MINING IN SA – THE FUTURE ??? John Wallington Ownership

The prospects of Commodities at a global level are mostly driven by economic growth SINCE 2008, THE GLOBAL COMMODITIES MARKETS HAVE BEEN HIT BY THE MULTIPLE EFFECTS OF: The “W” shaped boom-recession-recovery-recession-slow recovery in the EuroZone The slowdown in economic growth in China (towards a soft landing). The “V” shaped boom-recession-recovery and then continued below potential growth performance of the US economy. BUT PROSPECTS ARE STABILISING: Despite ongoing structural issues the Eurozone is expected to post a modest positive growth rate in China’s economy has stabilised and is expected to grow at >7% in The US economy is showing positive signs of recovery, with consumer confidence rising.

The World economy is slowly recovering Manufacturing PMI’s are starting to point above 50 (except China)

Risks at the Global level remain……. Source: IMF WEO April 2013

Fixed investment will mostly be into infrastructure in emerging economies……. Source: IMF WEO Oct 2012

Top 6 minerals, expected greenfield production growth for the period Source: CitiBank

Perceptions about Mining by RSA’s people in general Little link made between role of minerals and the functioning of a modern society. Little credit given to the mining industry for playing a key role in South Africa’s economic development over past 130 years, which has transformed South Africa into the most industrialised country in Africa

Metals and minerals in a Smart Phone Copper (16 grams) ¹ Silver (0.35 grams) ¹ Gold (0.034 grams) ¹ Palladium (0.015 grams) ¹ Platinum ( grams) ¹ Ceramic magnetic switches containing rare earths ² Indium² Titanium dioxide ² Indium tin oxide ² ¹ source – USGS ² source – NRC critical minerals report

Even a Wind Turbine uses a significant amount of metals and minerals 335 tons of steel (chrome included) 4.7 tons of copper 13 tons of fiberglass 3 tons of aluminum 1,200 tons of reinforced concrete

Perceptions and realities about mining PERCEPTIONREALITY Is a “Dirt Digger”Another R300 billion and jobs created in downstream industries Is uncaring about the lives of workers and does not pay well 67% reduction in fatality rate, average wages per employee up 12% p.a. Does not care about the environment, communities –Poverty at the doorstep of prosperous mines Spent R2 billion on communities, R4 billion on skills and R20 billion in corporate taxes in Profits and benefits exported to a small bunch of Capitalists Shareholders balanced 50% local, 50% offshore, R12 billion in dividends Resistant to Transformation>R150 billion in BEE deals concluded, good progress on all pillars of Charter Does not matter to SA- Ingi Saldago- Business Report-”Eskom was right to switch off the Mines” 18% of GDP, 50% of exports, 1.3 million jobs, 94% of electricity, 17.2% of corporate tax

Mining - The Essential Core Of SA Economy Creates 1.35 million jobs ( direct & indirect). Accounts for about 19% of GDP (9% direct, 10% indirect & induced). Critical earner of foreign exchange >50%. Accounts for 20% of private investment (12% of total investment). Attracts significant foreign savings (24% of value of JSE). 2012, R20 billion & R5.6 billion in royalties. R488 billion in expenditures, >80% spent locally. R93.6 billion spent in wages and salaries 50% of volume of Transnet’s rail and ports 94% of electricity generation via coal power plants 15% of electricity demand About 37% of country’s of liquid fuels via coal R4 billion spent on skills development R2 billion spent on community investment

The linkages of mining to the economy Mining’s direct contribution: GDP R230 Billion or 9% of GDP Jobs The Induced Impact: GDP R136,1 billion or 6% of GDP Jobs 496,319 First round impact: GDP R59 billion or 2.3% of GDP Jobs Indirect impact GDP R42.7 billion or 1.7% of GDP Jobs 149,898 The Total Contribution of Mining to the Economy GDP R468 billion or 18.7% of GDP Jobs 1,353,383 (16.6% of total employment) Source: Quantec & IDC, 2010 data

Rough growth potential of some of the bulks: Iron ore could double production within 5 to 10 years to >100 million tons (MT) per year by Employment could rise from to people. Biggest constraints: rail Coal production has to rise from current 254 MT p.a. to >320 MT by 2020 to satisfy Eskom, replacement & exports. Jobs could increase from current to by Biggest constraints: rail, regulatory issues (environmental). Chrome ore current production 11.3 MT and people employed in chrome ore mining. 6.7 MT is sold locally and 2.5 MT exported. Could this industry double? Constraints, rail, competitively priced electricity Manganese could double/treble production from the current 7.2 MT to 15MT/20MT by Employment could rise from current 5879 to > in this period. Biggest constraint: lack of access to efficient cost competitive heavy haul rail These three bulks could significantly increase their export earnings and GDP contribution and add about jobs, if the constraints are resolved.

But RSA mining has not met its potential RSA mining missed out on the last commodity boom with a - 1% p.a. decline in mining GDP between 2001 and 2008, versus 5% growth rate in top 20 mining economies mining sectors. Costs have continued to rise too quickly. 50% of gold & platinum mines are loss-making at current prices. The industry has recently been hit by labour market challenges and by the unfortunate Marikana tragedy. The industry has faced infrastructure constraints (shortages of electricity, rail and water). The industry has faced bouts of policy uncertainty (the nationalisation discussion, the review of mining taxation, the possible introduction of a carbon tax, etc.)

THE VELE EXPERIENCE Regulatory process ; clarity, consistency ; ‘Competing ‘ Government departments –applicability of NEMA etc Role of NGO’s, civil society and the Media Involvement of UNESCO Future mining projects in ‘sensitive areas ‘ –need a ‘traffic light system’ to guide investment

MARIKANA Historical roots Government, labour and employers HAVE to find each other Compromise from all ; reality check Behaviour must have consequences

MINING –is high risk Commodity prices set globally ie price taker ; this makes it unsuitable for Nationalisation etc etc Capital intensive ; long lead times ; long pay backs Every activity needs Regulatory approval/ licensing SHEC demands continue to increase

WHERE TO FROM HERE ?? Is investment in SA just too difficult !! We have to make it easier. We cannot afford not to be part of a Commodity recovery again How do we find each other in time ? Government/Unions /Communities /Investors

INVESTMENT The reality is that the South African Mining Industry will not grow at anywhere near it’s potential unless we can attract the Global Investment Community back !!