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MINERAL AND ENERGY PORTFOLIO COMMITTEE
4 APRIL 2001
CHAMBER OF MINES ON MINING RESEARCH AND SUSTAINABLE DEVELOPMENT
Chamber of Mines Power Point Presentation
Notes on Presentation (See Appendix)
The Chamber of Mines discussed the mining industry as a whole and did not address specifically on the draft Mineral Development Bill. The mining industry in South Africa is now leaner, more focused, and more internationally competitive. Today South Africa produces just over 400 tons of the world wide gold production of 3500 tons. But change is still required because parts of the industry remain under financial and economic siege. Gold prices are at a catastrophically low level.
Mining employs approximately 500 000 people; these people directly support 5 million people with their incomes. The mining industry of South Africa contributes approximately 40% to the GNP of Lesotho and 20% to the GNP of Mozambique. In addition, mining remains the most important earner of foreign exchange in the country. Mining accounted for over 45% of South Africa's foreign exchange earnings last year.
Mr Menell, President of the Chamber of Mines, told the Committee they had come to present the perceptions of the industry as a whole and address some of the economic and international policy making perspectives. He said they had not come to address the draft Mineral Development Bill.
Exceptional geological deposits
Mr Menell said South Africa has some unique geological features with resources underground in the form of gold, diamond, platinum and many other minerals.
Mr Menell said the mining industry in South Africa is multi-faceted and has gone through a dramatic transformation in the last ten years. The result is a leaner, more focussed, and more internationally competitive industry. For example, South Africa was by far the largest producer of gold in the world ten years ago, having produced over 600 tons of gold of the worldwide production of some 2500 tons. Today South Africa produces just over 400 tons of the worldwide production of 3500 tons.
Mr Menell said the 400 tons that is produced now is produced at higher economic margins. What is worrying him is that shareholders have lost a lot of money and employment has dropped from over 420 000 people in 1990 to around 200 000 people today. Mr Menell said the industry has engaged with the National Union of Mineworkers (NUM) and the government to look at how to alleviate this massive downsizing.
Major transformation challenges remains
Mr Menell said change is still required because some parts of the industry remain under financial and economic siege. Gold prices are at a catastrophically low level. The fundamental challenge of transformation of ownership, economic beneficial interest and management in the industry is only now truly beginning to be addressed. The Mining Development Bill and various other initiatives are all seeking ways of addressing the problems in the industry. There is a common objective between the government, the industry and the unions to deal with these problems.
Continues to be highly successful in South African economy
Mr Menell said world class inputs in mining have been developed in South Africa over the last 150 years. He added South Africa has world class technology providers, world class mining contractors as well as world class intellectual and technical skills. Most importantly, mining employs approximately 500 000 people and with the capital spending taking place that number may grow. He said these 500 000 employed people directly support 5 million people with their incomes in South Africa. He added that the mining industry of South Africa contributes approximately 40% through wages to the gross national product (GNP) of Lesotho and an estimated 20% to the GNP of Mozambique.
Mr Menell said mining remains the most important earner of foreign exchange in the country. If one takes the full balance of foreign earnings, mining accounted for over 45% of South Africa's foreign exchange earnings last year. To a large extent, statistics show a very large growth in manufacturing related to mining activities as a component of South Africa's GNP in the last ten years. This includes the new aluminium sponsors in KwaZulu-Natal.
There is a broad debate about beneficiation and there is a strong imperative for the country to add value in the mineral products before they are exported. Mr Menell said there is a great deal of value added to South Africa' s mineral products. They are trying to outline a number of beneficiation steps. For example out of 30% of what is taken from iron ore goes to iron and steel and 15% goes to exports which are beneficiated products of iron ore.
Principal ally of poverty
Mr Menell said a recent census shows one in seven men with formal sector jobs are employed in the mining industry. These men come from the poorest parts of South Africa, especially rural areas. There are 56 magisterial districts in SA where more than 16% of the income comes from mining.
TEBA, which was originally a mining recruitment agency for the half million people who worked in the mines, has 78 well-resourced centres with clinics and administrative capacity scattered in the poorest parts of South Africa, Lesotho and Mozambique. Development agencies, together with mineworkers and respective governments, are working hard to use these centres as resources for delivery of a wide range of social services and development initiatives.
I wish to share with you the salient points of the findings of what we in the mining industry believe to be an insightful and thoroughly objective report, commissioned by the Chamber of Mines, into the role and future of the South African mining industry in the 21st century.
We commissioned the report to promote an understanding of the myriad ways in which the mining industry contributes to the well being of the South African economy. Our country needs a profitable and robust mining industry. The report also serves to dispel the erroneous view that the industry and its importance to the economy are declining. It is important to note that the report is essentially economics driven. As such it does not encompass socio-economic issues such as environmental pollution, health and safety, HIV/AIDS and other equally critical issues. These are the subjects of separate policy-making and managerial process already underway in the industry.
Notwithstanding the country's rich mineral deposits, the political transition after 1990 has posed great challenges to the mining industry. Corporate and governance structures that had evolved over many decades were now unacceptable both at home and to the international investment community. Management and workplace practices were archaic and a relic of the colonial and apartheid eras. In short the industry had to be modernised. Extensive changes have already taken place, but major transformation challenges remain.
South Africa has many world-class mining companies, as well as modern, competitive engineering and related organisations that serve the mining industry. Together these industries are the most successful cluster in the South African economy. This fact belies the common perception of the industry because the decline in gold production has masked significant growth in other mining sectors.
The mining industry provides a base for internationally competitive support industries in South Africa, including technology, equipment manufacturing, professional services and low-cost electrical power generation.
South Africa's mining cluster is making a rich and varied contribution to the economy of the country. Except for gold and manganese, all major minerals have experienced long-term growth and mining remains a significant contributor the employment creation, rural upliftment and the development of the entire SADC region.
Hidden inside South Africa's aggregate mining statistics are large, expanding industries.
The mining industry is an engine for growth, with billions of rands of capital expenditure currently being committed to new production facilities in several sectors, including diamonds, platinum, chrome and ferrochrome, manganese and gold.
In terms of production, coal, platinum group metals and chrome have doubled in size since 1980, while iron ore production has increased by more than 50%. In the last 20 years, mining other than gold has grown faster than the rest of the economy.
The mining industry provides the foundation for the country's competitive advantage in electricity, chemicals and related industries.
South Africa has more than half of the world's reserves of manganese, chromium and platinum group metals. It has 40% or more of the world's vanadium, gold and vermicultie reserves.
Our mineral legacy is reflected in robust production statistics. Apart from being the world's largest producer of gold, platinum, manganese, chromium and vanadium, South Africa is one of the world's biggest producers and exporters of steam coal - the feedstock for 34% of the world's electricity.
Mining continues to be the single most important earner of foreign exchange in South Africa. It provides 40% of South Africa's exports directly, and 10% more indirectly through closely associated beneficiated products, such as ferroalloys and aluminium.
Mining remains the most important earner of foreign exchange in South Africa.
During the 1990s mining directly generated 41% of total exports, around the same as the fast-growing manufacturing exports sector. In 1997 the value of mineral exports was R51 billion. In that year, for the first time in the 20th century, non-gold mining exports (at 27 billion) exceeded gold exports.
Close examination shows that the growth in manufacturing exports is based on mining activities.
South Africa has achieved significant success in certain downstream, or beneficiation, activities.
Beneficiation is in an expansion phase in South Africa. Apart from electricity, petrochemicals and steel, most beneficiation takes the form of smelting, particularly for the production of ferro-alloys.
The slide shows examples of the beneficiation process:
Antimony concentrate to antimony troxide
Chrome ore to chromium alloys
Copper concentrate to copper metal
Iron ore to iron and steel
Manganese ore to manganese metal and alloys
Nickel matte to nickel metal and sulphate
Phosphate concentrate to phosphoric aced and phosphatic fertilisers
Zinc concentrate to zinc metal
Diamond sorting/valuing to cutting/polishing
In addition gold and platinum are refined and used in the jewellery and related industries, such as krugerrands and coin blanks
In the 1970s mining contributed 54% to South Africa's export earnings, whilst the manufacturing sector contributed 24,6%. By the 1990s mining's contribution was 40,9%, whilst the fast growing manufacturing sector had increased to 40,3%.
South Africa is a major exporter of processed minerals, mainly to Europe, north and central America and the Pacific Rim countries.
Between 1975 and 1998 agriculture, forestry and fishing; electricity, gas and water; and the services sectors had increased their percentage contribution to the Gross Domestic Product, the sectors of mining, manufacturing and building and construction had decreased their percentage contribution to GDP, however, these three sectors still dominate the economy.
Mining's declining share in GDP is chiefly attributable to the falling output of gold and uranium, however, this sector still represents the single largest sector in the South African mining industry.
The non-gold sector grew faster than the rest of the economy between 1980 and 1998.
The South African mining industry is the principal ally against poverty for a significant proportion of South Africans.
The study shows that over five million South Africans, that is one in every eight people, and a significant number of people in the rest of the SADC states, are dependent on the South African mining industry for their primary source of income. The majority of these five million people live in poor rural areas.
The latest population census shows that in 1996 one in seven men with a formal sector job was employed in the mining industry. The mining industry therefore remains a conduit of money an opportunity to some of the poorest areas in South Africa.
The 1996 census identifies 56 magisterial districts in which a sixth or more of the aggregate earnings is derived from mining.
These 56 districts make us South Africa's "mining nation" and have a total population of 5,7 million. On average more than a quarter of all income is earned in mining. The "mining nation" includes some of the poorest areas in the country and which commonly have very high dependency ratios (number of dependants per economically active person.
The list not only includes the most important mining areas, but is dominated by poor rural districts from which miners are recruited.
The total population of these areas is 5,7 million: on average, more than a quarter of all income earned by men is earned from mining.
In 14 South African magisterial districts, mining provides upwards of one third of the total income earned by labourers and in a further 38 districts mining is responsible for one sixth or more of all income earned by labourers.
According to the 1996 population census, one in ten South African men with a job were employed in the mining sector.
Unfortunately the "mining nation" areas have borne most of the social costs of the relentless fall in gold production and gold mining employment. More than 300 000 jobs were lost between 1986 and 1998.
Education and training is one of the cornerstones of the transformation process in the South African mining industry. The introduction of the ABET (Adult Basic Education and Training) and other training schemes on all mines bears witness to this.
These education and skills development schemes are helping all mine workers to improve their level of education and competency and consequently opening up real possibilities for advancement in the mining industry.
The industry is increasingly being seen as a career opportunity for more skilled people coming into the labour market, as the formal education level of those entering the mining industry shows.
From 1990 to 1996 the non-gold mining sector increased employment by 10%. Between 1993 and 1996, a period during which 35 000 jobs were lost in manufacturing and a further 45 000 in construction, more than 40 000 workers were employed in the non-gold mining sector.
The mining industry no longer needs the large labour force that it did previously. Similar output can be produced by smaller numbers, provided that the workers are more skilled and better organised and deployed.
The industry's direct contribution to total tax revenues has fallen to one tenth of previous levels in proportional terms. However, these figures understate mining's total contribution. An analysis of the distribution of value-added and of revenues show most of the output of the gold sector, for example, is expended on working costs, particularly wages. These expenditures generate large tax revenues. It is estimated that in 1998, gold mining employees contributed a further R1,8 billion in the form of income and value added taxes.
The South African economy and the mining industry in particular forms the cornerstone of economic development in the southern African region.
Over the past 20 years, two macroeconomic shortcomings have repeatedly forced African economies to depend on multilateral aid agencies:
African countries have saved at less than half the rate of other developing countries. This is mainly because of an inability of governments to generate tax revenues to cover fairly low government expenses.
Limited exports have meant that countries have too little foreign exchange to purchase equipment for export-led growth.
The root causes of these maladies, i.e. political instability, weak institutions and poor policies, are being addressed. However, the lack of government revenues and foreign exchange perpetuate a cycle of economic underperformance that is difficult to break.
Mining is crucial to Africa's economic renaissance. It is the continent's best opportunity to compete internationally, especially considering its extensive and still relatively unexplored mineral wealth. It is this mineral wealth that is the incentive for mining operators to take the lead in foreign investment into Africa, which generates large amounts of foreign exchange and provides a large revenue injection to governments thus breaking the cycle of economic underdevelopment.
Mining operators are only prepared to lead the way for other foreign investors because the foreign exchange earnings of mines means that they operate with virtually no currency risk. Also, mining faces less competition than other industries operating in low-wage countries.
Mining is already transforming some African countries' economies, for example:
Botswana's stellar economic performance is built on diamond mining.
Zambia's copper mines seem set to revive a stagnant sector and economy.
Mozambique's economic revival has been heralded by a $1 billion new aluminium smelter.
A total of $86,6 million was invested in mining exploration in the southern African region in 1997, an increase of $54,7 million over investment in 1993. With Zambia receiving the lion's share.
Zambia's copper mines have receive more than $405 million in foreign direct investment (FDI). By far the largest contributor to FDI in an otherwise struggling Zimbabwean economy in 1999 was mining investment of $577 million. Tanzania's mining FDI of $297 million for 1995 to 1999 is likely to be exceeded in coming years following the discovery of promising gold ore bodies.
South Africa with its mining infrastructure and geological wealth is well positioned to be the driving force of mining development in Africa.
The resurgence of mining activity in the SADC region is being led by South African mining companies, sometimes in partnership with foreign mining operations. In excess of $12 million was invested in 1998 in exploration in the region, an aluminium smelter is being built in Mozambique, and South African companies are heavily involved in gold projects in West Africa and in copper/cobalt in Zambia.
If Johannesburg manages to reclaim its position as a global centre of mining technology, specialist services and supplies it will become Africa's source for supplies and services. South African support industries such as timber, cementation and electricity, also benefit from mining operations.
More than half of the investment in certain large-scale projects in southern Africa has returned to South Africa through the purchase of services and supplies. For example, in the case of the Konkola copper deposit, it has been calculated that more than R10 billion will be spent in South Africa on services, technologies and supplies over the 30-year course of the project.
South African companies are at the centre of a $1 trillion global mining industry. Using its mining activities as a base, South African companies have nurtured strong competitive sectors, providing sophisticated inputs and services to the global mining industry.
South African companies have become prominent in three core mining areas:
as technology providers to the global mining industry
as providers of knowledge-based mining services
as specialist mining contractors.
South African companies are world leaders in mining explosives, drilling equipment and abrasives, and metallurgical processes and plants. For instance, SRK and Bateman are among the top mining consultancies in the world, AEC and Sasol are leading suppliers of mining explosives, and LTA and Cementation Mining are experts in specialist contract mining.
Mining's contribution to the future growth of South Africa's economy must be seen as coming from both mining operations and from upstream and downstream activities. A new Minerals Development Bill is soon to be published.
Mining represents the most successful cluster.
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