Plenary Panel Discussion 2 Diversifying the Economic through Beneficiation Facilitator: Thabo Masombuka Key Note Panellist: Ebrahim Takolia Panellist: Neale Baartjies

Assessing the potential for beneficiation: Diversifying the Economy through Beneficiation Transformation Indaba 14 November 2012

© 2012 Deloitte Touche Tohmatsu Limited Preface 3Transformation Indaba - 14 November 2012 Mineral beneficiation is a priority for governments of resource rich countries Resource nationalism is on the rise In this session we will cover: Developing a strategic rationale for beneficiation How can beneficiation assist with the diversification of the economy The risks and opportunities of setting up a beneficiation venture

© 2012 Deloitte Touche Tohmatsu Limited Introduction – Beneficiation Some thought leadership 4Transformation Indaba - 14 November 2012 DeBeers relocated its London based sorting facilities and site holder meetings to Botswana following government pressure

© 2012 Deloitte Touche Tohmatsu Limited Deloitte Consulting’s executive lead of mining, Ebrahim Takolia, believes a lack of co-ordination has slowed down the beneficiation strategy. “Beneficiation is beyond the ordinary scope of activities of mining companies — the margins are not as high and the mining houses don’t have the skills. It becomes onerous for them to move, for example, into the business of making catalytic converters. That’s why we need co-ordination, combined with incentives.” Deloitte Consulting’s executive lead of mining, Ebrahim Takolia, believes a lack of co-ordination has slowed down the beneficiation strategy. “Beneficiation is beyond the ordinary scope of activities of mining companies — the margins are not as high and the mining houses don’t have the skills. It becomes onerous for them to move, for example, into the business of making catalytic converters. That’s why we need co-ordination, combined with incentives.” Introduction – Beneficiation Some media comments 5Transformation Indaba - 14 November 2012 Beneficiation: All talk, no action Tue, 21 Feb :19 -- Minister of Mineral Resources Susan Shabangu is under pressure to ensure her beneficiation policy and its dual promise of wealth and job creation not only silences calls to nationalise South Africa’s mines, but also works in favour of securing President Jacob Zuma a second term. Mining Advisory Leader at Deloitte, Ebrahim Takolia, says that although the beneficiation of minerals to finished consumer goods will increase the revenue gained from the exploitation of the mineral resource, as well as increase the industry’s ability to absorb labour, the beneficiation strategy isn’t going to create as many jobs as Government is promising. Troye Lund Beneficiation: All talk, no action Tue, 21 Feb :19 -- Minister of Mineral Resources Susan Shabangu is under pressure to ensure her beneficiation policy and its dual promise of wealth and job creation not only silences calls to nationalise South Africa’s mines, but also works in favour of securing President Jacob Zuma a second term. Mining Advisory Leader at Deloitte, Ebrahim Takolia, says that although the beneficiation of minerals to finished consumer goods will increase the revenue gained from the exploitation of the mineral resource, as well as increase the industry’s ability to absorb labour, the beneficiation strategy isn’t going to create as many jobs as Government is promising. Troye Lund

© 2012 Deloitte Touche Tohmatsu Limited 6Transformation Indaba - 14 November 2012 The Beneficiation Value Chain

© 2012 Deloitte Touche Tohmatsu Limited 7Transformation Indaba - 14 November 2012 The Beneficiation Value Chain

© 2012 Deloitte Touche Tohmatsu Limited Why has value creation traditionally occurred outside of resource rich countries? Market access Large scale commercialisation in industrialised countries End-user demand was spurred by many innovations in developed countries Comparatively lower oil prices (to today) – lower logistics costs 70s-80s – Manufacturing Moved to Japan 90s – South Korea, Hong Kong 2000s - China 8Transformation Indaba - 14 November 2012

© 2012 Deloitte Touche Tohmatsu Limited What about the future? 9Transformation Indaba - 14 November 2012 NEWLY INDUSTRIALISED COUNTRIES (South Africa, Mexico, Brazil*, China*, India*, Malaysia, Philippines**, Thailand, Turkey**) CIVETS (Cambodia, Indonesia**, Vietnam, Egypt, Turkey**, South Africa) POTENTIAL Nigeria**, Tanzania, DRC, Zambia, Mozambique, Botswana, Angola, Saudi Arabia, Poland**, Czech Republic**, Russia*, Mongolia, South Korea, Thailand** *BRIC – countries defined by Jim O'Neill at Goldman Sachs in 2001 CIVETS – countries defined by Robert Ward of the Economist in 2009 **Breakout Nations – countries defined by Ruchir Sharma at Morgan Stanley in 2012 In future, even China will be displaced as its labour and input costs rise

© 2012 Deloitte Touche Tohmatsu Limited Labour Costs - Average Hourly Wages in Developing Economies 10Transformation Indaba - 14 November 2012

© 2012 Deloitte Touche Tohmatsu Limited Africa has significant untapped resources as well as a population of more than one billion people 11Transformation Indaba - 14 November 2012 Mozambique Power plants: two thermal coal plants will be constructed to supply power to mines and a hydropower plant with a capacity of more than 200 megawatts will also be constructed in Tete province Power distribution: $2-billion investment in a new power distribution and transmission line from Cahora Bassa hydroelectric dam Port: Maputo Matola coal Terminal handling capacity to increase from 8.7Mt to 12Mt in 2011, with further plans to increase to 16Mt by 2016/17 and to 48Mt by 2033 Rail: Sena Railway construction ($200M), to be complete in 2013 Mozambique Power plants: two thermal coal plants will be constructed to supply power to mines and a hydropower plant with a capacity of more than 200 megawatts will also be constructed in Tete province Power distribution: $2-billion investment in a new power distribution and transmission line from Cahora Bassa hydroelectric dam Port: Maputo Matola coal Terminal handling capacity to increase from 8.7Mt to 12Mt in 2011, with further plans to increase to 16Mt by 2016/17 and to 48Mt by 2033 Rail: Sena Railway construction ($200M), to be complete in 2013 South Africa Expansion of Richard Bay Coal Terminal recently completed Planned Transnet Coal rail freight capacity increase from 63Mt to 81Mt by 2015 Feasibility study in progress for new rail link from Waterberg to Richards Bay through Swaziland South Africa Expansion of Richard Bay Coal Terminal recently completed Planned Transnet Coal rail freight capacity increase from 63Mt to 81Mt by 2015 Feasibility study in progress for new rail link from Waterberg to Richards Bay through Swaziland Tanzania Power: Australia IEC investing in private coal mines and developing new coal power stations to supply power in Tanzania Tanzania Power: Australia IEC investing in private coal mines and developing new coal power stations to supply power in Tanzania Guinea New rail link from Guinea to the Liberian coast Trans-Guinea Railway upgrade Guinea New rail link from Guinea to the Liberian coast Trans-Guinea Railway upgrade Botswana / Namibia Transkalahri coal export line to connect Botswana coal fields to Walvis Bay in Namibia. Due to start construction by Botswana / Namibia Transkalahri coal export line to connect Botswana coal fields to Walvis Bay in Namibia. Due to start construction by Ivory Coast New Rail link (2014) to carry carry iron-ore and nickel but also coffee and cocoa to San Pedro Ivory Coast New Rail link (2014) to carry carry iron-ore and nickel but also coffee and cocoa to San Pedro

© 2012 Deloitte Touche Tohmatsu Limited Beneficiation – the South African context, value chains 12Transformation Indaba - 14 November 2012 SELECTED VALUE CHAINSSELECTED COMMODITIES (SOUTH AFRICA SHARE OF WORLD PRODUCTION (2005)) ENERGY STEEL/STAINLESS STEEL PIGMENT AND TITANIUM METAL PRODUCTION AUTOCATALYST AND DIESEL PARTICULATE DIAMOND PROCESSING AND JEWELLERY

© 2012 Deloitte Touche Tohmatsu Limited Beneficiation – the South African context, strategic actions 13Transformation Indaba - 14 November 2012 STRATEGIC ACTIONSKEY ACTION PLANS GovernmentBusiness Infrastructure DevelopmentInvestment in rail, ports, pipelines and capacity and maintenance Align production plans with national programs Facilitate security of energy supplyEmbrace energy efficiency Explore co-generation prospects Investment Promotion and Facilitation Partner private sector in beneficiation projects (through State Owned Enterprises (SOEs)) Re-evaluate Internal Rates of Return (IRRs) on new projects to identify investment hurdles preventing SA development Facilitation of international trade agreements (new) to enhance mineral beneficiation in SA (investment in SA and access to international markets Commitment to establishment and support of beneficiation projects in SA to develop export markets for beneficiated projects Investment PromotionCommitment to ensuring the supply of raw material

© 2012 Deloitte Touche Tohmatsu Limited Beneficiation – the South African context, strategic actions 14Transformation Indaba - 14 November 2012 STRATEGIC ACTIONS KEY ACTION PLANS GovernmentBusiness Skills DevelopmentPromote skills development and partner with the relevant SETAs for training and labour development Investment in Human Capital Investment Leverage on Joint Initiative on Priority Skills Acquisition (JIPSA) for required skills Cooperate with government to leverage on JIPSA for required skills Enabling Regulatory Environment Mineral and Petroleum Resources Development Act (MPRDA) amendments to strengthen beneficiation Evaluate prospects of establishing favourable trading conditions (such as export duties) on ores/concentrates where appropriate, in line with the trade policy currently being developed by the Department of Trade and Industry (DTI) and Economic Development Department (EDD) Anti-Import Parity Pricing strategies that actively encourage competition, strengthen competition policy and intermediate feed socks Research and Development and Technology Partner private sector in beneficiation R&D (Mintek, Council for Scientiific and Industrial Research (CSIR)) Support and develop globally competitive technologies Supporting policy for clean and efficient use of coal

© 2012 Deloitte Touche Tohmatsu Limited Beneficiation – the African context, value chains 15Transformation Indaba - 14 November 2012 SELECTED VALUE CHAINS SELECTED COMMODITIES (AFRICA SHARE OF WORLD PRODUCTION (2005)) ENERGY STEEL/STAINLESS STEEL ALUMINIUM COPPER AND COBALT AUTOCATALYST AND DIESEL PARTICULATE DIAMOND PROCESSING AND JEWELLERY Gold (RSA 56%, Ghana 13%, Tanzania 10%, Mali 8%) PGMs (RSA) Diamonds (Botswana 35%, Congo (Kinshasa) 34%, RSA 17%, Angola 8%) Iron Ore (RSA 54%, Egypt 32%, Libya 7%, Algeria 6%) Chromium (RSA 72%, Zimbabwe 12%) Manganese (RSA) Vanadium (RSA) Nickel (RSA 47%, Botswana 43%, Zimbabwe 9%) Bauxite (for aluminium) (Guinea 95%, Ghana 5%) Aluminium: (RSA 48%, Mozambique 32%, Egypt 14%) Copper (Zambia 65%/77%, RSA 15%/19%, Congo (Kinshasa) 13%/0%, Egypt 0%/3%) Cobalt (RSA 9%, Congo (Kinshasa) 81%) Coal (RSA) Uranium (Namibia 46%, Niger 44%, RSA < 10%)

© 2012 Deloitte Touche Tohmatsu Limited Strategic considerations – Why Beneficiate? Why beneficiate? Availability of raw materials Business vs Resource Nationalism paradigm Access to markets for beneficiated products 16Transformation Indaba - 14 November 2012

© 2012 Deloitte Touche Tohmatsu Limited Regional Trade Agreements Snapshots - 6 countries 17Transformation Indaba - 14 November 2012 Supply chain integration and the exploiting of regional and local trade agreements is key

© 2012 Deloitte Touche Tohmatsu Limited Global Manufacturing Competitiveness Framework 18Transformation Indaba - 14 November 2012

© 2012 Deloitte Touche Tohmatsu Limited Disaggregated Supply Chain: The Boeing 787 Dreamliner 19Transformation Indaba - 14 November 2012 The figures illustrate the Boeing’s 787 Dreamliner concept of disaggregation, showing that the many activities required to bring a product to the consumer are now being performed in different countries. The Dreamliner is manufactured with components from 287 suppliers across 22 countries, creating a complex global network that would not have been possible or desirable several decades ago. 287 Suppliers Across 22 Countries

© 2012 Deloitte Touche Tohmatsu Limited Strategic considerations – Basic considerations in beneficiation 20Transformation Indaba - 14 November 2012 Our experience with the strategy, process, and implementation of Multi- Lane delivery models for global manufacturing clients provides applicable knowledge, methodology, and tools for an initiative like this LogisticsSecurity of SupplyAvailability This may influence the location of the business Significant logistics cost could drive up costs Supply of raw materials for a duration that enables ROI, e.g years Availability of raw materials

© 2012 Deloitte Touche Tohmatsu Limited Introduction – Ebrahim Takolia 21Transformation Indaba - 14 November 2012 Ebrahim has significant experience advising senior executives, tier 1 global financial institutions and fund managers  Listing (Gold, Platinum, Manganese, Iron Ore, Nickel, Copper, Cobalt): African Rainbow Minerals.  2005/6 – Competent Persons’ Report (Iron Ore, Coal, Heavy Minerals, Industrial Minerals, Base Metals): Project managed the CPR and valuation for the transaction which led to the unbundling of Kumba Resources Limited into Exxaro Resources Limited and Kumba Iron Ore Limited (Transaction Value: US$6 billion).  2007 – Minerals Experts’ Report and Valuation (Chrome, Ferroalloys, Iron Ore, Alumina, Aluminium, Coal, Energy): Project managed the MER and valuation of Eurasian Natural Resources Company for an IPO on the London Stock Exchange (Listing Value: US$15 billion).  Valuation (Bauxite, Alumina, Aluminium): Valuation of the mining assets of United Company Rusal (Value: US$30 billion).  Competent Persons’ Report (Coal): Project managed the CPR and valuation for the transaction which led to the listing of Optimum Coal Holdings on the JSE (Transaction Value: US$1 billion).  Competent Persons’ Report (Ferrochrome): Project managed the CPR and valuation for a large chrome producer (Value: US$3.5 billion). Ebrahim is the leader of the Mining Advisory Service practice at Deloitte Consulting. He has advised executives and management at most of the leading global mining companies, tier 1 global financial institutions and fund managers on various aspects related to mining companies, specifically: management and operational strategy, transaction advice; financial analysis and modelling; valuations; mineral economics; stock exchange related compliance documentation, and bond covenants related to debt financing. To date Ebrahim has opined on transactions in excess of US$90 billion globally in the mining industry. His experience includes working on projects located in, amongst others: South Africa; Greece, Namibia; Botswana; Zimbabwe; Mozambique; Guinea; Ethiopia; Egypt; Senegal; the DRC, Zambia; CIS (Russia and Kazakhstan); Brazil; Guyana; Jamaica; Australia; India; Korea; Canada; and China. Education: Bachelor of Economic Science, (University of the Witwatersrand, RSA) MBA (Henley Business School, University of Reading, UK) Executive Leadership Programme (INSEAD, French Republic) Management Certification Courses (Harvard Business School, USA) Professional Memberships:  Chartered Institute of Securities and Investment (UK) MCISI [No ]  Southern African Institute of Mining and Metallurgy [No ]  The Institute of Materials, Minerals and Mining (UK) [ Affiliate No ]  The Investment Analysts Society of Southern Africa [No. IAS06364]  A Competent Valuator for mining companies and minerals properties in terms of the SAMVAL Code Professional Background Selected Relevant Experience: Industry Expertise: Mining and Resources Extractive Industries Functional Expertise:  Mining and Resources  Executive Management  Corporate and Business Strategy  Corporate Governance  Project Management  Financial Analysis, Modelling and Business Analysis  Corporate Finance and Valuations  Mineral Economics  Compliance Documentation

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Plenary Panel Discussion 2 Diversifying the Economic through Beneficiation Facilitator: Thabo Masombuka Key Note Panellist: Ebrahim Takolia Panellist: Neale Baartjies