Mining Charter implementation: Public hearings continued

Meeting report

Mining Charter implementation: Continuation of public hearings with mining companies
Anglo Gold Ashanti submission
Mr Robbie Lazare, Executive Vice President, AngloGold Ashanti, noted that the company AngloGold Ashanti (AGA) was a global mining company with operational mines on every continent. There were seven operations in South Africa, employing 30 000 employees and producing about 55 tonnes of gold annually and 1.5 million tonnes of uranium. This made AGA the biggest uranium producer in South Africa. Gold production in South Africa had decreased by two-thirds since 1970, whilst global production had increased by 58%, meaning that South Africa was no longer the world’s largest gold producer. Because it was a mature mining industry, many of its current assets had by now posed an enormous challenge to surrounding communities. South Africa remained a hugely resource-rich country, although much of its reserves could not be mined yet, for various reasons, which included the depth and accessibility of those resources.

Mr Billy Mawasha, Senior Vice President: Technical Services, AngloGold Ashanti, presented information on the proposed Mponeng project which would use technology to mine in a new way, allowing for reserves to be mined in the future. This would extend the life of the mine beyond 2020 to 2040 or 2050. In the Vaal River, the mine Moab Khotsong’s working life could be extended beyond 2025. 

He explained that from a technology point of view, the question was how to mine at depths below 5 kilometres. Currently, this was not possible using the traditional technologies, because it would be too dangerous. The rock behaviour at these depths was different, and there was a need to find a differential way of dealing with geotechnical, geological and structural matters. A technological road map was developed with the aim of enabling mining of all gold deposits without injury. This was broken into a three stage process. He explained that Stage one would be developed so that no people were in the stope, the most dangerous area. For this to happen the operations would need to move away from the traditional drilling and blasting, towards more mechanical mining. This technology had been applied at other mines, but not at deep levels. Where this was to happen, the people currently working would be taken out of the mines and trained for different jobs. In Stage two, there would be development of intelligent mining solutions such as automation and closed loop process optimisation, to allow access to deeper reserves. Stage three, which could be reached in about ten years time, would be ‘gold on tap’, when it would be possible to break rock and remove gold without broader disturbance, and possibly without the use of people at all. He noted that these technologies and processes were being worked on with an international team.

Mr Lazare continued with an overview of AngloGold Ashanti’s ownership pattern. An Historically Disadvantaged South African (HDSA) participation figure of 26.8% had been achieved, compared to the Mining Charter goal of 26%.  In 1998, AngloGold Ashanti had sold seven shafts to African Rainbow Minerals (ARM) and then more were sold later, when these proved successful. Both transactions were done with favourable conditions, to ensure the success of the new company. Payment was deferred and was based on future profits. AngloGold Ashanti had received criticism from its shareholders for selling these assets but was proud of the success of the company which was now worth R40 billion. ARM currently held a 20.8% share in AngloGold Ashanti. In 2006 the Bokamoso Employment Share Ownership Plan (ESOP) was launched, accounting for 4.5% of shares and an empowerment deal was made with Izingwe Holdings for 1.5% of shares. The ESOP would benefit 30 000 employees. The transaction had involved the transfer of R3.84 million shares, one-quarter of which were free. Because of the 2008 international financial crisis, share prices had stagnated or weakened and AngloGold Ashanti had been approached by unions and Izingwe because the loan shares were ‘under water’, or vested without value. The agreement was then restructured so that lapsed shares were reinstated, a guaranteed minimum payout of R40 a share was introduced, and interest was eliminated. To make the cost of restructuring acceptable to shareholders a ceiling was placed on the value per share payable to beneficiaries. Between 2006 and 2011, R58.9 million had flowed to employees in dividends. It was hoped that this capital could be used either for entrepreneurship or to improve the beneficiary’s quality of life.

AGA’s largest beneficiation commitment was its long-term 25% investment in Oro Africa, South Africa’s largest manufacturer and exporter of jewelry, selling 18 000kg of jewelry per year. AGA had 53% ownership in the Rand Refinery and the Gold Zone which refined most of Africa’s gold. In 1999 AGA launched Auditions, a global gold jewelry design competition.  

Mr Vusi Fele, Manager of Black Economic Empowerment and Sustainability, AngloGold Ashanti, presented AGA’s progress in procurement. In 2010 the total procurement spend from BEE companies had increased to R1.9 billion, from R0.9 billion in 2005. Out of a total of R5.5 billion of discretionary spend, R2.2 billion was with BEE companies. In 2010, capital expenditure was 39%, against a target of 5%, services were 29%, against a target of 30%, and consumable were 40%, against a target of 10%. Action items had been identified to progress toward the required targets. These included building a local supplier database in order to improve access to local suppliers, reviewing and simplifying the AGA’s entry criterion in order to ensure an equitable internal process, and developing suppliers through training and engagement.

Mr Simeon Moloko, Senior Vice President: Sustainability, AngloGold Ashanti, presented the company’s progress in Human Resources. In 2010 AGA’s annual human resources development expenditure was 4.8% of payroll against the Mining Charter target of 3%. A range of training and learnership schemes were offered to both employees and AGA mine community members (both from the host and labour-sending communities). These included Adult Basic Education Training (ABET). Engineering and Mining Learnerships, Alternative Skills to Mining training, which was intended to cater to employees who wished to gain skills such as brick laying or carpentry, and Management training, which was offered usually to graduates. From 2011 to 2014 these programmes would continue, and many would be extended to increased numbers of participants.

The Mining Charter target for employment equity was 40% HDSA representation at all levels of management. AGA had managed to exceed this target. A target of 10 % women was also required, and this had also been exceeded at 12% by the end of 2010. The challenge was greatest at the senior management level and AGA had experienced poaching from other companies in the industry. Despite significant positive achievement, the company realised that there was still much work required in order to meet the targets set for 2014. In order to achieve this, a five year employment equity plan had been outlined, which included a recruitment, selection and appointment strategy that favoured HDSAs, the intensification of training and development initiatives, and the strengthening of diversity management in the workplace. Targets would be continuously monitored

The focus for housing and living conditions was to convert or upgrade hostels into family units by 2014, to attain an occupancy rate of one person per room and to facilitate home ownership options for all mine employees, in consultation with organised labour, by 2014.

Health programmes were run for prevention, diagnosis and treatment and support of both HIV/Aids and TB.

Job creation and youth development focussed on increased bursaries and learnerships. The reality was that unless the experimental technology plans proved successful, there would be significant job losses. He stressed that this was not due to bad management but rather to the reduced mining accessibility of the ore. He suggested that between 30 000 and 50 000 jobs could be created by the mining industry as a collective if mine closure and rehabilitation work started now. This would require review of the current legislative mechanisms in place to allow access to the funds set aside for this remedial work

Discussion
Mr H Schmidt (DA) commented that over the two days of public hearings the Committee had heard many companies say they had already met and even exceeded the 2014 targets. However, the general perception about compliance levels was negative. He wondered what had created this impression and what mining companies were doing to counter the perception.

Mr Lazare responded that one verification agency was needed, so that all data would go through the same agency, with the same interpretation.

Mr Schmidt commented that the easiest and most effective way to empower people appeared to be through ESOPs, except where shares became ‘underwater’. The greatest emphasis in AGA’s ownership pattern appeared to be on BEE companies, with ESOPs making up a minor percentage. ARM, the major BEE company, now seemed to have been “empowered and re-empowered” many times over. He wished to see a greater emphasis on broad-based empowerment

The Chairman added context to Mr Schmidt’s question, saying that the Committee had been trying to probe into what HDSA ownership actually meant. It was one thing to offer a stake, but something quite different to allow HDSAs to fully participate with an unencumbered stake. Communities often became trapped in long-term debt. It was only recently that a number of companies had started opting for a flow-through share arrangement, which meant there was a trickle of dividends. Most of the companies who had briefed the Committee had offered encumbered shares, while others claimed their BEE status through a joint-venture, which did not allow for actual participation in the company.

Mr E Lucas (IFP) commented that the information about the decline in mining was interesting. While he understood that mines got deeper and harder to mine, this created difficulties with employment. Furthermore, mining companies had in the past left behind environmental and social degradation once they had taken all they wanted. HDSAs now came into mining at a very expensive time and this was a serious problem. Mr Lucas hoped that the new technology would not reduce employment. On a visit to Canada he had seen only eight people operating a mine, which was otherwise entirely mechanised. South Africa could not afford this because of the millions of unemployed people, although admittedly mechanisation would improve safety. It was clear that AGA had developed a lot on beneficiation, and he commented that this was positive because South Africa needed this. He asked if AGA were internationally competitive, pricewise.

Mr Lazare answered that while it was true that there would be a reduction in the number of employees with the new technology, there would be an increase in higher-level skilled jobs. If the manufacture of this technology could be done locally this would simultaneously bring many more skills into communities, which would also create employment post-mining. There had to be a focus on wealth creation rather than social grants and funds with a limited life-span.

Mr Lucas commented that AGA’s focus on youth was touching. The problem of youth unemployment in South Africa had widespread social impacts.

Mr M Sonto (ANC) thanked AGA for the presentation. He commented that government had identified the mining industry as one that could contribute to closing the divide in the community. The Committee was checking for compliance, and therefore wished to know how AGA was contributing to the national fiscus, in line with the priorities identified by government, in job-creation, skills-development, health and education.

Mr Sonto noted that mining was inevitably becoming technologically advanced. He asked how automated operations would affect intensive operations. Technology made it harder for new entrants get in to the field, and he asked how the Committee could make it less difficult for people to benefit.

Mr Lazare responded that mining was a difficult business. Some recent projects had cost up R5 billion and would take 20 years to show a return, and there were not many investors who were willing to invest that amount and wait so long for a return. He noted that in future, no new deep level mines were likely to be built again in South Africa, but rather the older mines would be expanded.

Mr Sonto noted that ARM had a stake in AGA. Although ARM was an HDSA, he wondered if it could still be regarded as a BEE company.

Mr Lazare responded that if this approach were adopted, it would not encourage the development of successful BEEs, because then they would no longer count toward the Mining Charter requirements. The intention should be to create companies as successful as ARM.

Mr Fele agreed with Mr Lazare that the important thing was to establish a BEE company that became large and successful. Many of the shareholders in the new companies now were the same financial institutions that hold shares in AGA, Gold Fields and AngloAmerican, and this should not be seen as a negative thing. It was the case that 54% of their shares were BEE shares.

Mr Sonto asked how participants on the non mining-related courses related to the company after their training.

Mr Lazare answered that the training in mining skills in the community was not specifically for AGA, but rather to help the community members become employed. 70% got employment within the industry. The alternative skills training was usually for people leaving the company, and involved no guarantee of a job, but was done to broaden the person’s opportunities. .

Mr Sonto noted that in AGA’s top management level there was only one African male, one African female, three white men and three foreign nationals. He wondered how the company could have stated that it had exceeded the target. The Committee was biased toward the idea that locally-based companies should be managed by local people, because they feared the scenario of mining companies taking what they needed and then leaving a ghost town.

Mr Sonto commented that AGA had projects in its host communities for both employees and community members, and asked what was being done for the labour-sending areas.

Ms Bikane asked to what extent rehabilitation strategies were being taken seriously, as an approach to job creation, what possibilities they presented, and what timeframes had been set.

Mr Lazare responded that AGA would be approaching the DMR on how funds for this could be accessed. There were many mines with a lot to be done. AGA had funding for its own operations and just needed to bring the work forward.

The Chairperson asked who managed the rehabilitation fund.

Mr Lazare answered that the rehabilitation fund was managed by AGA, the Department of Environmental Affairs (DEA) and the Department of Mineral Resources (DMR).

Ms Bikane noted that it was indicated that the technological road plan required high mechanisation, but was also higher risk for employees working underground. She asked if AGA would ensure that they were covered by insurance, and whether special attention would be given to compliance with health and safety regulations.

Ms Bikane asked how loan shares worked. It seemed to be difficult for BEE companies to get involved without having to owe large amounts, and so she asked how this arrangement compared with might be loaned to entrepreneurs. She also asked about loans given to companies to run and sustain themselves.

Mr Fine responded that some of the BEE transactions involved sending BEE partners to banks to raise funds, but it was found that after 2008 the BEE partners had fallen into debt. This had been highlighted as a problem during the Mining Charter Review. AGA’s Izingwe and ESOP deals were vendor-financed, meaning that AGA made available the loans to the companies. When the share price fell, the BEE company and the employees did not go in to separate debt because this was set up as debt to AGA. Loan shares were not fully unencumbered. If mining companies were forced to hand over 26% of shares, fully unencumbered, this would have the same effect as nationalisation without compensation on that portion of the company, with the only difference being that it would go to individuals rather than the state. By restructuring the shares, AGA had guaranteed a minimum payout of R40 on every share. This meant they were partly, but not fully, unencumbered.

Ms Bikane noted there had been a steep decline in gold mining and that AGA was exporting jewellery in large quantities. She asked how this directly related to employment needs in South Africa. She also asked how South African employees benefited.

Mr Lazare answered by noting that he was essentially a miner, but he now managed to spend only 20% of his time working on mining, and 80% dealing with concerns such as these. South Africa needed to work out a model that allowed the miners to mine and encouraged others to do the beneficiation and other work. The miners were not mining anymore and South Africa had recently been reported as set to miss the second mining boom, perhaps for this very reason.

Ms Bikane commented that it seemed that the higher the management level the higher the percentage of white female employees, whilst the lower the management level the higher percentage of black female employees. In other words the more skilled the level of work the more white women employees. She asked what was being to try to close the gap.

Ms Bikane noted that a lot of projects had collapsed. She asked what was being done to support such projects, and what was being done also to try to ensure that more projects became successful.  She asked what had happened to the people involved. This contradicted the suggestion that AGA had solved the problem of female employment equity.

Mr Lazare answered that the business parks that were being developed in a number of mining communities would offer post-creation support to give the project success.

Ms Bikane asked what relationship mining companies had with the Chamber of Mines for reaching the Mining Charter Target. She questioned the purpose of the Chamber of Mines when she did not see mines assisting and complementing each other in this area.

Mr Lazare responded that the Chamber of Mines was an advocacy body. It worked for the industry, and not the other way around. The body had nothing to do with mining rights. The Chamber compiled data when industry reporting was required.  

Mr C Gololo (ANC) asked how many workers were employed by AGA in every mine.

Mr Lazare responded that the number of employees was 30 000.

Mr Gololo asked for information on AGA's expansion plan in the country.

Mr Lazare answered that AGA would be working on replacements rather than expansions unless the experimental technology plan worked. Socio-economics went hand in hand with technology. If gold could be mined at three times the speed, then much lower ore bodies could be mined. This would create a whole new world of gold mining in South Africa. The other aspect was looking at the international suppliers of equipment. Most high level mining technical equipment was imported and could not be manufactured in South Africa. The Chamber of Mines was trying to put pressure in the international suppliers to create the capability within South Africa. South Africa needed to understand that these companies needed to be incentivised to come to South Africa. 

Mr Gololo commented that illegal mining was of great concern in South Africa. He asked how prevalent a problem it was for AGA, and how it was dealt with.

Mr Lazare responded that this was not a significant problem for AGA mines. The mines were access-controlled, using facial recognition, which made it difficult to get into the mine illegally. No mines were linked to old closed mines, which was where the problem lay for many Free State mines.

Mr Gololo noted that the Mining Charter requirement was 26% empowerment by 2014, but he wished to encourage the mining companies to exceed this percentage.

Mr Lazare responded that this was a sensitive topic for international companies based in South Africa and it did not make sense to apply the same expectations to them. 60% of AGA’s gold production came from outside of South Africa. Companies would establish themselves elsewhere if they did not feel welcome in South Africa. This, he thought, was a topic that needed more discussion. It would not be workable to say that every company should approach the Mining Charter in the same way. He noted that anyone could buy shares in the company. 70% of AGA’s investors were international and would not take kindly to giving away more of the company. South Africa had to be sensitive about what was the right deal for the industry.

Ms Bikane asked if the lower percentage of production from South Africa was related to the fact that AGA was minimising production in the country.

Mr Lazare responded that it was because of the lessened availability of ore in South Africa. The gold was simply not able to be mined, unless the technology could be developed. Uranium products could still be further developed, but this was a topic for another day.

Mr Gololo asked if AGA manufactured the Mandela Gold Coins.

Mr Lazare answered that the coins were manufactured by the Rand Refinery and other institutions, but mining companies did not make them.

Mr Gololo commented that AGA was doing a good job on community development and Corporate Social Investment (CSI). The Committee needed to visit the mines. He commented that the housing looked beautiful, but asked what would happen if an employee lost his or her job, and whether that person would be permitted to stay in the accommodation.

Mr Lazare responded this was always a sensitive issue. If someone had bought a company house it would be negotiated by the unions that that person not be retrenched. If the person volunteered for retrenchment he would have to take the consequences and leave any company accommodation within three months.

Mr Gololo asked how the criminal activity of fronting was dealt with.

Mr Lazare answered that fronting was always a problem. The approach of AGA’s procurement team was to do site visits, to look at the equipment and conduct interviews, and also look at the standards. This minimised the fronting, though it could never be guaranteed that it was not taking place.

Gold Fields submission  
Mr Peter Turner, Executive Vice President, Gold Fields, outlined the background to the company. Gold Fields was the fourth largest gold mining company in the world, with operations on all five continents. There were three main operations in South Africa, permanently employing 48 500 people. The figures for Gold Field’s economic value-add were R10 billion in procurement and contract payments, R6.3 billion in salaries, R300 million in socio-economic development spending and R400 million in taxes and royalties.

He noted that in South Africa, mining operations were typically deep level. The rising star in Gold Fields was the South Deep mine, purchased in 2006 for R22 billion. It currently employed approximately 6 000 people and had massive underground ore-bodies with a reserve base of 34 million ounces and a resource base of 81 million ounces of gold. This was a mechanised mine, already producing around 250 000 ounces a year, which would be built up to 750,000 ounces. The life-of-mine exceeded all other operations at 50 years. The technology would increase safety by removing people from danger. It was important to understand that at a high-tech mine the entry level for employment would be higher than in typical mining operations and a greater number of artisans were required to fix, repair and service machinery. There were also a number of downstream industries which would benefit. Many new methods for mining deeper, and dealing with rock engineering constraints had been developed with South Deep.

Mr Turner presented an overview of Gold Fields’ Mining Charter performance. An internal assessment had been independently audited and verified by KPMG. The empowerment ownership goal of 15% for 2010 had been met, and owners had full shareholder rights. Targets for housing and living conditions had been met. Human resource development spend was 4% of annual payroll, against a target of 3%. The mine community development target had not quite been met but new projects had been implemented and were still subject to approval. Sustainable development and growth targets were met and environmental management plans were on track. Gold Fields had done well on procurement and enterprise development, exceeding every target. The 2010 targets for employment equity had been met and there were plans in place to ensure 2014 targets were met.

The board, chaired by Dr Mamphela Ramphele, had global representatives. 50% were South African and four of those were HDSA. Five out of ten of the company directors were also HDSA

Mr Michael Fleischer, Executive Vice President, Gold Fields, presented further detail on the ownership patterns of Gold Fields. Gold Fields wished to enable the entry of HDSAs into the industry and to ensure that they benefited. Mvelaphanda Resources acquired a 15% share in Gold Fields in 2004. The transaction was set up to ensure that after a period of five years the loans would be repaid. The loans became due in March 2009 and the net value creation out of the transaction was R4.1 billion.

In December 2010 three additional empowerment transactions were completed. An ESOP was set up with a 10% stake in Gold Fields. 10% of South Deep mine and 1% of Gold Fields was held by South Deep Education Trust, South Deep Community Trust, and BEE business and community leaders. The economic value was vested from the start and no funding was required from the beneficiaries. Up-front cash was provided, with immediate dividend payments made, and this was guaranteed annually thereafter. Beneficiaries could not be diluted and no further cash contribution was required. This meant that with a 50 year mine life, South Deep could benefit HDSAs for generations. Education had been identified as a key problem in South Africa and the trustees of the Education Trust were highly regarded individuals. Funds were to be invested in varying projects, including Archbishop Tutu’s projects and grassroots education initiatives. Empowerment partners contributed to Gold Fields initiatives and there were regular meetings with them.

Mr Paddy Govender, Vice-President: Commercial Services, Gold Fields, presented an overview of developments in housing and living conditions. Gold Fields was currently in the midst of a R660 million high-quality housing and hostel upgrade programme and 1 000 houses would be built by 2014, which would go to all employees below the C-band. The units built so far were usually in self-contained complexes of 100 houses and were conducive to good family living. Hostel conversions were 96% complete and the current residence ratio was 1.6 per room, down from 8 per room prior to 2006. The target was to have one person per room by 2014. The Home Ownership Scheme was open to all South African employees and banks would provide finance at reduced interest rates.  

Ms Shoki Mabilu, Supervisor: IT Training, Gold Fields Academy, outlined the procurement and enterprise development figures. R2.6 billion (41% of total South African procurement) was spent with BEE suppliers in 2010, and almost 300 unemployed community members were trained in basic artisan skills to encourage small, micro and medium enterprise (SMME) development. 31% of Gold Fields’ suppliers were HDSAs and this would be increased through various initiatives such as mentorship programmes and SMME incubators.
 
Mr Morapedi Mutloane, Head: Human Resources, Gold Fields, presented the progress on employment equity at Gold Fields. Employment equity targets were on track and would be achieved through external recruitment wherever internal candidates were not available. A Leadership Development Programme would identify high-profile individuals at all levels of the Group, and 70% of those on the graduate and bursary intakes were HDSA students. It was understood that it would be crucial to strengthen Gold Fields’ talent retention strategy, and mentorship programmes were part of this. The 2010 targets for levels of management had been achieved or exceeded.

Mr Mutloane noted that the Gold Fields Academy was an important initiative for human resource development. The Academy managed Gold Fields’ internal training programme, and had a budget of R275 million per year. Over 600 mining and engineering learnerships had been funded during 2010 and ABET training was given to employees and community members. A choice of portable skills courses was offered, at the company’s expense. This also covered “starting up your own business” skills. Should shaft closures or rationalisation become unavoidable, Gold Fields would offer re-training to those employees potentially affected. In the last five years a total of 4 845 learners, both community members and employees, had participated in training. R44 million had been spent in the last three years on school initiatives and R30 million had been spent on a three-year sponsorship to the mining schools at both Wits University and the University of Johannesburg, and Gold Fields also provided additional support for the University of Pretoria. In 2011 Gold Fields had almost 90 graduates in training, and had granted almost 100 bursaries at universities and Future Education and Training Colleges.

Gold Fields had a number of initiatives to support job creation, including increased engineering bursaries and expanded experiential internship opportunities for Mining Qualifications Authority or DMR-sponsored engineering graduates. It had a programme to facilitate vacation work opportunities for 250 engineering students per annum. Partnerships would be established with Further Education and Training (FET) Colleges to prioritise technical qualifications for employees.

He noted that South Deep was Gold Fields’ long-term investment in South Africa’s future. It was a fully mechanised mine with world class technology, and was still under development. Once completed in 2015, 1000 new jobs would be created.

Mr Phillip Jacobs, Head: Sustainable Development, Gold Fields, presented the progress on mine community development. Gold Fields had a comprehensive strategy guiding sustainable development in the company. This was important particularly given the closure philosophy. It had to be accepted that mines would eventually have to be closed and Gold Fields had started taking fundamental steps to ensure that it did not leave behind a ghost town legacy. The Communities and Socio-economic Development Programmes included the amount of R86 million being spent in 2011 on socio-economic development programmes. The focus lay on Community Health Programmes, Education and Agriculture. The key requirement was that projects should be sustainable and independent of the mine.  

Mr Turner then noted that in regard to health issues, Gold Fields was taking a holistic view of the wellness and care of employees, and looked at everything from nutrition to sport and recreation, housing and education. There was a concern that modern lifestyles were bringing about a new range of health complications, and new testing and education programmes were tackling this.

Mr Govender noted that Gold Fields ran an extensive system of clinics and hospitals for its employees and the surrounding communities. Employees were treated free of charge, and were entitled to HIV/Aids and TB medication. A programme facilitated the daily intake of treatments. Safety was a core philosophy at Gold Fields’ mines.

Mr Jacobs continued that the environmental sustainability programme was taken very seriously and closure plans were in place and were reviewed annually. Rehabilitation Trust Funds were fully funded and rehabilitation was linked to the enterprise development programmes. Gold Fields recognised that climate change was a serious issue and had received awards for carbon disclosure.   

The Chairperson noted that the Committee was under time constraints and noted that AGA should return at a future date to complete discussion on the presentation.

Discussion on questions proposed earlier to Xstrata
Mr Andele Sangqu, Executive Director, Xstrata, noted that during a previous meeting, Xstrata had been asked to expand on some questions posed by the Committee.

The Chairperson asked a question regarding BEE ownership. He saw that there was a concentration was on joint venture, and asked if Xstrata could cite an instance where a BEE partner participated directly in the ownership of Xstrata.

Mr Rakesh Harribhai, Executive Director: Strategy and Business Development, Xstrata, responded that Xstrata was not a listed company in South Africa, for its primary listing was in London and the secondary in Switzerland. That was why empowerment was done at the asset level. This allowed BEE partners to have direct access to cash flow, meant that they were not subject to share price volatility in the equity market or the declaration of dividends. All the transactions were vendor-financed by Xstrata so there were no banking costs and no recourse to any third party financiers. There was ongoing participation of the partners in Xstrata’s projects.
 
The Chairperson commented that the term of Xstrata’s ESOPs appeared to be 7.8 years, and asked why this was not linked to the life of the mine.

Mr Harribhai answered that the table indicating this figure, noted on slide 8, had compared Xstrata’s ESOP to the industry standards. Xstrata’s scheme was an evergreen scheme, where the industry benchmark was 7.8 years. Because Xstrata did not have a listing in South Africa it had done this to ensure that the scheme ran over the life of the mine. The scheme targeted all non-management employees covering the A-C band. Xstrata aimed to break all the industry benchmarks. The scheme was fully financed through a vendor-loan with a five year repayment holiday with immediate participation.

Mr Harribhai continued that the Committee had requested further information on the issue of equal allocation, which was the subject of a dispute with Unions and Xstrata in the last couple of weeks. The scheme had been introduced by Xstrata as a remuneration scheme, and as such the shares were differentiated in accordance with different gradings. There had been a precedent set in the mining industry of equal allocation. Xstrata had broken the dispute by agreeing to equal allocation across the A to C bands and would view the scheme now more as a transformation scheme than a remuneration scheme.  

Mr Steve Mallyon, Director, Xstrata, provided information requested by the Committee on housing development. Xstrata had no hostels and offered a housing allowance ranging from R1 200 to R7 000 for all employees. Land had been purchased to ensure that employees would own the land. The Unions had approved all planned housing schemes and building plans.

Mr Peet Nienaber, Chief Executive Officer, Xstrata Alloys, added that over and above the housing allowance Xstrata would subsidise the repayment of a loan down to 6%.

Mr Murray Houston, Chief Operations Officer, Xstrata, provided information on housing for the coal sector. No hostels were used and housing allowances were available. Xstrata had been ranked number one in the industry globally for five consecutive years for its work in sustainability. This was an outstanding achievement. The injury rate was very low and Xstrata aimed to be fatality-free.

Mr Nienaber continued that Xstrata had overwhelmingly agreed to embrace transformation and employment equity. It was critical that entrance level was filled with HDSAs and that the people who would promote, train them and mentor the HDSAs were incentivised to employ HDSAs. Targets for the employment of black women were a challenge as it was easy to find men prepared to go to remote areas and run a mine but less so to find women.  

Ms Bikane commented that she was still not convinced on Xstrata’s ownership patterns. She had the impression that the people Xstrata were partnering with had already made good in the industry and were responsible for their own success.

Mr Harribhai answered that the ownership at the asset level did not mean that the BEE partners did not participate actively. In fact Xstrata enabled greater participation at the management and executive committee levels as well as other committees.

Mr Sangqu added that Xstrata’s approach to BEE was broad-based and the relationships were very active. Xstrata shared information with its partners and participated in monthly meetings. Partners also contributed to the strategic direction of the company.

Ms Bikane commented that it was not clear what Xstrata’s level of involvement would be as far as the rehabilitation of mines was concerned.

Ms Susan Visser, Sustainable Development Manager, Xstrata, answered that rehabilitation was done as matters proceeded at every mine. Funding was available for the operations.

Ms Bikane asked if Xstrata had any models for encouraging investment with government.

The Chairperson asked if the projects mentioned as creating new jobs, as set out on slide 18, were already in operation or whether these were still to be created in the future.

Mr Nienaber responded that within the next four years there would be a total of 7900 jobs created on the approved projects. The project pipeline had the same potential for job creation, but these projects had not yet been approved.

The Chairperson asked if Xstrata was involved in investment in private participation in power production.

Mr Harribhai responded that Xstrata was actively involved in the Integrated Resource Plan (IRP) process and was busy with a project called Project Lesedi to generate energy. This had been approved by the IRP and a sustainability plan was in process.

The Chairperson thanked Xstrata for returning, and commented that the input had been valuable. 

The meeting was adjourned.