Economic Empowerment in the Mining Sector
“When birds fly in formation there is a leader breaking the still air,
generating a wake of energy flow that propels the whole
team forward. In the Sotho language this leader, or pathfinder,
is called motjoli. In a similar fashion Motjoli Resources is
forging the way forward on the South Africa’s mining landscape.
Economic Empowerment in the Mining Sector
STATE OWNERSHIP IN THE MINING AND MINERALS INDUSTRY
The Parliamentary Public Hearings
Nchakha Moloi, Old Assembly Chamber, Cape Town, 26 May 2010
Economic Empowerment in the Mining Sector
The outline
• What is nationalisation/state ownership• Why the nationalisation/state ownership
debate now?• History of state ownership in SA in the
mining industry• Current state participation in the mining
industry• A case for state ownership in the mining
industry
Economic Empowerment in the Mining Sector
Nationalisation
• Definition– the action of forming or becoming a nation– the action of rendering national in character– changing something from private to state
ownership or control• Reasons
– Road to socialism– A means for state to achieve specific policy
and socio-economic objective in the current economic system
Economic Empowerment in the Mining Sector
Where we come from• Section 130(1) of the Transvaal Gold and Base Metals Law 35,
1908 stated that:...no right may be acquired under this Act by a coloured person (includes Africans as defined in the Act); and the holder of a right acquired under the Law No. 15 of 1898 or a prior law or under this Act shall not transfer, or sub-let, or permit to be transferred or sub-let, any portion of such right to a coloured person......”
• Section 23(1) of the Development Trust and Land Act 18, 1936 provided that: “Notwithstanding anything in any other law the following provisions shall apply to land in respect of which the mineral rights are held by the Trust or a Black or in trust for a black tribe or community: (a) no person shall prospect for minerals on such land without the written permission of the Minister: Provided ...sub-section (3) Save as is otherwise provided in this section, the Trust shall in respect of mineral rights held by it, be in the same position as any private holder of mineral rights. Author’s note
Economic Empowerment in the Mining Sector
Origin of the debate
• The ANC minerals and mining policy• The Freedom Charter (1956), • Ready to Govern (1992) • the RDP (1994) and,• the ANC Draft Mineral & Energy Policy Discussion
Document” (1994).
• Choices made during the constitutional negotiations (CODESA): Prioritised political power
• The economic transformation is largely not achieved and some pillars of the apartheid machinery remain intact
Economic Empowerment in the Mining Sector
History of State Participation• The state historically reserved ownership of mineral rights with
respect to precious metals and precious stones– Until recently the state had an interest in De Beers Finsch mine and
Cullinan plus Venetia (disputed)– Gold mines had a special tax dispensation (formula tax) in recognition
of historical state interest• The Minerals Act 50 of 1991recognised private and state
ownership of mineral rights• State had significant PGM interests through the former Lebowa
Minerals Trust• Iscor and Sasol are examples of the larger corporations in the
mineral sector that were owned by the state• Some of the major mineral deposits in SA were discovered largely
through state institutions
Economic Empowerment in the Mining Sector
The Compromise
Economic Empowerment in the Mining Sector
When will ownership vest ?
0%
5%
10%
15%
20%
25%
30%
0 1 2 3 4 5 6 7 8 9 10 11 12 13Year
BE
E O
wne
rshi
p
Official Ownership Owned NAV (as capital is repaid) Implied Cash Flow Particpation
Economic Empowerment in the Mining Sector
State of Transformation• Gross value of black shareholding (BEE market cap) within the top
25 JSE listed companies is R97bn or 5.27% of the total market cap• The Public Investment Company has shares worth R50.1bn in 10
companies or 2.76% of the total market cap of the top 25 companies
• Only seven companies had implemented ESOPs with a value of R12bn or 0.53% of the total market cap of the top 25 companies
• Anglo American dominates the BEE transactions given its strong position in PGM’s, coal, gold , iron ore, manganese and diamonds
• Women remain largely underrepresented in the industry• Progress with other pillars of the charter not promising either
Economic Empowerment in the Mining Sector
Ownership of new enterprises• DMR granted a number of prospecting
rights to BEE companies in– Coal, PGM, Diamonds, Chrome,
Manganese, etc• BEE lack of capital and ability to
access relatively cheap capital on overseas stock market
• Established companies refuse to provide access to historical geoscience data
• Apparently high incidence of sale of rights by BEE or JVs with established JRCs
• Important to establish whether empowerment has taken place or fronting happened
• The sub-committee did not look at these issues due lack of hard info and facts and short time
BEE Gets Prospecting Right
No MoneySit on right orSell right or
Typically get JRC JV partner
JRC loans money to BEE for exploration
JRC makes cash callBEE has no money
BEE applies for prospecting
BEE has no moneyGet JRC Jv partner
Economic Empowerment in the Mining Sector
Forms of State Ownership• Mining and Community Development Fund
• Funds collected from Mining Industry for specific objectives• Rehabilitation of Abandoned Mines• Community Development, etc
• Industry Incubator – Chile’s ENAMI• Provision of Capital to stimulate industry players e.g. Junior
Miners. Can own shares in these.• Provision of technical, metallurgical, financial and Trading
services to correct market failures• State Investment Vehicle – Brazil’s 30% in VALE
• Purchase shares in existing mining houses• Silent Partner, Golden Shareholder Rights – veto powers in
major decisions
Economic Empowerment in the Mining Sector
Forms of State Ownership• PUBLIC-PRIVATE JV– Botswana Debswana
• Operational input• GOVERNMENT OPERATOR - CODELCO
• Large State Owned and Operated Company• GOVERNMENT MONOPOLIST – Zambia’s ZCCM
• Government owns operations• Private players subcontracted to operate – Mexico’s PEMEX
Economic Empowerment in the Mining Sector
Possible Solution• ABILITY TO SHARE WEALTH
– Royalties present an opportunity to channel funds
– Allocation to specific objectives e.g. rehabilitation of abandoned mines, community development
• ADDRESS INDUSTRY CONSTRAINTS
• CAPTURES MORE WEALTH FOR BEES LOCALLY.
– Potentially abroad.• ABILITY TO CAPTURE VALUE
CREATION– Botswana has option of 15%
participation in all new mining operations
• Valuation is cost based.• ALIGNS PUBLIC AND PRIVATE SECTOR
INVOLVEMENT– Can address industry bottlenecks
• Align public private sector involvement
– Incentive for gvt to address bottlenecks.
• Room to address security of supply concerns
– Gvt control of strategic minerals such as coal
• Ability to capture greater value creation
• Ability to leverage private sector expertise
• Greater access to private sector funds – capital and global markets
• Greater state control over mining mining resources
• Potential to address security of supply concers
• Alignment with Private sector• Greater value creation
Economic Empowerment in the Mining Sector
Possible reasons for a state owned mining company
Secure supply of minerals of strategic significance, such as energy commodities (coal and uranium), cost competitively and continuously. Support side stream industries by ensure adequate supply of raw materials for the purposes of value addition programmes. To advance the objects of the Freedom charterTo role model effectiveness of transformation so that the broader industry can begin to emulate such a model. Thus
Speeding up growth and transforming the economyFighting povertyBuilding social cohesion and state legitimacyPursuing the values of international cooperationBuilding a developmental state
To contribute optimally to State Fiscus, which is requires to address a backlog of historical socio-economic imbalancesTo consolidate all interests of State in mining for more effective management
Economic Empowerment in the Mining Sector
Current Extent of State Participation
• Mining Entities– Alexkor– Foskor– African Exploration– LIMDEV
• Rights– NECSA– Eskom
• Investment Holdings– IDC
• Foskor• Sasol• Mozal Al smelter• Merafe Resources• Hernic• Kalagadi Mn• Kumba Iron• Corridor sands
– PIC– DBSA
The starting point would be to consolidate state interests into one vehicle
Economic Empowerment in the Mining Sector
Geological PotentialEndowment Strategic Minerals
• Infrastructure Minerals– Iron ore, Manganese,
Chrome and Nickel– Industrial Minerals– Agri-minerals
• Energy Minerals– Coal– Uranium– PGMs– Oil and natural gas
• Hi tech minerals– Titanium, zircon, rutile:
pigment– Tantalum: miniaturization – Magnesium: light alloys
• South Africa is a minerals treasure trove with significant deposits of a range of minerals:– Bushveld Igneous Complex
(PGM, V , Fe, Cr)– Manganese– Wits Basin– Alumino-silicates– Karoo basin
Economic Empowerment in the Mining Sector
Economic Empowerment in the Mining Sector
Assmang MR
Samancor Mn Wessels MR
Samancor Mn Mamatwan MR
Samancor Mn Hotazel PR
Samancor Mn Middelplaats PR
Kalahari Resources PR
Northern Cape Manganese Pty Ltd PR
Ntsimbintle PR
Ntsimbintle PR
Interplay PR
Dreamworld PR
2.5 0.0 2.5 5.0
Kms1:250,000
Kalahari Basin
New Order RightsMR = Mining Right
PR = Prospecting Right
Economic Empowerment in the Mining Sector
Avontuur Manganese ProjectJV between Aquila & Motjoli thru Rakana
New basin north of the Kalahari Manganese Field
Current Inferred Resource(1)
totals 34Mt at 40% Mn in two deposits
A restated Gravenhage Resource Statement is due in Q1 2010
JV / Aquila is participating in the Manganese Industry Forum (MIF)
Transnet and the MIF are evaluating two export options- Coega(near Port Elizabeth)- SaldanhaBay
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Economic Empowerment in the Mining Sector
Economic Empowerment in the Mining Sector
Economic Empowerment in the Mining Sector
PGE Reefs
PilanesbergComplexUpper ZoneMain ZoneCritical ZoneLower Zone
Geology
Styldrift(Anglo/BEE)
Sedibelo(IBMP/Placer)
Ruighoek(Boynton)
PTM (Anglo/BEE)
Zandspruit(Anglo/Boynton)
Tuschenkomst(Boynton)
Amandelbuilt(Nkwe)
Cyferkuil(Anglo/Anooraq)
Rietfontein(Ranger)
Sheba’s Ridge (Blue Ridge)
Blue Ridge(Blue Ridge)
Millennium (Southern Era)
Mineral Range(Lonmin)
Kameeldrift(CAMEC)
Fonte
Verde (Blue Ridge)
De Wildt(Nkwe)
Mphahlele(Boynton/BEE)
Dwaalkop(Messina)
Kliprivier(Nkwe)
Twickenham(Anglo/BEE)
Gaphasha(Anglo/Annoraq)
Tinderbox (Placer/Nkwe)
Grass Valley(Pan Palladium)
Turfspruit(African Minerals )
Anooraq(Hunter Dickinson)
Aurora(Pan Palladium)
War Springs(PTM )
Economic Empowerment in the Mining Sector
Economic Empowerment in the Mining Sector
SA Iron & Steel Potential
Aquilla Steel, SA iron ore projects
Slurry pipeline
MatolaFe/steel
Phalaborwa Fe ore dumps
300Mt magnetite
Slurry pipeline
Nqura Fe/steel
R.BayIron/steel
Slurry pipeline
*** Motjoli, Cascades Fe ore
Molteno/Indwe Coal gasification
Gas pipeline
Existing Gas pipeline
Varemo “level 21”BC Ti Magnetites
2Gt (20%TiO2)=2X world(∑BC Fe=10XSishen!)
S.Bay Gas?
Beneficiation OpportunitiesRole of Junior Companies
MinmetalsProblem!
Economic Empowerment in the Mining Sector
SS African Mineral DepositsSS African Mineral DepositsHowever, many of the gaps correspond to
zones of low geo-data
Kalahari sand cover
Economic Empowerment in the Mining Sector
Africa’s Undiscovered Resources
Source: USGS; Source: USGS; USGS Mineral Resources Program. The USGS Mineral Resources Program. The Global Mineral Resource Assessment ProjectGlobal Mineral Resource Assessment Project
Africa requires massive investment into basic Africa requires massive investment into basic geological mapping in order to assess & valorise its geological mapping in order to assess & valorise its mineral assets. FDI for bluemineral assets. FDI for blue--sky exploration will only sky exploration will only come in on an unacceptably high riskcome in on an unacceptably high risk--reward basis! reward basis!
Economic Empowerment in the Mining Sector
Key considerations• Clarity on why state wants involvement in the mining industry as owner
How is this company going to avoid the Alexkor dilemma?
How is it going to be resourced, particularly to pursue exploration projects?
Other than the consolidation of prospecting projects and assets as well as mining investments of SOEs do we intend to acquire operating mines (strategic minerals)/ How? Source of funds?
Is will it be geared to run exploration projects and operating mines and making strategic mining and mineral investments?
Will it go it alone or rely on strategic partners, BEE or otherwise?
Will it pioneer beneficiation as a strategic area of business focus? What will it do that current mining houses cannot do?
Will it be involved in supply of mining capital goods, services and consumables?
How will it advance/ faciliate transformation of the mining indutsryparticularly Bee
Economic Empowerment in the Mining Sectorwww.motjoli.co.zawww.motjoli.co.za
