ATC120821: Report of the Portfolio Committee on Mineral Resources on an International Study Tour to Chile and Bolivia on the 17-26 January 2011, dated 14 June 2012

REPORT OF THE PORTFOLIO COMMITTEE ON MINERAL RESOURCES ON AN INTERNATIONAL STUDY TOUR TO CHILE AND BOLIVIA ON THE 17-26 JANUARY 2011, DATED 14 JUNE 2012

The Portfolio Committee on Mineral Resources, having undertaken an international study tour to Chile and Bolivia , reports as follows:

1. Background

Bolivia and Chile are confronted with socio-economic challenges that are similar to those faced by South Africa but have used the state-owned mining companies to tackle issues of poverty and unemployment. Currently, the South African mining industry is largely privately-owned with Alexkor and African Exploration, Mining and Finance Corporation (AEMFC) as the only state-owned mining company. South Africa is exploring various possibilities that will contribute positively towards achieving the United Nations’ Millennium Development Goals (MDGs) of halving poverty and unemployment by 2015. The Committee believes therefore that an international perspective is critical, particularly because of high poverty level that is juxtaposed with the country’s endowment in mineral resources.

2. Introduction

The Portfolio Committee on Mineral Resources (the Committee) decided to undertake a study tour to Chile and Bolivia because these are two countries with a long history of state involvement in mine ownership. The Committee therefore thought that South Africa could learn a lot from them on consolidation of their shares in the mining industry and b e able to conduct an information gathering pertaining to the establishment, operations and disbursement of revenue from the State Owned Mining Companies and relate it to the South African context in order to make sound recommendations to the National Assembly on these matters .

This report contains a chronological account of the journey of the Committee to Chile and then Bolivia . It provides a summary of the meetings that were held with different stakeholders such as the Mining Councils and the relevant ministries in the host countries. The report also documents important issues regarding the visited countries’ mining priorities, legislative framework, challenges and strides made to ensure profitability and sustainability in the mining industry.

3. Section 1

3.1. Purpose of the study tour

The Committee’s aims for embarking on an international study tour included the following:

· To continue with the work of the committee on the feasibility of establishing a state owned mining company, a process which started with the public hearings in 2010;

· To learn more about the establishment, legislative framework and management of the state owned mining companies;

· To learn more about the management of natural resources in general and mineral resources in particular; and

· To elicit the views of the Chilean and Bolivian civil societies on the management of the state owned mining companies.

3.2. Composition of Delegation

3.2.1. Parliamentary Delegation

The delegation comprised of the following:

Members of the Committee

1. Chairperson and Leader of the delegation, Mr MF Gona (ANC)
2. Mr C Gololo (ANC)
3. Mr VV Magagula (ANC)
4. Ms DH Mathebe (ANC)
5. Ms LN Mjobo (ANC)
6. Ms NF Mathibela (ANC)
7. Ms NJ Ngele (ANC)
8. Mr MR Sonto (ANC)
9. B Tinto(ANC)
10. Mr E J Marais (DA)
11. Adv HC Schmidt (DA).

Support staff

1. Ms N Skaka (committee secretary)
2. Ms A Boss (committee assistant)
3. Mr S Ngcobo (committee researcher).

3.2.2. Accompanying delegation

The Delegation also comprised of the following:

1. Ms K McClain: Alexkor
2. Mr M Moloi: SAMDA
3. Mr P Temane: SAMDA
4. Mr M Sambatha: NUM
5. Mr P Shiburi: NUMSA
6. Mr W Aroun: NUMSA

3.3 Appreciation of stakeholders that met with the Committee during the study tour

The Committee appreciates the assistance of the South African Embassies both in Chile and Lima; the South African Ambassadors, Her Excellency, Dr Moerane-Khoza and His Excellency, Mr Lesley Manley; the Chilean and Bolivian Parliaments; Honourable Ministers of both countries; Mining Companies; and also organisations. The hospitality and courtesy the delegation received from both countries was greatly appreciated.

4. Section 2

4.1. Chilean study tour

The study tour to Chile took place from Monday, 17 to Friday,, 21 January 2011. There, the Committee met with the following key stakeholders: the Mining Council, Central Unitaria de Trabajadores de Chile (Cut), Minister of Women Affairs, the Mining ministry, Corporación Nacional del Cobre de Chile (COLDECO), Commission on Minerals and Energy, Anglo American, and Empresa Nacional de Mineria (ENAMI).

4.1.1. Meeting with the Mining Council (Consejo Minero)

The delegation was informed that Consejo Minero is an association that groups public and private, national and international large-size mining companies that produce copper, gold and silver. The large-scale mining sector, represented by the Consejo Minero , is physically, economically and socially i mportant at national and international levels. T he members of the Consejo Minero account for over 60 per cent of Chile ’s total exports, making large-scale mining the most important industry in the country. At an international level, Chile ’s large-scale mining produces 40 per cent of the world’s copper, and output has more than quadrupled since 1990. Chile has tripled reserves since 1990 and now holds 39 per cent of the world’s known copper reserves. The purpose of the Consejo Minero is to promote world class public policy and operational practices for an industry that understands that policies and practices held in the past are not sustainable for future opportunities and seeks to generate and facilitate a favorable environment for mining companies to carry out their business. In summary, the Consejo Minero seeks to be the reference of large - scale mining, well known and appreciated for its economic, social and environmental leadership and performance that generates value for society. Consejo Minero comprises of 16 large privately owned mining companies, one state owned mining company, national and multi-national companies. The Council was established in 1998 and its associate members include, amongst others:

· Anglo-American;

· Codelco;

· Xstrata,; and

· BHP Billiton.

Key factors that attract investors into Chile include:

· Mining potential;

· Political, economic and social stability;

· Stable legal conditions;

· Infrastructure; and

· Talent and skills.

Mining Potential: Chile has a population of approximately 17 million people with an unemployment rate of approximately 8.5 percent in 2010. It contributes about 33 percent of the world’s copper production, which comprise about 60 percent of the total exports of the country. The country has experienced a substantial increase in mining production and the significant portion of it is accounted for by the private companies.

Political, Economic and Social Stability: The country has a stable taxation system that includes corporate tax at 17 percent, royalty tax at between four and nine percent and the tax of approximately 18 percent for remitted profits. The tax burden of the country amounts to a total of 40 to 42 percent. The country has experienced political stability since the 1990s. It was ruled by the centre-left coalition until March 2010, when it was replaced by a conservative coalition. The country is economically stable with a low inflation rate and also socially stable with only 13.7 percent of the population reported to live below the poverty line in 2006. The companies in the country are moving towards spending one percent of profits on developing the mining communities.

Stable legal conditions: The country has a stable legal system evidenced by numerous free trade agreements with a variety of countries.

Infrastructure: Chile has an effective transport and communication services and a world-class sea-port.

Talented and well qualified work-force: The country is characterized by good development indicators, which include the literacy rate of 96 percent, life expectancy of 77.5 years and infant mortality rate of 7.8 per 1000 births. The workforce in Chile comprises 7 million people. Mining employs about 110 000 workers and has suffered only 1.1 percent labour incidents. The minimum wage for the industry is US$350 and most workers are earning above the set rate. Women participation in the mining industry is estimated at 7 percent. The Council is working with universities and technical colleges to address the mining related skills shortages.

4.1.2. Meeting with the Central Unitaria De Trabajadores De Chile (Cut)

The South African delegation was addressed by the President of the Central Unitaria De Trabajadores De Chile (CUT) who provided the information on the composition of the membership, which includes the following:

· 80 percent of the members are from services sector.

· 20 percent of the members are from the industrial sector.

· Workers are organized by companies as opposed to South Africa where they are organized by industry.

· Not more than 50 percent of Chilean workers are unionized.

· The majority of Chilean workers are contract workers.

· Only 6.7 percent of labour bargains collectively, the rest depend on the goodwill of employers.

· Codelco has 15 000 permanent workers and 32 000 workers on contract. The permanent workers have good salary packages and conditions of employment but the same cannot be said about the contract workers. Coldeco surrenders all profits to the State for social programs and it has a good safety record.

· CUT feels that the Mining Council is not interested in contributing towards ratifying international labour agreements that determine labour standards.

· CUT is of the view that the country is focusing on copper exports to the possible detriment of the economy, as it happened in the 19 ^th century when the focus was on nitrate export until Germany invented the synthetic nitrate resulting to the economic crisis in Chile . CUT therefore recommends diversification in trade.

· On the well publicized accident of 33 miners that were trapped underground, CUT commented that the workers were employed by a medium sized private company that employed 400 workers in a very high risk operation but with higher than average salaries.

4.1.3. Meeting with the Minister of Women Affairs

The Minister informed the delegation that the participation of women in the labour force stood at 45.3 percent in 2010, which is an improvement from the previous 42 percent participation rate. The women participation is mostly in the services sector and participation in the mining industry stands at six percent. The ministry has identified barriers to women participation in the mining industry, which include the nature of work and the working environment.

The ministry has proposed the following steps to remove barriers to women participation in the mining industry:

· To focus on the competitive advantage of women in the industry e.g. safety in mining operations;

· To get women into decision making level jobs. Currently only five percent of women are in decision making level jobs; and

· To create incentives for companies to promote women to decision making jobs.

On maternity benefits, the Minister informed the delegation that the government offers generous benefits that include five days paternity leave. However, the Chilean law compels the companies that employ more than 20 women to provide child care facilities and that has an unintended consequence of discouraging companies from employing more that the stated number of women. The Ministry is proposing the amendment of this law.

The Minister informed the delegation that government does not have employment equity legislation as it believes that the employment quotas are counter-productive and unsustainable. The Chilean government believes in incentivizing employers to employ more women e.g. by bringing to the employers’ attention the benefits of mixed working groups like increased productivity.

4.1.4. Meeting with the Ministry of Mining

The Minister of the Ministry of Mining is Hon Mr Laurence Golborne Riveros . The mission of the Ministry is to generate, encourage, spread, and assess regulations and policies that optimizes Chile ’s sustainability on mining development, maximizes its contribution toward socio-economic development, and to consolidate international leadership.

The strategic objectives of the Ministry are as follows:

· Encourage sustainability on domestic mining development ;

· Generate joint participation between public and private sectors in order to stimulate growth in the sector and for the country;

· Give assistance to small mining;

· Modernize regulations in the mining sector;

· Modernize public sector institution;

· Consolidate Chile 's international mining leadership; and

· Manage effectively and efficiently the resources of the Ministry of Mining in order to comply with its specific objectives.

According to the Chilian Government's principles, these objectives are progressively reached through the creation of public policies on mining development by research and round table discussions. Among the policies is the creation of a Public Policy encouraging small and medium sized mining sectors, which is the National Mining Enterprise (Empresa Nacional de Minería, ENAMI). The objectives are also reached by improving statutory regulations. This is done by controlling domestic mining activity, being facilitators on the development sector, by stable laws related to Tax Evasion, Avoidance Law as well as Mining Security Regulations. These objectives are also obtained by creating links between the public and private sectors in order to encourage sector growth, with the large scale mining sector.

The delegation was addressed by the representative of the Ministry of Mining. He spoke about the issue of economic focus on copper exports. He allayed concerns over copper substitution by stating that it is less likely to be replaced since copper has various applications, which include technology. Unlike commodities that are used in infrastructure development, the demand for copper does not follow the pattern where it increases until it reaches climax and then decline, he asserted. Demand for copper increases with efficiency improvements in the ever developing technology. He also pointed out that copper is not the only commodity where Chile has a competitive advantage but its high demand makes it an obvious choice for production focus. He informed the delegation that Chile is moving away from state ownership in the mining industry towards private-public partnership for the obvious reason that it is difficult for the state owned mining company to grow compared to a private company. This is evidenced by the fact that Codelco used to produce approximately 95 per cent of total national copper production but it currently produces less than 50 per cent. He also alluded to inefficiencies associated with state ownership.

The presenter outlined the economic profile of Chile as well as the history of the establishment of the state owned mining company as follows:

· Chile ’s Gross Domestic Product (GDP) is at US$170 billion.

· Chile ’s Human Development Index was at 0.878 in 2009 (1 ^st in Latin America ).

· The country is ranked 49 ^th in the Doing Business rankings (Highest in Latin America ).

· In 1976 all government stakes in mining were merged into one company now called Codelco.

Legal Framework: The legal framework of the mining industry is based on the following:

· The Constitution of Chile (1980) and the Organic Law (1982)

· Compensation for expropriation based on current value

· Codelco’s New Corporate Law (November 2009)

· ENAMI-Responsible for the development of the small mining companies

The greater portion of investment in mining is by the private sector because of difficulties that the state owned mining company experience in accessing credit for project development in open markets. This, according to the presenter, therefore militates for engagement in joint ventures.

Priorities: The following priorities were identified:

· Increase in exploration; and

· Development of medium scale mining.

Why Chile is attractive to investors: The following were identified as among the reasons for attractiveness of Chile to foreign investors:

· The country’s favourable geological potential; and

· Political stability.

4.1.5. Meeting with Corporación Nacional del Cobre de Chile

Corporación Nacional del Cobre de Chile ( CODELCO) is the Chilean state owned copper mining company formed in 1976 from the foreign owned copper companies that were nationalised in 1971.  It is currently the largest copper producing company in the world. It owns the world's largest known copper reserves and resources. CODELCO's principal product is cathode copper and is a large producer of rhenium, of which Chile is the world's largest producer. It also produces small amounts of gold and silver from refinery anode slimes, and the residue from electro refining of copper. The so-called CODELCO Law of April 1992 authorized CODELCO for the first time to form joint ventures with the private sector to work unexploited deposits. Thus, in a major step for CODELCO, in 1992, it invited domestic and foreign mining firms to participate in four joint explorations in northern Chile . Foreign owned private firms were to become increasingly important as new investment projects got underway.

CODELCO has more than US$ 16.039 billion in assets, and in 2009, its equity totaled US$ 5.309 billion. In 2009, CODELCO produced 1.78 million metric tons of refined copper (including its interest in El Abra mine). This figure is equivalent to 11 per cent of the world copper production. Its key commercial product is Grade A copper cathodes. CODELCO has an ambitious investment plan for the next five years evaluated in US$ 15 thousand million. Only in 2011 the company was planning to invest approximately US$ 3.000 million. The Company also has ownership interests in several important mining companies, such as in Minera Gaby S.A., where it holds 100 per cent, and El Abra, with a 49 per cent stake; and other mining partnerships in geological operations both in Chile and abroad.

The delegation was addressed by the Chief Executive Officer (CEO) of Codelco. The delegation was informed that Chile contributes to one third of the world’s copper production and Codelco produces one third of Chilean copper. The remaining two thirds is produced by private mining companies. That means Codelco competes with private companies in copper production. Chile is a mining country as mining production comprises more than 10 percent of the national GDP. The major portion of copper that is produced by Codelco is exported to China . Codelco’s contribution to national treasury is more than 10 percent of the national budget.

Codelco’s mission and vision: Codelco’s vision is to be the world’s largest copper producer and the largest single corporate contributor to the Chilean economy. Its mission is to responsibly and effectively develop all its mining and related business capacity both in Chile and worldwide, in order to maximize, in the long term, its economic value and contribution to the Chilean State . The Company will undertake its mission, focusing on a high performance organization that promotes participation, creative innovation, knowledge and ongoing development of each individual. Investment in production is needed to sustain maximum contribution to the Chilean economy.

Codelco’s Board before and after the Corporate Governance Law (CGL): The Board of Directors is the highest authority in the Company. The Corporate Governance Law No. 20,392, enacted on 4 November 2009 introduced changes that included an increase in the number of directors from seven to nine and the term of five years for the board of directors as opposed to the presidential term during the Decree Law 1350. The Board is appointed as follows : three directors directly appointed by the President of the Republic; four directors appointed from a shortlist selected by the Council of Senior Public Management; one director selected from a shortlist presented by the Federation of Copper Workers (FTC), and one director chosen from a shortlist presented by both the Federation of Copper Supervisors (FESUC) and the National Association of Copper Supervisors (ANSCO). Roles and responsibilities of directors under the new law include:

· To approve and dismiss the CEO;

· To approve the 3 year business plan;

· To plan and approve investments; and

· To be civil and criminally responsible for their actions.

Annual Budget and Fiscal Transfers: Codelco presents its annual budget (operational, investment and amortization payments), including a monthly disaggregation, to both the Mining and Finance Ministries for their approval, by September 1st of the year prior to execution. By December 15th, Ministries of Mining and Finance are required to approve the final budget. There are monthly Transfers of Dividends to the Treasury (advances). If dividends exceed budget, the difference is delivered within 45 days (monthly closure figures confirmation) and if dividends are below budget, the budget is rewritten. Income Tax payments are done quarterly, i.e. March, June, September and December. The Central Bank withholds 10 per cent of as a special tax.

By March 30th of each year, the Board of Directors must approve the Company's Triennial Business and Development Plan. This includes Investment and Financing (including capitalization proposal) and surplus. By June 30th of each year, the Mining and Finance Ministries, taking into consideration the Company's Business and Development Plan, as well as the previous year's balance, determine the amount to be allocated to Capitalization and Reserve Funds in the current year.

Reasons for nationalization: The reasons for nationalization in 1971 were provided as follows:

· Copper price was not transparent at the time and that created mistrust;

· The country did not have capital to operate the mines; and

· There was no belief in domestic capacity to run the mines.

However the above-mentioned reasons are not applicable anymore and therefore the mining industry is now based on the following 3 pillars:

· Codelco;

· International mining companies, which are significant contributors through royalties; and

· Local private companies, which are currently the weakest pillar.

The delegation was informed that Coldeco is currently run as a private company and it contributes funds to the fiscus, but keeps some for recapitalization. It has a good credit record with the financial markets. In the past, government was not willing to invest in Codelco and did not allow the company to go to financial markets and this created a precarious situation for Codelco. However, government now supports applications for loans by Codelco.

Health and Safety: Six fatalities were reported in 2010. The health and safety standards that apply to the private sector also apply to Codelco.

Labour: In Chile , 10-12 percent of workers are unionized. In the mining industry, approximately 92 percent of workers are unionized. The salary levels of Codelco are similar to those in the private companies. Codelco has a mining charter approved by the Board of Directors. The proposal of the CEO was that Codelco should be kept as a state owned mining company and be allowed to invest abroad.

4.1.6. Meeting of the Commission on Minerals and Energy

The South African delegation was briefed by the President of the Commission who informed the delegation that Chile has a problem of poverty. The elimination of extreme poverty is a priority for Congress (Parliament). Education has been identified as one of the measures of addressing poverty. In pursuance of this objective, an education bill was soon going to be voted by the Congress. The other measure to address poverty is the use of copper resources. The Royalty tax is to be increased from four to nine percent of companies’ profits.

4.1.7. Meeting with Anglo-American: Copper Business Unit

The Chief Executive Officer (CEO) of Copper Business Unit made a presentation on Anglo American operations in Chile .

On further engagement with the members of the delegation, the following information was provided:

All Anglo American Chilean operations are fully unionized. There are 13 unions across operations. Collective bargaining is decentralized to plant level. The relations with organized labour are reported to be constructive. The total establishment comprises 9 000 employees with 5 000 full time and 4 000 contract employees. The contract employees are involved in non-core work. The green-field projects employ 15 000 contract workers. The minimum wage was reported to be relatively high compared to other industries due to the high demand for copper. The contrast in low poverty levels among the mining communities in Chile as opposed to high levels in South Africa was explained as probably the result of copper boom and declining gold production.

Anglo American does not perceive Codelco to be a threat since the copper boom allows for a greater number of operators to meet the high world demand. There is currently no mine closure legislation in Chile and the government is working on it. However, Anglo has closure plans for all its mines.

The industry agreed to pay high royalty fees in exchange for stability in 2005. Nevertheless, the government raised royalties in 2010 in order to reconstruct the country after the February earthquake that caused damages amounting to US$20 billion. Anglo views this as damaging to the perception of stability. On the mine that collapsed trapping 33 miners underground, it was reported that the mine had been closed but reopened two years ago. A small private company was operating the mine. The previous operator of the mine had left high grade ore to support the mining structure from collapsing. The new operator removed supporting structure resulting in the collapse of the mine. On the lessons from the experience of Codelco, the presenter stated that the State took over the operating mines and skilled personnel and continued to develop the skills of personnel. The South African situation is different to that of Chile . A lot of factors will determine the success of the state owned mining company, including but not limited to.-

o The management of the company;

o The commodity or commodities that the company will be involved in;

o Available deposits of the commodity; and

o The international demand and price of the commodity.

4.1.8. Meeting with Empresa Nacional De Mineria

Empresa Nacional de Minería (ENAMI ) was founded on the 5th of April, 1960, inheriting a long tradition of small and medium size mining promotion that started in 1927 when the Mining Credit Fund (“Caja de Crédito Minero”) was created. ENAMI´s incentives and services enable small and medium size mining firms to access international metal markets, and thus to benefit from the better position of ENAMI to attain competitive “economies of scale” and “economies of scope”. A central principle of ENAMI´s management is to balance developing promotion activities with self-financing restrictions, since the Company should not be a net burden for the Central Government Budget. In fact, Government benefits from a special 40 per cent tax, applied only to public sector companies’ gross income, and net profits withdrawals (100% dividend withdrawal) which, certainly, tend to more than balance annual Government Budget contributions to ENAMI´s expenditure on promotion activities.

ENAMI participates as a partner in the large scale copper mining operations of two private sector companies, Quebrada Blanca and Carmen de Andacollo, and is developing at present, the medium size Delta Mine project, located close to Ovalle in the IVth Region. ENAMI provides loans, especially to small size producers, allowing them to explore and identify new ore reserves, develop and enhance their mining facilities, buy equipment, and reach adequate levels of working capital. ENAMI purchases ores and concentrates from small and medium scale producers, process them in the concentrating and SX-EW plants, and the smelter, and exports the proceeds as mainly cathodes and refined copper to international markets.

The South African delegation was briefed by the executive team of ENAMI on the company’s activities. The delegation was informed that ENAMI’s mission is to promote small and medium size private sector mining in Chile , by providing incentives aimed at correcting market failures, and supplying technical, financial, metallurgical production and trading services required in order to be competitive. The objective of ENAMI is to buy minerals from the small mining companies including copper, gold and silver.

On further engagement, the delegation was informed that ENAMI assists the poor people through supporting small mining companies. The success of the companies supported by ENAMI depends on the price of the commodity in which they are involved. ENAMI buys ores and concentrates from small and medium scale producers. ENAMI processes and exports the proceeds as mainly cathodes and refined copper to international markets. The quantity of minerals mined is used as the criterion to determine the size of the mining companies. ENAMI uses the London Metal Exchange tariff to determine the buying price. Normally ENAMI pays the market commodity price but when the price goes down, it pays a price that is higher than the market price as loans, which are recovered when the price goes up again.

In terms of the relation between Codelco and ENAMI, the former transfers small businesses to the latter. Government receives money from mining companies in the form of taxes and royalties. The total receipts from the private mining companies are more than those from Codelco. The domestic, foreign and public corporations are taxed at different rates of 17 per cent; 50 per cent and 17 plus 40 per cent respectively. Royalties depend on the quantities of minerals produced.

4.2. Bolivian study tour

The tour of Bolivia took place from the 24 – 26 January 2011.There, the Committee met with the following key stakeholders, the Parliamentary Committee on Mining and Metallurgy, the National Chamber of Commerce, Ministry of Minerals and Metallurgy, the Bolivian Mining Corporation and the Senate.

4.2.1. Visit to Coro-Coro Hydro-Metallurgical Project

The parliamentary delegation was briefed as follows:

· The Bolivian Mining Corporation (Comibol) is owned by the State and is responsible among other things, for the Coro-Coro Hydro-Metallurgical project.

· Coro-Coro project is responsible for mining and processing of copper, which is done on-site.

· It was reported that Comibol does not currently pay royalties for the project but would do so as soon as the project becomes productive. Royalties are expected to be 15 percent of the profits.

· Comibol is not involved in any rehabilitation project and it was not clear whether Bolivia has a legislation governing rehabilitation.

· It was also not clear whether Bolivia has an equivalent of Social and Labour Plans.

· The Coro-coro project has three mining pits and currently produces approximately 75 tons of copper per month.

· It was reported that 30 per cent of the copper is extracted from the full processing cycle.

· The open cast mine that was visited by the delegation is about 5 meters deep.

4.2.2. Meeting with the Parliamentary Committee on Mining and Metallurgy

The delegation was briefed on the process of change in which Bolivia is involved. The process entailed, among other things, the following:

· The election of an indigenous person in the name of President Morales as the President of the country; and

· The promulgation of a new law that confers autonomy to departments (provinces).

However, Members of Congress acknowledged that the Bolivian mining industry is not yet fully developed and consequentially can only extract 60 per cent of the minerals.

When engaging with the presentation, the following information was provided to the delegation:

· The delegation was informed that the unemployment rate has been reduced from 8.5 to 6.5 per cent.

· Bolivia is open to joint ventures but partners must comply with the mining legislation of the country.

· The country did not benefit when the mines were privatized but benefits are starting to be realized since the renationalization of the mines. Therefore there is a plan to nationalize more mines but a study to identify mines to be nationalized is underway.

· The cooperatives are self-managed and their purpose is to work in an organized manner. The government is supporting them by providing the required machinery for them to get involved in mining.

· Comibol is structured as follows: at the top there is management that is followed by directors and the third tier is the internal organization that is involved in production.

· The mining legislation applies to all involved in mining, including the State-owned Company, private companies, cooperatives and small miners.

· Income from royalties is distributed as follows: 85 per cent goes to departments (provinces) and the remaining 15 per cent goes to municipalities.

· Bolivia is currently at a stage of producing and exporting raw materials. The next stage is going to be the exportation of beneficiated goods.

· The majority of members of the commission have a union background and in accordance with the law, unionists cannot be prosecuted for carrying out their duties.

· Women participation in mining is minimal because of the nature of work and is limited to administrative work.

· Royalties and taxes are determined by the mining laws of the country, which established percentages.

· The current revision of the mining laws is going to include environmental management.

The commission was in return briefed by the South African delegation on the environment related mining laws which are designed to mitigate the environmental damage caused by mining.

4.2.3. Meeting with the National Chamber of Commerce

The delegation was briefed as follows:

· The National Chamber of Commerce in Bolivia is not directly involved in mining but has a general interest in the economy of the country and its presentation had to be viewed in that context.

· Bolivia is a mining country with the greater stake of the industry owned by the State but there are small private mining companies.

· The economy of the country is based on natural resources including hydrocarbons (gas) and mineral resources.

· Before 1995, the country’s mining industry was predominantly privately owned with a few state owned companies but this was reversed when the Morale’s administration took over and embarked on a renationalization drive that led to the establishment of Comibol.

· Comibol is in charge of exploiting most minerals of the country.

· The structure of the country’s mining industry comprises the State, cooperatives and the private companies. Cooperatives were established by the former mine workers.

· The mining activity in the country is currently high as a result of the high demand for commodities from countries such as China and the institutions such as the World Bank and the International Monetary Fund (IMF) forecast that commodity prices are going to remain high for a long time. This augurs well for the prospects of the country but the Chamber believes that Bolivia is not poised to take full advantage of this favourable economic climate.

· The Chamber is pessimistic about mining being predominantly owned by the State. It sited an example of Comibol that had the workforce of 3 000 but had hired 5 000 workers based on political reasons without increasing production.

· However, the Chamber believes in the benefits of cooperation with the State and as a result has proposed a public-private alliance to the Morales’ administration.

· The Chamber believes that the gains realized in the mining industry were not based on good policies but high commodity prices.

The Chamber was asked if there was any involvement of the private sector in the hydrocarbons and lithium extraction projects. To this, the response was affirmative with regard to hydrocarbons. Regarding lithium extraction, the delegation was informed that the government’s efforts to attract private sector investment are thwarted by the business unfriendly legislation including the Constitutional amendment of 2010 that stated that the natural resources of the country belong to the indigenous people of Bolivia and all profits made must be reinvested in the country. The Chamber asserted that this militated against private sector investments. However, it was not clarified why the private sector was investing in hydrocarbon extraction despite the unfriendly legislative framework.

On further engagements, the delegation was briefed as follows:

· The Chamber is not involved in the training of cooperatives.

· There has been a significant decrease in investments since the current administration introduced nationalization policies. The decrease was from US$1.5 billion ten years ago to US$500 million currently.

· Most of the companies owned by the State were not started by it from the scratch but were nationalized. There are two companies that were established by the State, one is involved in iron ore and the other in lithium.

· The foreign direct investments (FDI) constituted 17 per cent of GDP in the past but it currently stands at five percent.

When asked about the mitigating measures against fluctuations in commodity prices, the Chamber reported that there are no such measures but has proposed the establishment of the stabilization fund to the government.

4.2.4. Meeting with the National Chamber of Industries

The delegation was addressed by the chairman of the chamber. He informed the delegation that the chamber is involved in production and have little to do with mining. The chamber does not consider Bolivia ’s nationalization a success. It believes that Peru ’s and Chile ’s successes can be attributed to creating an attractive environment for investors. The chamber stated that it does not believe in mixing politics with economics.

The Chamber outlined the history of ownership in the mining industry commencing from 1952 to date. It believes that the State is crowding out the private sector in the mining industry. The Chamber informed the delegation that ownership in mining can be categorized into private, cooperatives and state owned. In 2007, mining represented three per cent of GDP. Private companies account for 80 per cent of mineral exports.

When the delegation engaged with the presentation, they were informed as follows:

· The Chamber of Industry is not interested in beneficiating copper.

· There is a table provided in the mining law, which stipulates percentages of tax and royalties.

· The Bolivian people can benefit from mining if there can be stability in legislation that could instil confidence of investors. As of present, mining and poverty are co-related.

· With regard to local content and procurement, machinery and mechanical supplies are imported while labour and logistics are procured locally.

4.2.5. Meeting with the Ministry Of Minerals and Metallurgy

The delegation was addressed by the Deputy Minister of Minerals and Metallurgy. He outlined the mining history of the country, which dates back to pre-colonial times. The colonialisation of the country resulted in workers being brought from Africa to work in the Bolivian mines. Bolivia declared its independence from Spain on 6 August 1825 but the State started to intervene in the mining industry through nationalization in 1952. The tin, lead and silver mines were nationalized. The ownership and management of the mines by the State continued until it was interrupted in 1995 when neo-liberal policies were introduced. The private mining companies are reported to have extracted and taken the best minerals out of the country during this period. The former state mine workers left mining and had to find work in other industries. There was no transfer of skills to indigenous population during this period. The exploitation of workers was rife during the neo-liberal period. Since his inauguration in January 2006, President Morales has forced a number of companies to hand back majority control of privatized assets to the state. When recapturing the privatized mines, the ruling alliance discovered the following:

· There was a shortage of qualified mining personnel.

· There was no exploration conducted during the period of neo-liberalism.

· Mine workers formed themselves into cooperatives and worked under self exploitative conditions with no support from the State.

The main tin producing company and the tin smelting facility have since been recaptured. The state encountered a problem when the cooperatives took over a nationalized mine that employed 800 mine workers. The conflict that erupted between the mine workers and the cooperatives resulted in 16 lives being lost. The State intervened by hiring all 4 000 cooperatives’ workers as an attempt to permanently resolve the conflict. The workforce was increased from 800 to 4 800 without any increase in production levels. The state decided to open a new plant with the capacity of 3 000 tons per day to accommodate the increased workforce. Fortunately the international price of tin has been high and therefore, the State has not suffered the adverse effects of an over-sized workforce. The melting facility relating to the afore-mentioned plant is currently being modernized. The new furnace has the facility to smelt all tin produced in the country.

The Bolivian government began exploiting lithium two years ago. The policy is to exploit until the country gets lithium carbonate and then it can bring in partners. The country’s scientists are conducting research on how to get lithium carbonate from the mines. The goal is to produce 40 000 tons of lithium per year over three years. There are several countries interested in lithium production including Korea , Japan and China but the policy has already decided that Bolivia must do on its own.

Good copper deposits have been discovered in Bolivia and an agreement concluded with the Korean company to exploit these deposits. Bolivia has a lot of other minerals including gold. There are primary and secondary deposits and the plan is to start by exploiting the secondary deposits. The state has also built a smelter to avoid exporting lead, zinc and copper as concentrates. The government policy is to export value added goods and in consultation with the indigenous communities.

On labour, the delegation was informed that organized labour has lost “proletarian vanguardism” and now the peasants have taken over as the leaders of the social forces.

When engaging with the presentation, the delegation was briefed as follows:

· The government is offering scholarships for students to study for mining related qualifications abroad. The government is also establishing mining and industrial safety schools to address the shortage of mining personnel.

· The following revenue was collected in 2010:

o Royalties – US$200 million.

o Taxes – US$180 million.

· The government is considering working with South Africa in the exploitation of iron ore and gold.

· The government is trying to make the nationalized mining companies understand that they have already been compensated by working under favourable conditions. However, it acknowledged that there are some cases where compensation should be considered.

· Mining companies are by law required to comply with social responsibility laws.

· A joint venture between India and Bolivia is structured such that Bolivia provides minerals and infrastructure and India provides technology.

· The delegation was informed that the government believes in participating throughout the mining value chain in order to exercise control over the industry. However, it is aware of its capacity constraints hence the necessity for the joint ventures.

· The state ensures legal protection to private investors.

4.2.6. Meeting with the Bolivia Mining Corporation - Comibol

The delegation was addressed by the Technical Manager who provided a brief history of mining in Bolivia as well as that of Comibol. The salient points in the manager’s presentation included the following:

· The first silver coin was made in Bolivia .

· Comibol was only an administrative office and did not participate in production between 1982 and 2005.

· Comibol is currently exporting tin.

· Comibol has a copper project in Coro-Coro, which produces laminated copper.

· The corporation has two processing facilities which process 50 000 tons of copper per year.

· There is a silver smelting facility that was built in 1982 but was not operated because of insufficient production levels. The corporation is currently operating the facility after a Canadian company left it idle for five years following the conclusion of a partnership agreement. The company that built the facility has been contracted to assist in operating it.

· It is estimated that 70 per cent of Bolivian territory is still unexplored.

The delegation engaged with the presentation and further information was provided as follows:

· The delegation was informed that no operation has been undertaken with a Chinese company, yet.

· The total establishment of Comibol currently stands at 6 000 workers. All workers are permanently employed and all have social benefits but some of them work part-time.

· The corporation has its own resources and excess funds are transferred to the State. It funds small projects from its resources and bigger projects are financed by the State.

· The Board of Directors is made up of six members appointed by the stake holders.

4.2.7 Meeting with the Senate

The South African delegation was addressed by the Chairman of the Committee on Energy, Hydrocarbons, Mining and Metallurgy. The Chairman provided the delegation with the following information:

· The pillars of the Bolivian economy are mining, the production of hydrocarbons and the agricultural sector.

· Bolivia has 75 per cent of the world’s lithium reserves.

· The country is in the process of change.

· All nationalities of Bolivia are equal under the New Plurination State of Bolivia as opposed to the former Republic of Bolivia .

· The nationalized private companies were compensated after pressure the United States exerted by threatening to impose sanctions against the country. However, the companies were consulted before nationalization was implemented.

The meeting was concluded with a commitment by both parties to further the engagements.

5. Key findings

The following factors were identified as the determinants of success in the establishment of the state-owned-mining company.

· Management of the company

It is crucial that the company employs skilled and well qualified personnel in order to compete effectively in globalised commodities’ markets. Codelco has the advantage of inheriting the skilled and well qualified work-force while Comibol is in the process of training its personnel.

· Commodity or commodities that the company will be involved in

The company needs to identify strategic commodities in which to get involved. The successes of both Codelco and Comibol can be attributed to their involvement in copper. The discovery of lithium deposits in Bolivia , which has a greater percentage of the world reserves, is expected to benefit the country as the demand for the commodity is expected to increase in the long term.

· Available deposits of the commodity

The success of the company will depend on the amount of identified minerals and the period over which they can be exploited. South Africa is well endowed with mineral resources and most of them are exploitable over a long term.

· International demand and the price of the commodity

The price of a commodity will be determined by demand, and the higher the price of the commodity or commodities that the company will be involved in, the better the chances of success for the company. The high price of copper is responsible for the success of both Codelco and Comibol.

· Stable legal conditions

A stable legal framework will attract investors to partner with the State-owned-mining company. The lesson from Chile is that foreign companies are willing to absorb increased royalties in exchange for stable legal conditions. On the other hand, Bolivia is reported to be struggling to attract foreign investors as a result of unstable legal conditions, e.g. recent constitutional amendments.

6. Recommendations

The Portfolio Committee on Mineral Resources recommends that the Minister of Mineral Resources should do the following:

6.1 consider establishing a State-owned mining company through a constitutional Act of Parliament;

6.2 consider establishing a competent board that should run or control a State-owned mining company which should directly account to Parliament;

6.3 consider establishing a State-owned mining company through consolidation of all State investments in the mining sector and be wholly owned by the State;

6.4 consider that State-owned mining company cooperates with domestic and foreign investors in exploration of new minerals with terms favourable to State-owned mining company and by ensuring majority ownership;

6.5 consider that State-owned mining company plays a pivotal role on beneficiating our minerals as this will place South Africa in line with other mineral producing countries;

6.6 consider that a State-owned mining company takes charge or control of strategic minerals, classified into four groups, as follows:

(a) Infrastructure Minerals

— Agri-minerals like phosphate

— Industrial mineral like cement, iron-ore, manganese, chrome and nickel.

(b) Energy Minerals

— Coal, uranium, PGM’s, oil and natural gas.

(c) Hi-tech Minerals

— Titanium, Zircon, Rutile, Tantalum and Magnesium.

(d) Platinum

— Platinum Group Metals

6.7 The proceeds from a State-owned mining company should legislatively be distributed as follows:

— 40% be reinvested to State-owned mining company;

— 20% be allocated to fund Health Systems;

— 20% to the funding of free education; and

— 20% to fund Rural Development.

7. Adoption

Ms B. Tinto, seconded by Mr PD Mbhele, moved that the report be adopted. The report was duly adopted. Advocate HC Schmidt registered an objection on behalf of the Democratic Alliance.

Report to be considered.