Presentation at the South African Academy of Engineering Annual Induction Dinner The contribution of the minerals industry to the future of South Africa Presentation by Exxaro’s Chief Executive Officer, Dr Con Fauconnier, at the South African Academy of Engineering Annual Induction Dinner held in Johannesburg on 28 June June 2007

Contents The international context Current state of commodity markets The role of China with regard to mineral demand Underinvestment in global mining capacity Mineral industry outlook Exploitation of minerals in South Africa Contribution of the mineral industry to South Africa’s economy Role of the mineral industry in the future Key challenges Sustainability Conclusions

The current state of commodity markets Strong demand and market deficits illustrated by the significant increase in prices Sources: I-Net, AME

The role of China China has gone from 5-8% of world demand for metals in 1990 to 25-30% in 2005/06 Even allowing for a slowdown from current growth rates, China is likely to account for 30%+ of world demand by 2010 and 40%+ by 2020 Strong consumption growth in China had a major impact on overall mineral demand Source: Macquarie

Relative underinvestment in new mining capacity Low commodity prices of the 1990s and early 2000s resulted in low investment in new mining production capacity Increased investment from 2004 onwards will only result in significant new productive capacity with a lag of 5 to 7 years, due to the long lead times required to bring new mines to production Source: MEG, I-Net The lag in supply response will see market balances restored only in 2008/09

Mineral industry outlook Industrial Revolution - UK, Europe USA, Japan, Europe BRICMI+ ? A strong possibility that industrialisation, urbanisation and infrastructure development in China and other emerging economies result in a new “super cycle” Note: BRICMI refers to Brazil, Russia, India, China, Mexico and Indonesia Source: BHP Billiton

Mineral exploitation in South Africa Started with copper mining in Namaqualand in the mid-1800s, followed by the exploitation of diamonds, gold, coal, iron and manganese ore and the minerals associated with the geological treasure chest of the Bushveld Complex Played a major role in the development of South Africa’s infrastructure Important factor in the development of the country’s secondary industries and financial infrastructure Instrumental in the establishment of world-class academic and research institutions In 2005, some 55 different minerals were produced from 1113 mines and quarries and mineral exports were made to 101 countries In 2006 some 72% of South Africa’s primary mineral sales were destined for the export market Has been a cornerstone of the country’s economy for more than a century

Contribution of the mineral industry to South Africa’s economy Remains a key industry Sources: SARB, StatsSA, COM In addition, accounts for: 30% of market value of the JSE 50% of volume of Transnet’s rail and ports 93% of electricity generation via coal power plants 16% of electricity demand About 39% of liquid fuels via Sasol’s use of coal

Role of the mineral industry in the future

The potential role of the mineral industry in future is illustrated by South Africa’s resource base In view of South Africa’s mineral resource base and expected demand growth from, especially, the highly populated emerging economies of the world, South Africa’s mineral industry will continue to have a decisive impact on the country’s economic future, if the constraints facing the industry are overcome

Domestic economic growth will also bolster mineral demand Especially in view of Government and other infrastructure development Source: Global Insight

Key Challenges facing the mining sector Rising cost pressures eroding benefits of higher prices –Fuel, spares, labour, cement, steel, timber, etc. Meeting health and safety milestones Infrastructure constraints –Electricity- impact on operations and safety –Liquid fuels –Transport (rail, ports, roads) –Water services Availability of machinery, equipment, fuels and tyres Regulatory uncertainty –Beneficiation legislation –Finalising the royalty bill –Continued red tape on mining and environmental licensing The availability of skills, especially project management, engineering skills Strong rand exchange rate

An example – the skills shortage EngineersArtisans Source: JIPSA

New capital expenditure in Australia Impact of the challenges on mining investment in SA Sources: SARB, ABARE Resulted in a deterioration in fixed investment during times that an investment boom was experienced in other commodity economies

World per capita carbon dioxide emissions South Africa is one of the most carbon emissions-intensive countries in the world It is responsible 43% of total African emissions, three times more than second largest emitter (Egypt) Sustainability The challenges of sustainable development - illustrated by the issue of carbon dioxide emissions

Sustainability Will require innovative solutions from our scientists and engineers with regard to our soil, air, water, human population and biological diversity

Conclusions It is expected that the international and local markets for South Africa’s mineral products will remain positive for some time to come South Africa’s minerals and mining sector is a mature industry that has demonstrated over a long period that it can consistently and competitively deliver products of high quality The country has a world-class resource base The mineral industry has proven in the past that it can tackle challenges successfully and will need to, in partnership with with Government, approach the current constraints in the same manner and spirit The challenges of sustainability will tax the capacity of the industry, domestically and internationally, to come up with creative long-term solutions The mineral industry will, undoubtedly, continue to play a key role in the growth and development of South Africa’s economy and society

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