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HOW CAN BOTSWANA CAPITALIZE ON THE MINING SECTOR TO ENSURE ECONOMIC GROWTH

& DIVERSIFICATION?

HOW CAN BOTSWANA CAPITALIZE ON THE MINING SECTOR TO ENSURE ECONOMIC GROWTH

& DIVERSIFICATION?

Bridgette RadebeEXECUTIVE CHAIRPERSON: MMAKAU MINING

PRESIDENT: SOUTH AFRICAN MINING DEVELOPMENT ASSOCIATION (Junior Mining Chamber)

Botswana Investment & Trade Conference20-21 November 2013

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The African Socio-economic and Political paradigm shift and resulting economic successesThe African Socio-economic and Political paradigm shift and resulting economic successes

In 2011, the real GDP of Africa recovered and grew by 5.2% after increasing by 5.3% in 2004 and collapsing through 2008-2010

From 2009 to 2011, Africa’s GDP grew at an average annual rate of about 3%

In 2011, the GDP increased by an average of 6.3% in African petroleum-exporting countries

Africa’s economy is projected to grow by 4.8% in 2013 and accelerate further to 5.3% in 2014. (AFDB- Africa Economic Outlook)

To achieve the above we need structural transformation based on natural resources to address the socio-economic and political challenges created by the resource curse.

The resource producing countries in Africa need to function under a meaningful and effective transformative legislation.

Many countries are in the process of developing such legislative frameworks, eg:

The Mineral Petroleum Resources Development Act has been used in South Africa to redress the historic socio-economic and political imbalances in the mining sector.

Source: US Geological Survey Minerals Year book 2011

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Historically, Investments in Mining had an exploitation culture in Africa:Historically, Investments in Mining had an exploitation culture in Africa:

Monopolistic industry in

South Africa pre 1994

Militant labour force fighting exploitative

labour practices

Ghost towns

No black ownership

No royalty payments to

rural communities

Neo-colonialism

Eg: Case Study South Africa

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Economic exclusion of the Majority – a recipe for instabilityEconomic exclusion of the Majority – a recipe for instability

Monopolistic industry dominated by large mining houses,

large-scale mining operations

No junior companies

History of legal, institutionalized exclusion of blacks and women, eg

black advancement prohibited in the following fields:(eg. certificated miners, apprentices) in the mining sector impeded by law (eg. Scheduled Persons Clause, Mines and Works Act) until 1987

After 1987 the historic exploitation of black workers, rural communities and women in the mining industry prevailed

Unionisation and major labour uprising a daily practice

Civil unrest – the norm

Monopoly of the industry by four companies

The Junior Mining Sector stifled

Financial institutions adverse to junior mining investments

The state was not the custodian of the mineral rights hence Foreign investments stifled

Ernest Oppenheimer

Barney Bernato

Cecil John Rhodes

Exclusion of Women

Godfathers of the old order gold

and diamond rush in South Africa

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Post 1994: Legislative TransformationMajor contributor towards paradigm shiftPost 1994: Legislative TransformationMajor contributor towards paradigm shift

State intervention:

Need for legislative change recognized through: The Mineral and Petroleum Resources

Development Act

The State became the custodian of the Mineral rights

The Mining industry liberated to the inclusion of Historically disadvantaged South Africans

Foreign direct investment flowed.

The creation of the Mining Charter and the new mining legislation became the backbone of the paradigm shift

Fair Labour Laws

Rural Communities became beneficiaries of their Mineral Wealth. Former President Nelson Mandela Opens Parliament 1997

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SA Mining Charter from 2004 – Creating an enabling environment in the paradigm shiftSA Mining Charter from 2004 – Creating an enabling environment in the paradigm shift

26% equity participation in 10 years time

40% black managers within 5 years

10% women participation within 5 years

100% literacy within 5 years

BEE procurement

Beneficiation

Social plan and labour plan

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Post 1994: The transformation march towards the paradigm shiftPost 1994: The transformation march towards the paradigm shift

State becomes custodian of mineral rights In line with international norms

Historically Disadvantaged South Africans and foreign investors get access

Growth in Junior mining companies

Balancing the playing field

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The Mining Industry to Graduate from the following Historic Mining Investment Model:Explore + Extract + Exploit + Export = Ghost Towns + Resource Curse

From Exploited Mining Environment To

From Exploited Mining Environment ToSustainable Mining Environment

Sustainable Mining Environment

Massacres and Ethnic Cleansing

Rape of Mineral Wealth fare - Weapon of war

Conflict Diamonds the Root of all EvilConflict Diamonds the Root of all Evil

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This land must be healed

This land, the whole landWill be healed, must be healed

These brazen cities, the swollen minesThe mineral of our sweatThe teeming ghetto, the dormitory cellsIn towns and squalid squatter camps Where hope smothers in a tyreThese furnaces of human indifference must incinerate With all the heat of a healing fire

Those were the dark ages of miningAnd now the winds of change are blowing A brighter new future our way-A future of Global Mining TransformationA future of the paradigm shift

This land, the whole landWill be healed, must be healed

- Don Matera

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Mining industry post state custodianship of mineral rights – the fruits of paradigm shiftMining industry post state custodianship of mineral rights – the fruits of paradigm shift

Liberalisation of mining industry

Mining regulation in line with international practice

Development of junior mining sector

Mushrooming of exploration companies

Rural community equity participation and payment of royalties to rural communities

Creation of Integrated Development Plans and eradication of ghost towns

Robust procurement opportunities

Beneficiation - an engine for economic growth

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Robust growth opportunities in the South African mining industryRobust growth opportunities in the South African mining industry

Total contribution of mining:

GDP: $49-billion or 19%

Jobs: 1 350 000 (16% of total employment)

Total contribution of mining in South Africa – 2011 data (estimates)

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How did South Africa capitalize on the mining sector to ensure mining growth and diversification?

Mining remains a key contributor to the South African GDP

How did South Africa capitalize on the mining sector to ensure mining growth and diversification?

Mining remains a key contributor to the South African GDP

19% of GDP (directly and indirectly)

38% of merchandise exports (primary and beneficiated mineral exports)

12% of fixed investment (directly and indirectly)

Attracts significant foreign savings (R1.9trillion or 43% of value of JSE)

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How did South Africa capitalize on the mining sector to ensure mining growth and diverfication?

Mining remains a key contributor to the South African GDP

How did South Africa capitalize on the mining sector to ensure mining growth and diverfication?

Mining remains a key contributor to the South African GDP

Accounts for 13.2% of corporate tax receipts (R17billion in 2010 and R6billion in royalties.

16% of formal sector employment (directly and indirectly)

50% of volume of Transnet’s rail and ports

94% of electricity generation via coal power plants

40% of electricity demand.

About 37% of the country’s liquid fuels via coal

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Mining remains a key contributor to the South African GDPMining remains a key contributor to the South African GDP

Accounts for R441billion in expenditure and R407billion spent locally.

The total mining expenditure in 2010 was R441-billion, of which:

R228.4-billion was spent on purchases and operating costs (timber, steel, explosives, electricity, transport, uniforms, etc.

R78.4-billion went on salaries and wages for mine employees.

R49-billion on Capex (the lifeblood of mining).

R17.1-billion in tax.

R16.2-billion in dividends (only 3.7% of total).

R38-billion on depreciation and impairments.

R13-billion on interest to the banks

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Procurement since 1994 – the leading force behind enterprise development in the paradigm shiftProcurement since 1994 – the leading force behind enterprise development in the paradigm shift

Develop BEE mining support industries

Source: SAMPPF - 2006

Approximately

$600 million

to HDSA

500 Buyers

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Total annual

procurement

budget – estimated

at

$6 billion

3

33 mining

houses; 15 venues;

6 provincial

governments

1

41 000 suppliers

(2500 Narrow Based

HDSAs

500 BBEE)

2

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Procurement an Engine for Economic GrowthProcurement an Engine for Economic Growth

Develop BEE mining support industries

Source: DECTI - 2008

Approximately

$950 million

to HDSA

600 Buyers

4

Total annual

procurement

budget – estimated

at

$8.5 billion

3

66 mining

houses; 15 venues;

6 provincial

governments

1

65 000 suppliers

(4500 Narrow Based

HDSAs

12000 BBEE)

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Botswana, A leading example of the country First strategy: A catalyst for economic growth and diversification

Botswana, A leading example of the country First strategy: A catalyst for economic growth and diversification

The Diamond Trading Company Botswana (DTCB), is a successful example of an economic paradigm shift.

The relocation of the Diamond Trading Company from London to Botswana is the new beginning of an economic revolution to develop from diamond sorting and valuing into beneficiation of minerals in Africa.

The country first approach is implemented through the creation of the DTCB

We salute President Khama and the people of Botswana for creating the Okavango Diamond Company which will secure the supply of diamonds to international diamond traders and investors. This is a great step towards liberating the diamond industry into beneficiation and diversification.

The Country First Strategy Prevails. 17

The majority sentiment is that strategic minerals should not be foreign owned. E.g. let

us learn from the example in Canada.

The Canadian government blocked BHP Billiton's $39 billion bid for Potash Corp, the

world's biggest producer of a key crop nutrient, halting what had been the world's

biggest takeover.

Industry Minister Tony Clement said "In Canada, our natural resources are an

important economic driver,. "...I have come to the conclusion that BHP Billiton does

not present a likely net benefit to Canada.” (2011).

‘Country First Strategy!’ Should result in a net benefit for its people and its economy.

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Country First Economic Policies in the Paradigm ShiftCountry First Economic Policies in the Paradigm Shift

Beneficiation a catalyst for economic growth and diversificationBeneficiation a catalyst for economic growth and diversification

In 2010, South Africa as a resource economy was estimated to possess approximately $2.5 trillion in non-energy in situ mineral wealth, making it one of the wealthiest mining jurisdictions in the world. There was a need for South Africa to transform its mining industry culture from exporters of mineral ores or semi-processed minerals to high value intermediate and finished products (Beneficiation).

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• South Africa identified 11 Strategic minerals,

• SAMDA has included two additional minerals which are strategic and pivotal for the country’s developmental needs

Rank Commodity Needs of the Country and the Value Chain

1 Coal Energy supply risk

2 Gold Job creation potential - jewellery beneficiation

3 Iron Ore Infrastructure and job creation prerogative

4 Manganese Infrastructure and job creation prerogative

5 Diamonds job creation potential

6 PGM SA’s international dominance; job creation– energy supply

7 Chrome SA’s international dominance

8 Vanadium SA’s international dominance

9 Titanium High technology industries

10 Nickel Niche steel products

11 Uranium Clean Energy

SAMDA proposed the following minerals to be Additional Strategic Minerals

12 Phosphate food security and fertilizer supply

13 Limestone Required for cement manufacture and construction projects

What has South Africa learned from Botswana’s and Canada's Country First Mining Strategy?What has South Africa learned from Botswana’s and Canada's Country First Mining Strategy?

*SAMDA - South African Mining Development Association 20

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The 11 commodities have been clustered according to their value chains. The government has identified five value chains that will be the preliminary focus of the new Beneficiation Strategy. There are instances where some of the commodities share value chains, such as Gold and Platinum. The five value chains are:

• Energy commodities(coal, uranium and thorium)

• Iron and steel (iron-ore, chromium and manganese)

• Pigment and titanium production (titanium and vanadium)

• Autocatalytic converters and diesel particulate filters(platinum)

• Jewellery fabrication (diamonds, gold and platinum)

Each value chain requires specific collaboration and interventions in order to maximise the value extraction of the associated minerals. Each value chain has its own unique beneficiation strategy, which can be further unpacked.

Beneficiation: A Government Led Value Chain Strategy Beneficiation: A Government Led Value Chain Strategy

PGM Value Chain (Energy- Fuel Cells)

Energy Value Chain

Iron and Steel Value Chain

Jewellery Fabrication Infrastructure

Beneficiation Incentives Created By Government Through The Following:Beneficiation Incentives Created By Government Through The Following:

Industrial Development Zones, eg: Airports or Harbours (Mining companies have the opportunity to establish beneficiation plants at an IDZ)

Special Economic Zones (SEZ) - A geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone – eg: Tax incentives from 28% to 15% Corporate tax rate reduction.

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Section 12 I Tax Allowance Incentive (12I TAI) (SARS)Section 12 I Tax Allowance Incentive (12I TAI) (SARS)

The Section 12 I Tax Incentive is designed to support Greenfield investments (i.e. new industrial projects that utilise only new and unused manufacturing assets), as well as Brownfield investments (i.e. expansions or upgrades of existing industrial projects). The new incentive offers support for both capital investment and training.

 

The incentive offers:

• R900 million in the case of any Greenfield project with a preferred status;

• R550 million in the case of any other Greenfield project;

• R550 million in the case of any Brownfield project with a preferred status;

• R350 million in the case of any other Brownfield project;

• An additional training allowance of R36 000 per employee may be deducted from taxable income; and

• A maximum total additional training allowance per project of R20 million, in the case of a qualifying project, and R30 million in the case of a preferred project

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INTERGRATED RESOURCES DEVELOPMENT MODELS INTERGRATED RESOURCES DEVELOPMENT MODELS

A Integrated Mining Development Partnership with Local, Provincial and National Government, as well as Producers, Labour, Rural Communities, Business and various other stake holders.

Objective is to create a sustainable mining economy in the rural areas where mining production takes place in a model that will develop the mining areas , rather than creating Ghost Towns.

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The Integrated Solution ModelThe Integrated Solution Model

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Municipalities in ContextMunicipalities in Context

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28SLP – Social Labour Plan

LED – Local Economic Development

The Mining Industry in Context The Mining Industry in Context

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SLP – Social Labour Plan

LED – Local Economic Development

Mining Companies involved in Rural Upliftment Partnership Models through Producers Forums:Mining Companies involved in Rural Upliftment Partnership Models through Producers Forums:

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• Akanani Mining (Pty) Limited

• Anglo Operations Limited• Anglo Platinum• ARM Platinum (Pty) Limited• ASA Metals (Pyt) Limited• Assmang Limited (Dwarsrivier Mine)

• Barplats Mines Limited (Rhodium Reefs)• Boynton Investments (Pty) Limited• Chromex Mining (Pty) Limited

• Corridor Mining Resource (Pty) Limited• Eastern Platinum Limited

• Impala Platinum Limited• Lebowa Platinum• Marula Platinum

• Modikwa Platinum Mine Joint Venture• MTC Minerals• Northam Platinum Limited• Pan Palladium South Africa (Pty) Limited• Plateau Resources (Pty) Limited• Platreef Resource (Pty) Limited• Rustenburg Platinum Mines (Pty) Limited (Eastern Limb Development)• Samancor Chrome Limited• Sishen Iron Ore Company (Pty) Limited• Two Rivers Platinum (Pty) Limited• Umnotho weSizwe Investment Holdings

Limited• Veremo Holdings Limited• Westen Platinum Limited (On behalf of

Messina Platinum Mines Limited)• Xstrata South Africa (Pty) Limited

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Public Private Partnership Funds Invested in creating a Sustainable Rural Economy in Sekhukhune District Limpopo Public Private Partnership Funds Invested in creating a Sustainable Rural Economy in Sekhukhune District Limpopo

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RBCT COAL EXPORT ENTITLEMENT RBCT COAL EXPORT ENTITLEMENT

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THE NEW 91Mtpa RBCT

Current Shareholders Small Miners (QUATTRO) SDCT Phase V

72 Mt 4Mt 6Mt 9MtBECSA 17.9 Prevoius made avaliable EXXARO 2.0 ARM 3.2Anglo Coal 19.7 via the CITT for new entrants Eskom Enterprices 3.0 EXXARO 2.5XCSA 15.0 Anker Coal 1.0 Mmakau 0.35Optimum Coal Holdings 6.5 Now avaliable for emerging Tumelo 0.6TCSA 4.1 BEE miners with export Umcebo 1.0SASOL 3.6 volumes of 250 ktpa or less SACMH 0.5KANGRA 1.7 Mbokodo 0.5Main Street 432 1.5 100% BEE WCC 0.35EXXARO 1.0ESIZWE 0.9

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Richards Bay Coal TerminalRichards Bay Coal Terminal

T K CT K C

Trans Kalahari CorridorTrans Kalahari Corridor

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Paradigm Shift Success Stories: The Rural Community Perspective Paradigm Shift Success Stories: The Rural Community Perspective

Royal Bafokeng Holdings is an excellent role model for rural community ownership initiatives:

Market Capitalisation: R40 billion (This is a combined figure of all its investments on the JSE - 2011).

Dividends are invested in rural renewal projects.

In past 10 years over R5 billion invested in clinics, education, public utilities.

Great mentorship to other rural communities and other socio-economic development projects.

Most its mines are situated in rural areas.

Mining is a catalyst for rural development.

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Source RBN financial report : 2006

Mmakau Energy

100%

ENERGY

MMAKAU MINING

Tumelo Coal Mine

Karoo Uranium

Mmakau Coal SA

51%

PRECIOUS METALS

STEEL AND ALLOYS

Marula Platinum Mine

Madibeng Exploration

Eureka Gold Mine

Hernic Ferrochrome

Dorsfontein Coal Mine

26% 51%

Brakfontein Reserve Forzando Coal Mine Schurvekop Reserve

26% 26% 100%

26% 6.5%

15%

9%

65%

www.mmakaumining.co.za

Paradigm Shift Success Stories: Women in Mining Perspective – MMAKAU MININGParadigm Shift Success Stories: Women in Mining Perspective – MMAKAU MINING

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Paradigm Shift Success Story: Patrice Motsepe - African Rainbow MineralsParadigm Shift Success Story: Patrice Motsepe - African Rainbow Minerals

African Rainbow Minerals (ARM), is a diversified mining company with interests in platinum, coal, gold, iron ore, manganese and chrome.

Market Cap of R41,7 Billion (2013).

ARM has spent R300 million in 3 years on Local Economic Development and Social & Labour Plans.

R85 million on Rural Community, women, youth, church and trade union upliftment projects.

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The Mining Industry Paradigm ShiftThe Mining Industry Paradigm Shift

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Many achievements in the Long Road to Economic FreedomMany achievements in the Long Road to Economic Freedom

I have walked that long road to freedom. I have tried not to falter; I have made missteps along the way. But I have discovered the secret that after climbing a great hill one only finds that there are many more hills to climb. I have taken a moment here to rest, to steal a view of the glorious vista that surrounds me, to look back on the distance I have come, but I can rest only for a moment, for with freedom comes responsibility, and I dare not linger, for my LONG WALK HAS NOT YET ENDED.

(Nelson Mandela)

THANK YOUTHANK YOU

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