Adoption of Committee Annual Report 2011/12, Study Tour Report to Chile and Bolivia

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Mineral Resources and Energy

13 June 2012
Chairperson: Mr F Gona ANC
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Meeting Summary

The Chairperson, in his opening remarks, mentioned the dire situation facing the platinum sector, saying that a number of producers had closed down their operations, in view of the significant drop in platinum prices since supply presently exceeded demand. This would have an impact on employment, particularly in rural mining areas, and one producer had already signaled an intention to lay off 1 500 workers. This was of serious concern to the Committee and it would be meeting with platinum producers. The Research Unit was also preparing a study on platinum prices over the past five years, and by-products and employment statistics. A Member commented that if there was not demand for platinum and gold, this would have significant effects and much longer-term visions would be needed for the country, including more focus on beneficiation to prevent South Africa being so dependent on global markets.

The Committee’s programme for its forthcoming study tour to the Free State was briefly discussed. Members then considered the Committee’s Annual Report for April 2011 to March 2012, and adopted it, subject to amendments.

Members also considered the Committee’s Report on the Study Tour to Chile and Bolivia. It was noted that there were some successful private mining companies in Chile. The Chairperson and some ANC members noted their view that a state-owned mining corporation should be established as a statutory body. The Chairperson added some additional recommendations in regard to these corporations, including the necessity for a board and reports to Parliament. Another Member pointed out the divisions of minerals into fo categories of infrastructure, energy, high-tech and platinum group, and believed that the state-owned mining company should deal with consultation on strategic metals. However, a DA member indicated that he was not in support of the recommendations. His party did not agree on the policy, feeling that there were too many uncertainties, and pointing out that state owned companies were never as efficient or productive as private companies, that there were doubts as to the extent that communities would benefit and that more investment was needed. Other Members clarified that the Report was merely noting what had been found in other countries, and that further debate would be needed on the establishment of a state-owned company, so in a sense the objections here were premature. The Chairperson pointed out also that the DA could add more findings to the Report. The majority of Members voted in favour of adopting the Report on the Study Tour, with the DA asking that its objections be recorded.

Meeting report

Chairperson’s opening remarks
The Chairperson introduced and welcomed the new Committee Secretary, Mr King Kuene.

The Chairperson mentioned that the situation in platinum sector was dire, and a number of producers had to close down their operations to regulate market prices. The price of platinum had significantly dropped, signifying overproduction. This move would come at a cost, especially as South Africa faced high unemployment already. The Committee would be calling in the producers to discuss the situation; there had been an indication already that one producer was going to lay off 1 500 workers. He had no idea how many mines would close down, or how many people would be affected. The research unit had been asked to produce information on the price of platinum over the past five years, to see when the decline started, and would also look at its by-products and employment numbers, as the sector had been growing with some stability. This study should given an indication of the closure of operations on South Africa.

Mr H Schmidt (DA) said that the SIMS Report indicated that 92% of the R2.6 billion of wealth depended on Platinum Group Metals (PGM), and if PGMs were in trouble, then this signified a much larger problem than platinum only, and affected future resources. If there was an alternative to PGM, then this would involve a much longer-term vision for the future of mining.

Mr E Lucas (IFP) said he thought there were serious consequences to cutting down production, and commented that price normalisation was artificial. Following global trends would lead to a price control on the product, and monopolisation. He said South Africa needed to be able to trade at a certain desired level. If gold were to lose its popularity, then the whole mining industry would be brought down. He said he supported beneficiation, as it would prevent South Africa from being so dependent on global markets.

The Chairperson said that the Committee would await the results of the research.

Oversight programme
The Chairperson asked the Committee Secretary to brief the Committee on the preparations for the oversight visit to Free State, from 18 to 22 June.

Mr King Kuene, Committee Secretary, noted that preparations were under way. It was intended that the Members fly to Bloemfontein, Free State, on Sunday 17 June. On 18 June a meeting would be held with the Department of Mineral Resources and counterparts. On 19 June there would be visits to mines. On 20 June Members would visit Masimong Mine, which had indicated that it would like Members to go underground, and that would take roughly four hours. On Thursday 21 and Friday 22 members would have to start in Regina and go back to Welkom, but Welkom was large enough to require a two-day tour of the facilities. From there the Committee would drive back to Bloemfontein or Johannesburg. Accommodation for the visit was still being arranged.

The Chairperson asked Members to ensure that they brought with them the Minerals and Petroleum Resources Plan, the Mine Health and Safety Act, the Mining Charter and the document on Housing and Living Standards in the Mining Industry.

Mr Schmidt asked if it was intended that Members would be staying in Bloemfontein. He pointed out that it was likely to take an hour and a half to get to Welkom, and another mine was at least 30 minutes distant from that. He thought that spending so much traveling was not productive.

Ms F Bikani (ANC) pointed out that the time would be reduced by new roads having been constructed.

The Chairperson said that these points would be borne in mind, and suitable accommodation would be found, if possible, outside Bloemfontein.

Adoption of the Annual Report
The Chairperson suggested that Members go through the Annual Report of the Committee, covering the period April 2011 to end March 2012, page by page.

Members noted the need to be more careful in making sure documents discussed in their meetings were tabled in Parliament, as there had been issues with that in the past year.

Members asked that the Secretary to check on the attendance records, pointing out some mistakes in this regard.

Minor amendments were made also to wording and grammar.

Members adopted the Committee’s Annual Report, as amended.

Study Visit Report
The Chairperson reminded Members that they had previously given preliminary consideration to the body of the report and the recommendations, but they were free to make additional recommendations. The Members had commented that the report had fallen short in the area of findings, and a new bullet point was added for “Stable Legal Conditions”.

He also pointed out that in Chile there were successful private mining companies.

The Committee had also agreed on the Recommendations, although the Chairperson asked that the phrase  “state owned mining company” be removed from a particular portion of the report. He also noted that the Boards should be accountable to Parliament, not the Department.

Ms Bikani said she disagreed with the bullet points, as she believed that a state-owned mining company should be established through an Act of Parliament.

The Chairperson agreed that was the case, and that the Committee would also recommend that the state-owned mining company should be run or controlled by a competent board.

The Chairperson felt that the following recommendations should also be made:
-State Owned Mining Corporations (SOMCO) should cooperate with domestic and foreign investors in exploration of new minerals
-There should be a set target for contribution to Gross Domestic Product (GDP)
-SOMCOs should play a cooperative role on the beneficiation of South Africa’s Minerals
-SOMCOs must take charge or control of strategic minerals, or develop those minerals of infrastructure.

The Chairperson noted there was a debate about “taking charge” versus “taking control.”

Ms Bikani said that minerals were divided into four categories: infrastructure minerals, energy minerals, high-tech minerals, and platinum or PGMs. She also pointed out that further subdivisions were usually recognised. Infrastructure minerals would be further subdivided into agri-minerals (phosphate), industrial minerals (cement), iron ore, manganese, chrome, and nickel. Energy minerals were divisible into coal, uranium, PGMs, oil, and natural gases. High technology minerals included titanium, zircon, rutile, and magnesium. Platinum metals included both Platinum and PGM reserves.

Ms Bikani said that she thought that SOMCO should be established for consultation in relation to strategic metals. This should be and be wholly owned by the state, but should be allowed to enter partnerships if the terms were favorable to SOMCO, ensuring original ownership with particular interest in certain minerals.

Ms Bikani said she did not understand the section of the Report dealing with the Mineral and Petroleum Resources Development Act (MPRDA). She noted that the Report indicated that “proper review and appointment of the MPRDA should be enacted to align it with the Constitution”. However, she thought that the MPRDA needed work in order to align with the concept of a state-owned company.

The Chairperson said that SOMCO must be established in line with an active plan, and said there needed to be a constitutive Act of Parliament to do so. If the SOMCO was to fall under MPRDA, then the latter Act needed to be amended.

Mr Schmidt said that the DA could not support the recommendations made by the Committee. The point of view expressed was contrary to what was stated in the study visit report, regarding the broad outline of a company. He asked how the government would enforce the control of strategic control of mining companies that were investing. He was not so much commenting on how the report expressed this, but said that the DA did not believe that this policy was the right way to go.  The DA therefore would not be able to support these recommendations. There were too many uncertainties as to how the local communities would be able to benefit and recapitalize from a SOMCO.

Ms Bikani said she could not understand why Mr Schmidt would not support the report, as it merely reflected the study tour. Government would not necessarily follow the  recommendations being made by the Committee. Essentially, the Committee was making recommendations for a course of action, based on what they had seen in Chile and Bolivia.

Mr M Sonto (ANC) said the comments in this Report should not worry Mr Schmidt, as there was no mention of nationalisation.  This was merely a report of the Committee to Parliament and the recommendations that it contained were intended to allow South Africans to benefit from strategic minerals in the country. He said the recommendations addressed the triple challenge of unemployment, poverty, and inequality in South Africa.

A Member said that even prior to the investigations into the Chilean system, the Committee had agreed tht it was necessary to learn more about state owned mining. Nationalisation was never even mentioned. She said the report was on state-owned mines, and their successes and failures were. She could not understand how this would be interpreted as a report on nationalisation.

Mr Schmidt said he was fully aware that the visit was about state-owned mining companies. However, he asked for an example where this system had worked. He asked why a state-owned company was never as efficient or productive as a private mining company. He and his party firmly believed that this was not the right route to follow, as South Africa’s mining output was falling. More investment in South Africa was needed, and the DA was not convinced that taxes and royalties derived from mining would be going towards those communities. He believed that any work should begin with redirecting the money to helping those communities.

Ms Bikani had some problems with this point of view. She said that she and her colleagues did want to see a state-owned mining company. Every action had counter-actions, but that did not necessarily mean that this Committee should not transform the past history of mining in South Africa. She wondered how else Mr Schmidt could suggest ways to change the dynamics of inequalities and joblessness. There were certainly some issues that had to be taken into account when understanding and monitoring the SOMCO, but she believed that South Africa could learn and observe from other countries.

Mr Schmidt said a stable regulatory program was needed, which would encourage simple, stable, and fair regulation. Fiscal stabilisation meant equal risk and rewards, sufficient infrastructure to export mining products, and a sovereign wealth fund for mining communities .The most important issues were to ensure that policies would be implemented properly, and that the money would be going directly into the community. He said the MPRDA provided a structure already, and it was possible to fix and tweak that in such a way that it would ensure the success of mining communities.

The Chairperson said the Committee could come back to the politics and debate the issues further.

The Chairperson asked how money made out of a SOMCO would be distributed, suggesting that this could be set in the legislation, so that 40% was reinvested into the SOMCO, 20% was set aside to fund national health insurance, 20% to fund free education, and 20% to funding of rural development, which took into account the rural mining communities.

Mr Schmidt quipped that perhaps all the findings and recommendations should be excluded, as they were not in line with his opinions.

The Chairperson said in the last meeting, Mr Schmidt had given an indication that he was happy with the findings. Findings of a report needed to set out what would be feasible in South Africa. There was still an option available to Mr Schmidt to add more findings, such as his previous comment that in Chile there were successful private mining companies. During the public hearing process, everyone had recommended that South Africa establish a state-owned mining company. However, he noted that the Chamber of Mines did not attend those hearings, as government had yet to make a decision on what kind of SOMCO the government wanted to develop. He said he would give the members space to talk politics, but said that the fact that some of the Members had not been present on that trip did not prevent them from making suggestions as to what might be best for the country.

Mr C Gololo (ANC) said it was understood that South Africa was going to establish a state-owned mining company. He proposed that the Committee should adopt this report, as he saw no problems with it. It would be debated in the House, when other views could be put, and the majority decision would prevail. He stressed the need to share South Africa’s natural resources. He appealed that the Committee adopt the report, and leave other matters to be raised in the debate.

A Member said that this was partially correct, but the ANC was fairly non-committal, so there would be no problem from the ANC side about adopting the report. The debates on SOMCO were still to be held.

Mr Schmidt noted it was one thing to have emotion, but another to have some form of reference. He stressed that there needed to be a discussion on how SOMCO would work. He was looking for a convincing argument, or report as to why it might work, and was prepared to listen, but wanted real answers.

The Chairperson said SOMCO would work because it would be established through an Act of Parliament, rather than merely as a departmental entity. Revenue would be re established and renewed, giving self-sufficiency to the mining communities. There was sufficient capital as 70% of Industrial Development Corporation (IDC) involved mining. A SOMCO would not pose extra costs to government, repeating that the money was already available. The design of the company, however, must be different, and it must have a competent board, that ideally would not need to report to the Committee. The whole basis that the Committee was setting out was to establish an entity different from those already in existence.

Mr Sonto agreed with Mr Gololo that the Committee needed to adopt the report. He also agreed that the debates were still to be held, so Mr Schmidt was anticipating matters. The report simply set out findings, and based on those, the Committee had made recommendations as to what was suitable for South Africa. He thought it was not a good idea to have the Committee change its mind at this point.

Members thought that the topics had been exhaustively discussed, and the majority of Members adopted the Report. Mr Schmidt asked for the objections of the DA to be recorded.

The meeting was adjourned.


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