1. Mineral and Petroleum Resources Royalties Bill 13 May 2008

2. 2 Contents 1. Background 2. Comments: 2.1.1 Tax base, deductible expenses, integrated companies 2.1.2 Royalty / tax rate 2.1.3 Community royalties 2.1.4 State lease payments / State share of profits 2.1.5 Earmarking of revenue 2.1.6 Bad debts 2.1.7 Relief for small miners 2.1.8 Relief for marginal mines 2.1.9 Gold mining 2.1.10 Petroleum sector 2.1.11 Coal bed methane (CBM) 2.1.12 Fiscal stability 2.1.13 Mining dumps and tailings 2.1.14 Effective date of implementation 2.1.15 Deductibility of mineral royalties for Income Tax purposes 2.1.16 VAT on mineral royalties payable to the State 2.1.17 Clay to manufacture bricks 2.1.18 Ring fencing per mine 2.1.19 Administration

3. 3 Background Mineral and Petroleum Resources Royalty Bill (MPRRB) follows on the Mineral and Petroleum Resources Development Act (MPRDA), (Act 28 of 2002) 1 st draft Mineral and Petroleum Royalty Bill released for public comment on 20 March 2003 2 nd draft of Royalty and Petroleum Resources Royalty Bill released for public comment on 11 October 2006 May / June 2007 - Consultation, Workshop 3 rd draft of Royalty and Petroleum Resources Royalty Bill released for public comment on 6 December 2007 Briefing by National Treasury to PCOF, 4 March 2008 PCOF public hearings 11 & 19 March 2008 23 April 2008 – Consultation, Workshop

4. 4 Comments by: 1.Anglo American South Africa Limited 2.Assmang Limited 3.Bapo Ba Mogale Community 4.BHP Billiton – Manganese & Coal 5.BHP Billiton Petroleum 6.Chamber of Mines (COM) 7.Chamber of Mines – Thomas Walde 8.Cosatu 9.De Beers 10.Gold Producer’s Committee – COM 11.Stephen Meintjies 12.OPASA (Offshore Petroleum Association of South Africa) 13.OPASA – Fiscal stability, Ernst Young 14.PASA (Petroleum Agency of South Africa) 15.Routledge Modise 16. M. van Blerck – Standard Bank (PCOF – oral) 17. SAMDA (South African Mining Development Association) 18. Implats 19. Ingonyama Trust 20. LRC (Legal Resource Centre) 21. Xstrata 22. Trans Hex Group Limited 23. Zululand Anthracite Colliery 24. Michael Schroder – OM Value Equity Assocoaition Ltd. 25. Clay Brick Association Ltd 26. ArcelorMittal 27. Aquarius 28. Revenue Watch Institute 29. PetroSA 30. SARS

5. 5 Tax base Gross Sales Value = –Market value of a transferred mineral resource at its readily saleable condition (i.e., refined or unrefined (“concentrate”) state of mineral as specified) –Disregard transportation costs of “final product” (including insurance and handling charges)

6. 6 Tax Base: Market Value / Gross Sales 1.Refined; & Gold PGM - refined Oil & Gas 2.Unrefined; Diamonds PGM – concentrate Iron ore Coal Manganese Chrome Base metal Mineral Sands Sliver concentrate Uranium Aggregates Other

7. 7 Tax rates – formula (X = EBIT/Gross Sales *100) 1.Y (r) = 0.5 + X/12.5 (Max = 5.0) Refined metal (refined Gold, refined PGM), and Oil and Gas 2. Y (c) = 0.5 + X/9.0 (Max = 7.0) Unrefined; Concentrate Coal, Rough Diamonds, Iron Ore, etc.

8. 8 EBIT EBIT = Taxable income (as defined in the Income Tax Act), excluding— –Financial instrument (except the hedging minerals) income and expense (e.g. interest expense) –Assessed losses –Capital gains & losses –Mineral royalties If EBIT < zero, assumed to be zero. Note allow for 100% capital expensing – same as for income tax purposes

9. 9 Y = 0.5 + X/12.5 (Refined) Y = 0.5 + X=/9 (Unrefined) ProfitabilityRefined Unrefined / Concentrate EBIT/ Gross Sales (%)Min = 0.5 B = 12.5B = 9.0 00.5 101.31.6 151.72.2 202.12.7 252.53.3 302.93.8 403.74.9 504.56.1 565.06.7 58.55.27.0 706.18.3

10. 10 28 March 2008 Mining: R million: StatsSA, P00442006 2007 1Turnover received203,467291,737 2Interest paid5,3986,794 3Depreciation15,35819,667 4Net profit before taxation42,271 82,161 5Total capital expenditure36,09033,777 6Book value of assets192,607216,116 % Gross revenue: 7Net profit before taxation20.8%28.2% 8EBIT ( Depreciation )23.4%30.5% 9EBIT ( Capital expensing )13.2%25.7% 10EBITDA31.0% 37.2%

11. 11 28 March 2008 Mining: R million: StatsSA, P00442006 2007 Estimated Royalty Rates Rate Refined: Y = 0.5 +X/12.5 11EBIT ( Depreciation )23.432.3730.52.94 12EBIT ( Capital expensing )13.241.5625.72.55 Unrefined: Y = 0.5 = X/9.0 13EBIT ( Depreciation )23.433.1030.53.9 14EBIT ( Capital expensing )13.241.9725.73.4

12. 12 EBIT (accounting depreciation?) EBIT/Gross revenue (%) 20022003200420052006Average DIAMONDS432425384735 MANGANESE433925453638 IRON ORE332218424933 MINERAL SANDS422816 25 PGM372120213928 GOLD402712-62119 COAL2314 171416 CHROME51416107 BASE METALS2-10-3191

13. 13 1.2. 3. 4. 5. ExplorationMining Mineral Refining Value Processing Addition ___________ _______ ______ _____ GeophysicsDrilling Crushing Smelter Rolling & DrillingCutting Hydro-Met. Plant Furnaces moulding SurveyHauling Material Handling Electro-winning Machining Furnaces cells, Caster Assembling ………….….…..……………… ………………….. ……………… …………….. GISMine Planning Comminution Reductants Design AnalyticalConsumables Grinding, media Chemicals Marketing Data ProcessingSub-contracting Chem / reagents Assaving Distribution

14. 14 THE FOUR STAGE BENEFICIATION PROCESS (Chamber of Mines) Mining Manu- facturing

15. 15 1.2.3. 4. MiningMining / Refining Manufacturing processing _______________________ _________ The action of The action of cover-The action of converting The action of mining & producing ting a concentratethe intermediate goods manufacturing a final an ore or concentrateinto a bulk tonnageinto a refined product product for sale (primary product)intermediate productsuitable for purchase (such as a metalby both small & sophis- or alloyticated industries (semis) ……………………………………………..………………………….. ……………………………… Run-of-mine oresMattes/slags/bulkSteel/alloys Worked shapes & forms washed & sizedchemicalsWorked shapes & forms concentrates Ferro alloys/ pure metals