MINING IN SA – THE FUTURE ???

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

2. 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 2014. • China’s economy has stabilised and is expected to grow at >7% in 2013. • The US economy is showing positive signs of recovery, with consumer confidence rising.

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

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

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

6. Top 6 minerals, expected greenfield production growth for the period 2011-2020 Source: CitiBank

7. 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

8. 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 (0.00034 grams) ¹ • Ceramic magnetic switches containing rare earths ² • Indium² • Titanium dioxide ² • Indium tin oxide ² • ¹ source – USGS http://pubs.usgs.gov/fs/2006/3097/ • ² source – NRC critical minerals report

9. 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

10. Perceptions and realities about mining

11. Mining - The Essential Core Of SA Economy • Creates 1.35 million jobs (520 000 direct & 830 000 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

12. The linkages of mining to the economy • First round impact: • GDP R59 billion or 2.3% of GDP • Jobs 207 949 • Mining’s direct contribution: • GDP R230 Billion or 9% of GDP • Jobs 499 217 • Indirect impact • GDP R42.7 billion or 1.7% of GDP • Jobs 149,898 • The Induced Impact: • GDP R136,1 billion or 6% of GDP • Jobs 496,319 • 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

13. 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 2020. Employment could rise from 18 000 to 30 000 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 80 000 to 100 000 by 2020. Biggest constraints: rail, regulatory issues (environmental). • Chrome ore current production 11.3 MT and 19 758 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 2020. Employment could rise from current 5879 to >10 000 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 70 000 jobs, if the constraints are resolved.

14. 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.)

15. 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 THE VELE EXPERIENCE

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

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

18. 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 WHERE TO FROM HERE ??

19. 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 !! INVESTMENT