridging programmes and bursaries. He spoke about a business incubator for business development and mentorship - this could be aligned with procurement processes at Exxaro mines. The last step was creating business hubs which would essentially be a process of offering soft loans because technical, tertiary and business skills needed to be followed with financial resources to allow for the creation of enterprises. If each business hub incubated 20 new enterprises per annum and this would result in a 100 new jobs. If hubs were created in 2012 that would mean 500 jobs could be created and this could be built up to 38 hubs creating 3800 jobs by 2015. This was not simply focussed on Exxaro’s needs but on growing the economy overall.

Mr Nkosi continued with a description of the Grootegeluk Medupi Expansion Project of R9.5 billion which would create 11 470 jobs by 2012. Through this project, Exxaro had contributed more that R190 million to infrastructure developments such as roads, water and capacity building. 4 200 people had received skills training. 42% of total spend had gone to local businesses.

In conclusion, Exxaro was committed to the transformation objectives of government. Progress had been made but there were challenges to be addressed moving forward.

Discussion
Ms L Mjobo (ANC) asked for clarity on the number of fatalities.

Mr Mongezi Veti, General Manager of Safety and Sustainable Development for Exxaro, answered that there had been three fatalities in 2011. Two had occurred underground and one at surface. The first was deemed a rare accident and the other, also ruled accidental, might be turned over to the police because one of the key witnesses had disappeared when a polygraph test was mentioned. The third was a freak accident that occurred when a tyre exploded

Mr Gololo commented that the board of directors resembled an ‘old boys choir’ and this should be addressed. He asked what the Net Asset Value of the company was.
 
Mr Nkosi responded that there were a number of initiatives to change the ‘boys choir’ situation. The issue was partly due to the shareholders; each had a representative on the board and it was hard to negotiate who was chosen. There was some room for negotiation however and it was hoped that the remaining position would be filled by a woman.

Mr Gololo asked if the shares were open to the general public.

Mr Gololo asked how prevalent the problem of fronting was.

Mr Nkosi answered that fronting was widespread though stringent measures were in place. Exxaro had disciplined and blacklisted a number of organisations in the last two years. Many tried to find another scheme to get around these measures.

Mr Chhagan added that Exxaro conducted annual audits to check fronting issues.
 
Mr Gololo asked what the annual R&D expenditure was. He commended Exxaro on their focus on education, this was important.

Mr Nkosi answered that R&D spend was approximately R55 million.

Ms Bikane asked how the beneficiaries for housing projects were selected. Were employees at all levels catered for? How was balance in the housing scheme ensured?

Ms Piater answered that R137 million in allowances went to level C employees, this was from supervisors down. This meant that all employees should be able to rent or buy a house.

Ms Bikane wished to see more on women and employment equity. What was being done to empower women to ensure that there was a gradual balance in the company?

Ms Piater responded that a Woman in Mining initiative was run on all Exxaro mines. Women employed at the mines acted as role models in the communities by going out to schools to do career development. It was a challenge to interest women in working on the mines and work was being done to encourage greater interest.

Ms Bikane asked how relevant the human resources ABET training offered by Exxaro was for the industry. Or were employees simply channelled within the company after the training to ensure growth and development progression? Pure ABET training no longer seemed relevant in most industries and companies if it was not aligned to the core functioning of the company.

Ms Piater responded that further career development, guidance and further training were dealt with on an individual basis.

Ms Bikane commented that Exxaro had stated in conclusion that they were committed to transformation. How was the relationship with their community handled? There was an issue in a Limpopo mine. What was being done to resolve community challenges there? There was an indication that Exxaro’s approach to community was not going well.

Mr Nkosi responded that at this time Exxaro was not a shareholder of Coal of Africa. As Exxaro had given Coal of Africa information for free, they had the option to buy a certain percentage of a new operation. Exxaro would have to exercise that option next year after which there would be a relationship.

Mr Sonto asked for clarity on the percentages of employees and contractors. How were the two treated?

Ms Piater answered that the split was currently 50% contractors and 50% employees. This was due to current construction. The proportion would normally be 80% employees and 20% contractors. Contractors were treated as employees and received the same inductions, medicals and housing schemes. Exxaro also stipulated compliance targets in their contracts with contractors.

Mr Sonto asked how prevalent noise-induced hearing loss was. What was the decibel level?

Mr Veti responded that this was one of the projects handled by the Chamber of Mines. Australian mines were used as a benchmark and decibel levels at Exxaro mines were being managed and monitored closely. On average, Exxaro mines had been at approximately 114 decibels. This had dropped to an average of 93 decibels in the last three year. The target was 85 decibels. Machinery above this level was labelled and equipment allowed employees to mitigate their risk.

The Chairperson commented that Exxaro’s ownership structure had an impressive record. How sustainable was this? Was there any danger of a takeover, either hostile or friendly? Other players in the industry might be attracted to this.

Mr Nkosi answered that this was a challenge all mining companies would face. The top shareholders were committed to the company for ten years, ending in 2016. During the first five years the shares could not be sold. From December 2011 the shares could only be sold to other HDSAs or other BEE companies. However, it was likely that such companies would need to be backed by a bank and this could dilute ownership. People could not be forced to keep shares if they wished to realise cash. This was a problem for all empowerment organisations. In all new projects, such as new mines, Exxaro was engaging the communities to develop a closer relationship and give them part ownership in the projects. This might help maintain the empowerment ownership. The ownership was sustainable but there were issues to be dealt with.

The Chairperson asked for clarity on the procurement graphs (slide 17). It was not clear what was being indicated for procurement of consumables and procurement of services. Procurement of capital goods had greatly exceeded the target. How was this achieved? A number of companies had been lacking in this area. What formula was Exxaro using?

Ms Piater answered that the 50% line was the target for 2014. The red block represented where Exxaro was not compliant with the target. The green bar was specific project capital spend.

Mr Nkosi added that it was encouraging that the empowerment programme in South Africa was working. The capital goods expenditure had been increasingly spent with empowerment companies. For 2010 the focus had been on buying from black enterprises.

The Chairperson asked if the 500 artisans and 108 engineers trained by Exxaro were employed at the company or elsewhere?

Ms Piater responded that the artisans were all over the country. Exxaro had an average turnover on artisans of 10% and provision was made for this in the pipeline. It was a challenge to keep them due to the shortage of artisans in the country.

Xstrata progress on implementation of the Mining Charter
Mr Peet Nienbaar, Chief Executive of Xstrata Alloys and Executive Committee member, said Xstrata’s first operations had started in 1989. Today Xstrata was the fourth biggest mining company in the world, employing over 70 00 people across 20 different countries. Over 40% of employees were employed in South Africa but, disturbingly, only about 10% of turnover and 6% of profits came from these operations

Mr Andile Sangqu, Executive Director South Africa, presented Xstrata’s progress on implementation of the Mining Charter, saying Xstrata was firmly committed to transformation. It had met the requirements of ownership across its businesses. Meaningful progress had been made in procurement enterprise development, particularly in the areas of capital goods and services.

Employment equity was at 37% for top management, 23% for senior management, 50% for middle management and 45% for junior management. Core and critical skills and seen significant progress reaching 82%. Employee retention was a particular challenge. Exstrata’s human resource development was in line with the target of Mining Charter. 3% of profits were spent in this area and Exstrata was pleased with the progress. Mine community developments projects were all based on baseline studies and are independently approved projects. In the area of sustainable development, growth targets for all areas had been met. Beneficiation would have further focus late in the presentation as would housing and living conditions.

Exstrata’s empowerment partners comprised a mix of BEE partners; employees, communities, broad-based groups and entrepreneurs. Save for the ESOP, transactions had been concluded at an asset level. All of Xstrata’s partners actively participated in the business on management committees and boards with full voting rights. Robust funding and transaction structures had been developed, with meaningful value creation for all partners. Significant facilitation was provided and funding was given on favourable terms with project guarantees. R2.1 billion had been paid out to date to BEE beneficiaries. In recent times the media had given Exstrata a lot of unfortunate coverage for their ESOP scheme [Initially Xstrata planned to compensate workers according to working grade and not equally, irrespective of rank]. The scheme aimed to align the interests of Xstrata and its employees over the life of operations and to ensure meaningful transfer of value to employees with immediate access to cash flows from inception. This ESOP was 3% shareholding participation at Xstrata South Africa. This equated to a total value of R2.6 billion. It was applied to lower-level employees with no management level. It would benefit almost 12 000 employees. The scheme had been constructed without financial risk exposure for the beneficiaries. It was a fully vendor-financed interest free loan with no fixed repayment term. No capital had been required from beneficiaries at any point. The employee ownership was held through an ESOP Trust, controlled by beneficiary appointed trustees and had the right to appoint one Xstrata South Africa board member.


Xstrata Alloys and Xstrata Coal had exceeded the 2010 compliance targets for procurement, and were well on track to achieve the 2014 targets. 40% of total discretionary spend had been from HDSA empowered suppliers and amounted to R7.3bn in 2010. This was 38% (R4.7bn) for Xstrata Alloys and 43% (R2.6bn) for Xstrata Coal. HDSA suppliers had been facilitated by a policy which encouraged non-HDSA suppliers to partner with HDSA companies. Larger suppliers were encouraged to permanently partner with local HDSA suppliers and facilitate skills transfer.

Xstrata’s enterprise development strategy was aimed at assisting members of the communities establish small to medium sized enterprises and helping smaller companies become suppliers to Xstrata. Xstrata had assisted local HDSA businesses in order to qualify as suppliers and offered loans with preferential terms and start-up capital. Training and knowledge skills transfer was also offered. A training facility for commercial farming, for instance, had been built at a cost of R11 million in partnership with the Department of Rural Development.

The 2010 employment equity and diversity targets had largely been met. Development programmes were in place to increase this over time. The numbers were not at the levels Xstrata would like them to be. In order to find HDSA engineers, the investment needed to start in schooling and work up as a continuous chain. Development should be emphasised over outcome. However, Xstrata remained committed to getting it right.

Xstrata’s commitment to human resource development exceeded the 2010 Mining Charter target. R133 billion had been spent on human resource development with R30 million spent on skill training centres in
Mpumalanga and Limpopo. Among other efforts, Xstrata had awarded 863 bursaries and 507 graduate trainees. When considering mine community development, Xstrata was aware that to be able to sustain the kind of model they had for business, they needed communities that were working and their quality of life needed to improve. Since 2006 Xstrata had invested over R500 million in mine community development. Of that R154 million was spent in 2010. Investments had been made in education, health and community service centres.

Continued progress had been made in the area of sustainable growth and development. Xstrata wished to ensure that future generations could have a secure future in an environment that was safe and hospitable. This meant efforts were not restricted to the requirements of the law. Safety initiatives were set to achieve zero fatalities, injuries and work related illnesses. A 49% reduction in recordable injury frequency rates had been achieved since 2005. Health initiatives focussed on prevention and treatment of HIV/Aids and TB. Xstrata had focussed on reducing its carbon footprint and usage of South African resources in accordance with its Environmental Management Plans.

Xstrata endorsed and supported government’s decision to maximize value extraction from natural resources through value-adding. Xstrata had spent R8.5 billion on beneficiation initiatives to date, creating a significant number of downstream jobs. Xstrata was a meaningful contributor to the achievement of Government’s beneficiation strategy through its leadership position in the global ferrochrome industry. Xstrata was the chief sponsor of the drive to curb unbeneficiated chrome ore exports in favour of growth in ferrochrome production and, by implication, job creation in South Africa. Xstrata’s beneficiation initiatives to date included the R1.67bn Lion ferrochrome smelter in Steelpoort and the R4.9bn Lion ferrochrome smelter in Steelpoort.


Xstrata had an ongoing commitment to growth and job creation in South Africa and had made significant investments to this effect starting ten years ago when they acquired a coal company and assets. To date Xstrata had invested R68 billion, creating 13 000 permanent jobs for employees. Xstrata had been able to create new jobs from recent projects; notable the Lion II project which would cost R5.1 billion and would lead to 1042 permanent jobs and the Eland project worth R4.5billion which would create 3650 permanent jobs. There were, however, headwinds facing investment and Xstrata wished to open up about these challenges. Xstrata believed that, amongst other things, rail capacity needed to be expanded, energy supply needed security and proposed carbon taxes to moderate mining emissions. Solutions suggested included public-private rail partnership and competition on haulage, enabling private participation in electricity generation and the alignment of carbon tax implementation with national imperatives of economic growth and job creation in South Africa.

Mr Sangqu concluded that Xstrata was pleased to have exceeded government targets but still faced a number of serious challenges and there was work to be done.

The Chairperson thanked Xstrata for its presentation and requested that Xstrata return the following week, due to time constraints.

Mr Sangqu responded that this was an exceptionally important topic and Xstrata would be happy to return.

Ms Bikane added that the Committee would need further details on the ESOP.

The Chairperson thanked Xstrata for its co-operation.

The meeting was adjourned.


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