Response to the 2013 State of the Nation Address: briefing by the Department of Mineral Resources

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Mineral Resources and Energy

20 March 2013
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Meeting Summary

The Department of Mineral Resources briefed the Committee on the Department’s response to the 2013 State of the Nation Address.  The briefing gave an overview of the Department’s activities concerning job creation initiatives (i.e. creating an enabling environment, beneficiation, improving competitiveness and infrastructure development); the restoration of stability in the mining sector, the payment of suppliers within 30 days; the health and safety of mine workers; human resource issues and participation in the BRICS summit.  The Department would present a more detailed briefing on its strategic plans in the near future.

Members of the Committee asked questions about the Department’s transformation strategy; the mandates and progress of MINTEK and the various task teams established by the Department; the strategy on beneficiation; the action taken to address the challenges faced by the mining sector; skills development and training programmes; the marketing of South African minerals and mining products abroad; what research and development were taking place; the deferment of the decision by Anglo American Platinum to retrench workers; the Department’s legislative programme; the adequacy of the Department’s monitoring and evaluation capacity; the impact of the ESKOM buy-back scheme on production; the availability of water and a reliable energy supply for the sector; the feasibility of importing bauxite from Australia for South African aluminum smelters; health and safety inspections and the position of female mine workers.

Meeting report

Briefing by the Department of Mineral Resources on the impact of the State of the Nation Address on Mineral Resources
Mr Thibedi Ramontja, Director-General of the Department of Mineral Resources (DMR) briefed the Committee on the response of the Department to the 2013 State of the Nation Address (see attached document).

The briefing covered the major issues of job creation, restoration of stability in the mining sector, the payment of suppliers within 30 days, health issues, human resource issues and international relations.  The Department would be briefing the Committee on its strategic plans in due course.

With regard to job creation, the mining sector had major potential for job creation and the development of supporting industries.  The briefing expanded on the major factors that needed to be taken into consideration in the development of strategic plans, i.e. the creation of an enabling environment; beneficiation and improving competitiveness through infrastructure development, research and development, the availability of an energy supply, the meaningful transformation of the sector and skills development.  Task teams were established to focus on specific aspects of the mining sector, for example a platinum task team, an infrastructure task team and an innovation/research and development task team.

There were two aspects to the restoration of stability in the mining sector, i.e. the improvement of the housing and living conditions of mine workers and the implementation of the framework for peace and stability, which was endorsed by all the stakeholders in February 2013.

The DMR currently paid 92% of service providers within 30 days.  Targets were set to improve performance to 100%.  Reports were submitted to the National Treasury on a monthly basis.

The health of mine workers continued to be a matter of concern, particularly the rate of HIV and TB infections.  A Mine Health and Safety summit was held in November 2011.  The DMR collaborated with stakeholders through the Mine Health and Safety Council on initiatives to improve the general health of mine workers.

Human resource issues included the promotion of gender equity in the mining sector, skills development and youth employment.  Skills development and training programmes included encouraging mine workers to participate in adult education training, increasing the supply of trainees with mathematics and science backgrounds, career guidance interventions, providing bursaries to undergraduates, facilitating access to work-place experience, supporting Further Education and Training (FET) Colleges and supporting learners on artisan training programmes.  100 graduates were recruited for the learner inspector programme.  52 learners would be participating in a learnership programme developed by the DMR and mining companies.  The Department had internal skills development programmes for its own personnel in place.

With regard to international relations, the DMR would participate in the forthcoming BRICS summit arranged by the Department of International Relations and Cooperation (DIRCO) in Durban.

Mr J Lorimer (DA) asked if the transformation strategy had changed from a focus on previously disadvantaged individuals to equity ownership by workers and communities.  He asked what the platinum task team had achieved to date.

Mr H Schmidt (DA) asked how the National Development Plan (NDP) and the National Growth Path (NGP) interacted as far as the mining sector was concerned.  Beneficiation was only successful if there was a sound business case in place.  There appeared to be a trend towards the imposition of commodity prices by the Minister of Mineral Resources but market forces could result in the closure of mines.  As a result, any beneficiation programmes would come to a standstill.

Ms Bikani asked if the job creation issues had been adequately addressed.  The recent increase in unprotected strikes in the mining sector indicated that the various stakeholders were not connecting with each other.

Mr M Sonto (ANC) noted that the DMR was developing a strategy for the meaningful transformation of the sector.  He asked how the Department would achieve its transformation objectives in the light of the scarcity of the requisite skills in the sector.  He asked how effective the DMR was in preserving jobs when the sector currently faced major upheavals.

Mr C Gololo (ANC) noted that there were job losses in the other mining sectors as well as the platinum sector.  He asked if task teams had been established for the other sectors.

Mr Ramontja advised that the platinum task team was established before the recent incidents of labour unrest.  The team had found that the industry faced several challenges and had already identified interventions that would address the issues.  One of the interventions was to increase the demand for platinum.  Anglo Platinum had developed the platinum jewelry market, particularly in China.  Research and development efforts were focused on identifying other areas where platinum could be used.  The transformation of the mining sector was broader than the increased involvement of the black population in mining.  Transformation needed to take place in the mining infrastructure and beneficiation industries as well.  A holistic approach was taken in the development of the Department’s transformation strategy.  The target was set to create 10,000 to 14,000 new jobs in the sector but it was necessary to reconsider how the challenges faced by the sector could be addressed.

Mr Mosai Mabuza, Deputy Director-General, DMR explained that the transformation, competitiveness and growth agendas needed to be integrated.  The Mining Charter identified entrepreneurs, workers and communities as the three pillars on which black ownership of mines would be based.  The DMR had taken a broad-based approach to transformation since 2010.  Beneficiation was not the core business of mining companies.  The role of the DMR was to create an enabling environment.  He agreed that beneficiation would not be successful unless a proper value proposition was in place.  Beneficiation programmes resulted in many opportunities.  A more detailed briefing on beneficiation would be given to the Committee in the near future.

Mr Ramontja advised that the Minister had instructed the Department to develop long term plans that were aligned with the NDP programmes.  He conceded that the mining sector in general suffered from a shortage of skills and experience despite the availability of large numbers of unemployed people in the ountry.  The DMR had introduced internal skills development programmes and sponsored graduates.  The Department needed to ensure that graduates would have employment opportunities once they had qualified.  There was a shortage of geologists in other countries as well and South Africa had the potential to deliver a supply of professionals to the global industry.

Mr David Msiza, Chief Inspector of Mines, DMR added that there were sufficient numbers of qualified engineers available but it was necessary for graduates to gain experience as well.  The stipend paid to students was adequate.  The Inspectorate had a programme to increase the number of mining inspectors.

Ms Bikani observed that the mining sector tended to import skills.  The challenge was to develop the skills of the local population.  Consideration could be given to introducing legislation to force mining companies to develop and employ local skills.

Mr Msiza said that all alternatives were being considered and that the DMR was working with the mining industry to address the challenges.

Mr Ramontja conceded that the gold mining sector faced major challenges.  The rate of employment and gold production had been in decline for several years.  South Africa used to produce 70% of the world’s gold but this was no longer the case.  The country still had the world’s largest gold reserves but this was situated deep underground.  The cost of extraction was high and new methods and technologies needed to be developed to improve the competitiveness of the sector.

Ms Bikani asked for more information on the Department’s legislative programme.

Mr Schmidt pointed out that job creation programmes would not be sustainable if the mine was unprofitable.  The focus needed to be on the creation of economic activity and encouraging investment in the industry.  He felt that Government’s approach to job creation was incorrect.

Mr C Huang (COPE) agreed that job creation and job retention was not a problem as long as the mines were profitable.  The European market for South Africa’s mining products had declined significantly.  It was essential to find new markets for mining products and he suggested that the DMR put more pressure on MINTEK to deliver research and development outcomes.  It was also necessary to improve the international marketing of South African mining products.

Mr Sonto asked if the Department had secured the deferment of the decision by Anglo American platinum to retrench a large number of workers be means of legislation or if there was a gap in current legislation that needed to be addressed.  He said that the mining industry had a legacy of profiteering, the use of cheap labour and little interest in job creation.  The mining industry was a long term enterprise and long term strategies were necessary in order to achieve a change of direction.  It was necessary to identify what strategic mineral resources were in demand globally.  The question was how South Africa could improve the marketing of the country and stimulate investment that would result in an increase in new jobs.

Ms B Tinto (ANC) queried the proliferation of bilateral agreements in the mining sector.

Ms Bikani suggested that the DMR resolved the underlying problems before attempting to address the issue of job creation.  She asked for more information on the beneficiation strategy and what progress had been made with the Department’s legislative programme.

Mr Ramontja advised that the Mineral and Petroleum Resources Development Amendment Bill had been gazetted.  Comment from interested parties had been invited and input had been received from some of the stakeholders.  There were a number of stakeholders with varying agendas and the Department was currently engaged in consultation with interested parties.  The Bill would be referred to the Cabinet before being processed by Parliament.

The deferment of the retrenchment decision was not achieved through legislative means.  The Department had discussed the matter with Anglo American Platinum.  The matter was sensitive but alternatives were being explored and options were being considered.  It was hoped that a mutually satisfactory agreement would be reached before the expiry of the deferment in 60 days’ time.

Mr Ramontja agreed that jobs could not be created in the absence of economic activity.  One of the Department’s objectives was the creation of an enabling environment where economic activity would take place, for example by ensuring that mines functioned properly.  Mining operations generated the development of supplementary industries as well.  He pointed out that the development of Johannesburg was based on mining.  (Members interjected that foreign investment and the use of “slave labour” played a role as well.)  The platinum sector was very important and generated significant foreign exchange revenue.  The entire South African economy would be severely affected if the platinum sector failed.  He agreed that platinum should be properly marketed as a valuable mineral and advised that the matter was under discussion.  Research and development initiatives to identify new platinum products were long term solutions.

Mr Lorimer recalled that there had been plans to issue a platinum coin, similar to the gold Kruger Rand.  He asked what progress had been made.

Mr Ramontja replied that the concept of a platinum coin had been under discussion for the previous ten years.  The suggestion was made that the coin commemorated Mr Mandela.  A marketing campaign would be necessary.  The DMR had discussed the matter with the National Treasury and other options were being explored.

Ms Bikani asked if the DMR had adequate capacity, for example if the Department had sufficient resources to carry out monitoring and evaluation functions.  In her opinion, many of the problems currently experienced in the mining sector could have been dealt with better if the DMR had adequate monitoring and evaluation output.

Mr Ramontja conceded that the Department needed to increase monitoring and evaluation capacity in all three focus areas, i.e. social and labour, environmental and mining.  Assistance was provided by the National Treasury and the Inspectorate.  The departmental structure was being assessed to determine where the Department’s response could be improved.  Social issues were becoming more important, particularly the issues around the housing of mine workers.  The DMR was engaging with the Department of Human Settlements on housing issues.  It was necessary to attract suitable candidates to fill positions in the Department.  In this regard, the DMR had engaged with the Department of Public Service and Administration (DPSA).  The DMR planned to facilitate skills development to the extent that there would eventually be more than sufficient trained candidates to fill vacant positions.

Mr Schmidt was not convinced that beneficiation was the solution to solve the job creation challenges.  Manufacturing was the area where the most jobs would be created.  The focus should be on increasing productive mining capacity and beneficiation would follow as a natural consequence.  He felt that the DMR’s priorities needed to be reconsidered.

Mr Lorimer warned against beneficiation at the cost of mining jobs.  He asked how many beneficiation or smelting operations were involved in the ESKOM buy-back scheme.  The scheme compensated companies for not carrying out beneficiation operations so that the pressure on the electricity supply was alleviated.

Mr Ramontja replied that it was necessary to create a balance between manufacturing and beneficiation.  The country’s mineral resources were not inexhaustible and South Africa should be at the forefront of adding value to its mineral resources.  Beneficiation was part of the broader strategy.  He pointed out that SASOL had successfully beneficiated coal resources.  He agreed that beneficiation should not be at the cost of mining jobs.  A reliable energy supply and the cost of energy were major challenges.  The industry worked with ESKOM on the matter.  ESKOM was considering the development of other long term energy sources, such as nuclear energy.  He was not competent to respond to the question about the ESKOM buy-back scheme and was unable to advise how many companies were involved.  He suggested that the Committee referred the question to ESKOM.

Ms Bikani observed that a number of task teams had been established but the industry continued to face major challenges.  Electricity supply and energy costs were major issues and should be regarded as a high priority by the DMR.  She suggested that the DMR took a broader approach as task teams had a relatively narrow approach.  It would appear that there was little coordination in finding and implementing solutions.

Mr Schmidt observed that ferrochrome and iron ore production had declined since the introduction of the scheme aimed at reducing the amount of electricity used.  Arcelor-Mittal was not taking up its quota as it was not economically feasible to concert iron ore to steel.  The manganese sector was similarly affected.  He suggested that the DMR held discussions with the steel producers to discuss the reasons for the declining production.  Government was not able to control all the factors impacting on the industry.  It was necessary to address the basic challenges in the iron ore, ferrochrome and manganese sectors before attempting to implement beneficiation objectives.

Mr Lorimer asked what the strategic plans were for the use of renewable energy sources.

Mr Ramontja agreed that beneficiation projects needed to be based on proper business plans.  South Africa had the advantage of having mineral resources, unlike countries such as Japan and China which had developed a competitive advantage by adding value to raw materials.  Further debate on the matter was necessary.  The mineral industry was not static and was subject to global demand and supply factors.  The industry was also affected by global economic and market pressures.  Mining operations were not feasible unless there was a market for the product.  It was necessary to develop partnerships.  He agreed that energy was a major issue for the industry but suggested that the Department of Energy was better qualified to respond to Members’ questions.  The infrastructure task team dealt with issues of energy supply and involved the Department of Energy and ESKOM.

Mr Lorimer was encouraged that the DMR was taking market forces into account.  Aluminum smelters were originally established in South Africa because of the relatively cheap electricity supply despite the fact that the country did not produce the raw material for the smelters.

Mr Ramontja said that bauxite was imported from Australia for the smelters.  The industry would be severely affected if it was no longer feasible to transport the bauxite to South Africa.

Mr Schmidt said that comparative and competitive advantage were interlinked and should not be considered in isolation.  The cost of labour and energy needed to be taken into account as well.  He asked what the reasons were for the under-utilisation of existing production capacity.  The demand for ferrochrome had not declined yet the raw materials were exported to China instead of being beneficiated in South Africa.

Mr Sonto observed that a separate briefing on beneficiation needed to be held.  He pointed out that beneficiation was not the core competence of mining companies.

Ms Bikani observed that the briefing did not include specific timeframes.  Although the Committee had previously discussed the issue of beneficiation, another briefing would be scheduled.  The Committee needed to be clear on what its oversight responsibilities were.

Mr Ramontja agreed to prepare a separate briefing to the Committee on beneficiation.

Mr Huang asked what progress had been made in research and development initiatives.  He asked for information on any innovative projects being worked on by the task team under the leadership of MINTEK.

Mr Lorimer asked for a report on the activities of MINTEK.

Mr Sonto wanted to know what progress had been made in the transfer of technologies developed by MINTEK to the mining sector.

Mr Ramontja responded that MINTEK had faced many challenges since it was established several years ago.  MINTEK had been at the forefront of research and technology in the field of biotechnology, coal mining and the gold sector.  A list of the key projects that MINTEK was involved in could be provided to the Committee.  The Council for Scientific and Industrial Research (CSIR) was involved in research programmes as well.  The need to improve coordination on innovation, research and development programmes was recognised.  The Department would be briefing the Committee on its strategic plans in the near future.

Mr Sonto asked what the DMR was doing about the decline in exploration.  He asked if exploration would be escalated if a State exploration and mining company was established.  Privately-owned enterprises were only interested in exploration if it was likely that the company would ultimately profit by it.

Mr Schmidt wondered how the establishment of a State-owned entity would facilitate exploration.  He pointed out that there was a difference between being a recipient of mining benefits and being involved in exploration and development.  He asked what the reason was for South Africa spending such a small percentage of gross domestic product (GDP) on research and development.

Mr Lorimer asked when responsibility for exploration would be transferred to the DMR.

Mr Ramontja explained that potential deposits of high quality minerals and an enabling environment needed to be in place to facilitate exploration initiatives.  The National Treasury had approved additional funding for the Department to focus on exploration.  It might be necessary for the State to intervene in certain aspects of the mining sector as the private sector was reluctant to invest in certain areas.  A State-owned company could become more involved in the high-risk aspects of mining.  It was also necessary to secure the supply of essential mineral resources, such as coal.  Adequate reserves for the country’s needs needed to be secured.  He agreed that more exploration needed to be done.  Although some bauxite deposits were found, the high cost of extraction made importing the raw material from Australia financially more feasible.

Ms Bikani said that the Committee did not receive any reports on the work done by the various task teams established by the DMR.  The term of office of the task teams was not known and no information was provided on what progress was being made.  The activities of the various entities needed to be coordinated.

Mr Schmidt wanted to know what MIGDEB was involved in.  On average, the cost of labour was 40% and the cost of electricity was 25% of a company’s total overhead.  Assuming that the cost of electricity in the mining sector was 10% of total overhead, the need to consider alternative sources of energy was imperative.  He felt that the DMR needed to be au fait with the energy and housing issues in the mining sector instead of putting the onus on the Departments of Energy and Human Settlement.

Mr Ramontja explained that MIGDEB was a tripartite, consultative forum where stakeholders could engage on various issues.  The DMR continually engaged with all stakeholders on the challenges facing the mining industry.  Where a particular issue required more attention, a task team was established to focus on and deal with the matter.  Other task teams dealt with regulatory matters and the rationalisation of all the factors involved in mining rights (e.g. water, environmental and mining).

Mr Lorimer said that the Committee needed to be provided with a report on the activities of MIGDEB.

Mr Sonto observed that water was an increasingly scarce resource and that mining operations tended to use a great deal of water.  He asked what plans were in place to increase the available water supply.

Mr Ramontja agreed to explain the structuring and mandates of the task teams to the Committee.  He agreed that the scarcity of water resources was problematic for the mining industry.  Close cooperation with the Department of Water Affairs was required and water supply was included in the DMR infrastructure strategy.  Mining activity in the Eastern Cape had increased significantly once the problems with the water supply were resolved.

Ms Bikani noted that the DMR reported that 92% of suppliers were paid within 30 days.  Small-scale suppliers in particular faced cash-flow problems if invoices were not settled in time and could go out of business.  Private companies in the sector should ensure that suppliers were paid promptly.  She asked if the necessary mechanisms and financial systems were in place to ensure that suppliers were paid within 30 days.

Mr Ramontja confirmed that the necessary systems were in place.  He conceded that privately-owned companies in the sector did not ensure that suppliers were always paid within 30 days.

Mr Schmidt noted that the implementation of new Codes of Good Practice was in progress.  He asked what action was taken by the DMR to ensure that there was no added confusion.

Mr Gololo suggested that companies that failed to pay suppliers on time was named and shamed.

Ms Bikani asked if the Inspectorate had a dedicated Mine Health and Safety inspection unit.

Mr Sonto asked what the impact was of the high rates of HIV and TB infection and if the infection rate was under control.

Mr Msiza explained that there were two types of health inspectors, i.e. the occupational hygienists (concerned with issues of the working environment, noise, dust and gas emission levels) and the medical inspectors (concerned with the health of workers, their fitness for work and any transmittable diseases).  The health inspectors currently dealt mainly with legacy issues.  For example, cases of asbestosis continued to be reported despite the fact that asbestos had not been mined for several years.  A mineworker suffering from epilepsy could pose a danger to other workers.  Workers suffering from hypertension could have a heart attack whilst working underground.  Four times more mine workers died of health-related causes than in mining accidents.

Ms Bikani remarked that although the number of female mine workers was small, she was aware that incidents of the abuse and death of female mine workers were not being reported.  She asked what research and development was being done to improve the health of mineworkers.

Mr Msiza replied that the requirements concerning female mine workers in the Mining Charter were clearly specified.  The Department was actively attempting to meet the national gender objectives.

Mr Huang asked if the Department’s health and safety unit had a programme to educate both male and female workers on sexual harassment, the implications for perpetrators and the recourse avenues available to victims.

Mr Msiza was aware that certain mines had such programmes in place.

Mr Schmidt asked if the Inspectorate had training programmes in place that would allow current DMR personnel to become mining inspectors.

Ms Tinto asked if only graduates were considered for the learner inspector programme.

Mr Msiza advised that the Department had implemented a mentoring system to assist trainees.  Retired, experienced personnel were requested to share their knowledge on an ad-hoc basis.  It was important that institutional memory was retained.  The learner inspector programme commenced two years earlier.  Initially, four graduates were placed with Goldfields to gain experience before they were deployed to the Department’s regional offices.

Ms Bikani admitted that the Adult Basic Education and Training (ABET) programme had been a failure and a waste of money.  Consideration needed to be given to change the programme so that it was more interesting, produced faster results and provided more benefits to the trainee.  The current ABET programme had a high drop-out rate, was time-consuming and the State had spent a significant amount of money for little result.

The Committee accepted the presentation by the DMR.  The Department was thanked for the input provided.  In future, the Committee would like to see more details provided on the actual implementation plans, the time frames and the solutions to the challenges faced by the sector.

The meeting was adjourned.


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