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2 EXECUTIVE SUMMARY 2 The catalytic converter industry is one of the success stories of SA industrial policy, being one of the very few complex manufactured products to reach global significance. It grew to some 15% of the global market by 2006…… but it could have (and should have), grown so much more. The industry was drawn to SA by the Motor Industry Development Program (MIDP) which, although providing extremely attractive incentives at the start, declined over time and became self limiting, as it relied on the credits obtained from exports to offset imports of vehicles and components. Global OEMs source their business based largely on the “country incentives” on offer to them in order to offset any dislocation costs and risks. this takes no cognizance of South Africa’s dominant position regarding PGM reserves or current and future production. INDUSTRY SUMMARY This is the largest automotive component export industry in SA – 10% global market share, R16 bn p/a export sales, employing 5,000 direct and 20,000 indirect workers. The industry is however under threat and in decline – current incentives (APDP) are declining to levels which no longer cover distance to market costs and risk factors. Recent labour unrest is undermining investor confidence in South Africa. The APDP, due to the constraints on the duty pool, cannot afford to provide any further increased incentives to grow the industry. The key inputs are platinum group metals (PGMs) and stainless steel (chrome) – both are resources where SA has > 70% of global raw material reserves and currently supplies close to 50% of global demand, but mostly in an un-beneficiated state. If we do nothing, this industry will continue to slowly die – we will lose 25,000 jobs (mainly in Eastern Cape), exports will decline by R16bn per annum. Using the provisions of the Beneficiation Act we can potentially grow this industry to 30% - 40% of global market by 2022/24 – this could generate export revenues of R90bn per annum and 100,000 skilled jobs and could also support the development of new industries such as fuel cell technology. INDUSTRY OUTLOOK

3 ACKNOWLEDGEMENTS This presentation has been compiled by the CCIG using the following: The PWC study into the catalytic converter value chain in SA – 2011 The PWC Global Automotive report The Economic study was done by Henk Langenhoven – Chief Economist at SEIFSA The Kaizer Report The Johnson Matthey annual platinum industry survey – 2013 Input from various industry sources 3

4 TABLE OF CONTENTS Overview of the Current Catalytic Converter Industry Beneficiation Proposal Impact of the Proposed Strategy Conclusion 4

5 5 HISTORIC AND PROJECTED VOLUMES AND INCENTIVE LEVELS FOR CATALYTIC CONVERTER EXPORTS Incentive level (%)** Converter Volume (millions) Volume Projection ** Based on current legislation Magnetti Marelli Closes Cummins to Close 3 rd Canner to Potentially Close


7 +RISK – 2% % OF SALES PRICE Indications are that the global OEM customers would expect to see about a 10% discount (below competitive landed cost) to place volume business in South Africa INCENTIVES AND THE COST OF EXPORTING FROM SOUTH AFRICA 7

8 TABLE OF CONTENTS Overview of the Current Catalytic Converter Industry Beneficiation Proposal Impact of the Proposed Strategy Conclusion 8

9 1.About forty years ago, the Arab oil producing countries, which then controlled less than 50% of the world’s output, overnight increased the price of oil from 6 US $ per barrel to US 24 $. 2.In 1999 Russia introduced an export tax on Precious Metals of 5% (currently 6.5%) – the trigger was the beneficiation of their PGM resources. 3.About three years ago, China imposed export quotas and export taxes of between 15% and 25% on rare earth minerals, which have resulted in substantial global price increases. 4. Recently, the Indonesian government blocked the export of nickel containing ores, which has caused a significant increase in the global nickel price. 9 COUNTRY SPECIFIC ACTIONS TO OPTIMISE LOCAL RESOURCES

10 SOUTH AFRICA’S GLOBAL ADVANTAGE South Africa’s has some 70% of global Platinum Group Metals reserves, the balance is mainly shared between Russia and Zimbabwe. Thus, our country and its neighbor have a significant dominance of the world’s reserves of PGMs. The demand for platinum is expected to grow with the global expansion of vehicle production and the rapidly increasing need for cleaner air, especially in emerging economies. Controlling the dominant source of PGM with a growing world- wide demand, South Africa has a golden opportunity to impose a local beneficiation strategy. 10

11 GLOBAL PGM PRODUCTION (2013) Platinum (M oz)Palladium (M oz)Rhodium (M oz) Global PGM supply SA as % of total PGM production Platinum (M oz)Palladium (M oz)Rhodium (M oz) Global PGM use Catalysts as % of Total PGM usage GLOBAL AUTO PRODUCTION 2013 (million)2020 (million)Notes Total83118* Excludes Far East Accessible *56 (100m cats)77 (150m cats)2 cats/car average 11 GLOBAL PGM USAGE (2013)

12 Mine Production (M oz) Autocatalyst Beneficiation of PGMs (M oz) Catalysts as % of SA Mine Production SA catalysts as % of World Market Platinum Palladium Rhodium VALUE (R bn) %+/- 10% 12 Autocatalyst manufacturing is the only significant industry beneficiating PGMs in South Africa SOUTH AFRICA PGM USAGE

13 PROPOSED MEASURES FOR LOCAL BENEFICIATION PROGRAMME The Mineral and Petroleum Resources Development Act Draft Amendment Bill, is yet to be signed into law. “In its proposed new format, the clause now empowers the Minister to designate 'any mineral or mineral product' for local beneficiation - having consulted with the Ministers of other relevant national departments and having also considered 'national developmental imperatives such as macro-economic stability, energy security, industrialisation, food security and infrastructure development'. As mooted at the last meeting, the clause also enables the Minister to prescribe the percentage of mineral or mineral product to be offered to local beneficiators at the mine gate price or at an agreed price - as well as the quantities, qualities and timelines entailed. It is proposed that the Minister's written approval should be obtained before a designated mineral or mineral product is exported”. At this point, we have no clear picture of how this will be interpreted or implemented…… or what is the meaning of “at an agreed price”. 13

14 PROPOSED MEASURES FOR A LOCAL BENEFICIATION PROGRAMME This proposal will support all beneficiators and beneficiation projects utilising Platinum Group Metals. It could also be expanded to include the beneficiation of SA mined Chromium Ores. At the same time, the proposal addresses the need to support the catalytic converter industry outside the Automotive Production & Development Program (APDP). The provisions of the Act should be applied, ensuring a portion of local production to be allocated for local beneficiation at an agreed discount to global prices, possibly linked to the degree of beneficiation occurring in the individual processes. This program could be funded through a Government tax program. 14

15 3 POSSIBLE OPTIONS OPTION 1: Stay Under Current APDP OPTION 2: Stay in APDP, With Some Beneficiation Support OPTION 3: Out of APDP – Total Support from Beneficiation Pro’s No new support measures needed Vulnerable Industry incentives need to be maintained at current levels Some additional support from Beneficiation of PGM’s & Chrome Ore OEMs continue to drive business Slightly slower decline of business Vulnerable industry incentives need to be maintained at current levels Industry can grow without restriction to position of global leadership – 5 x existing? The need for local OEMs to use the converter industry to generate APDP rebates will no longer be the main driver of this industry Massive increase in jobs, skills growth, export revenues and boost in technology Platform for future PGM industries Additional localization of automotive components to support OEMs’ needs for rebates within APDP Con’s Industry will continue to decline and die There will come a time when major players will dis-invest from SA Loss of jobs Loss of technology Impact on Balance of Payments Local beneficiation opportunity lost APDP will cap expansion of industry When OEMs become “duty neutral” they will cease to place business here, and the industry will eventually die Loss of jobs Loss of technology Impact on Balance of Payments Minimal local beneficiation Substantial Beneficiation support needed Possible negative reaction from other industry groups 15

16 THE OPPORTUNITY SA currently produces about 10% of global catalytic converters, worth R16bn in export revenues, and beneficiating 11.3% of local PGM production. SA possesses some 70% of global PGM and chromium reserves. The “accessible” global passenger car market is estimated to grow from about 50 million cars today to +/- 80 million in 2022 – an anticipated growth of some 60%. We could initially target to grow our share of the autocatalyst market to (say) 30% - this would require us to produce some 50 million catalysts/annum – a growth to some 5 times current production, which could consume 50% of the current SA PGM output. 16

17 TABLE OF CONTENTS Overview of the Current Catalytic Converter Industry Beneficiation Proposal Impact of the Proposed Strategy Conclusion 17

18 OUR PROPOSAL To achieve global leadership in this industry these factors need to be considered: 1.The industry would have to come out of the APDP. At the levels envisaged for this industry, the APDP Duty pool would be swamped. This proposal would ensure the viability of the industry if and when the local OEMs no longer need catalytic converter exports to fund their duty credit requirements 2.The quantum of the incentive needed will be such that the price of a catalytic converter from SA would be cheaper than from the rest of the world – we suggest 10% less at the customer gate. This would cause sourcing decisions (both by the OEMs and the converter industry) to be made purely on price, and not on PRCC requirements. 3.This incentive could be achieved through a variety of Government actions, such as a production tax on PGMs and chrome, export taxes, a beneficiation subsidy, transport cost subsidies, a direct grant from the Fiscus, etc. 4.The industry should possibly be included in the Government’s new SEZ program, thereby assisting with tax rates, labour issues, input costs, export logistics, etc. 18

19 STEPPED APPROACH TO THE BENEFICIATION PROPOSAL The CCIG proposes that this beneficiation proposal should initially operate in conjunction with current incentives applicable to the automotive industry, until such time as the Beneficiation Incentive is fully functioning: 1.The AIS as an investment incentive 2.The APDP-PI as a manufacturing incentive NOTE: Catalytic converters remain a legitimate automotive component, and should continue to receive investment support through the AIS (or similar program) even after Beneficiation Incentives become applicable. The introduction of a developmental pricing program for PGM’s will provide a compelling reason for the global automotive industry to source more catalytic converters from SA, without the constraints imposed by the APDP. 19

20 Catalytic converters are the major, but not the only, use of PGMs in SA. The right incentive levels will attract other beneficiators and PGM fabricators to South Africa. 20 The PGM value chain (Kaiser Study, May 2007, left) highlights current and future opportunities in this area Employment in the South African catalytic converter industry could increase to some 80,000 direct and indirect jobs, and we would additionally expect substantial highly skilled jobs to result from these new industries. Other value additions within the catalytic converter industry could be considered as they would have no impact on the APDP duty pool. Various stages of beneficiation IMPACT OF THIS BENEFICIATION PROPOSAL


22 ADDITIONAL IMPACT ON AUTO PARTS INDUSTRY The OEMs will need to find replacement business for +/- R16bn currently generated by catalytic converters for APDP credits. – New output of some R 16 billion will have to be generated and exported, – Value Added to the economy by such an industry will be in the order of R 4 billion – Employment generated will be over people, and – Investment of some R 4 billion will be required Columbus will supply an additional +/- 80,000 tons/annum of stainless steel into this industry. Higher volumes of pressed parts & other components should drive the industry to more competitive levels and generate exports of exhaust components and systems. 22

23 ECONOMIC SUMMARY Number of catalytic converters 13million (10% of global market) 43million (30% of new, available global market) TurnoverR16bnR70bn Value AddR3.1bnR10.6bn Capex RequiredR12bn Direct Employment6,50019,550 Indirect Employment19,69659,000 Salaries & WagesR2.3bnR6.9bn TaxesR2.1bnR8.06bn Possible Naacam Jobs32,000 Possible Naacam Value AddR4bn 23

24 A POSSIBLE FUNDING MODEL TO ACHIEVE THIS 24 Russia currently applies a 6.5% tax on exports of un-beneficiated PGMs. This did not disrupt the market unduly. A possible example: SA could levy a 5% tax on all PGMs mined in SA, and use this to reduce the cost of PGMs purchased for local beneficiation. The tax would be applied to all PGMs mined, so would not be an export tax (therefore WTO compliant) and would go to the Fiscus. Revenue from this could fund a “Beneficiation Incentive Scheme” to reduce the cost of PGMs used to manufacture value added products in SA. The cost reduction incentive would be on all beneficiated products (not only exports), so would be WTO compliant, and could be claimed on the invoice of the final product. This tax could be used to drive volume manufacture of all beneficiated products, including catalytic converters, as well as R&D into other uses of PGMs, such as fuel cells.

25 A POSSIBLE FUNDING MODEL TO ACHIEVE THIS As an example, for 2015: Assume catalytic converters are 10% cheaper, delivered from SA With a 5% logistics penalty, this then requires a 15% price discount As PGMs comprise +/- 50% of the cost of a typical converter, PGM used for local beneficiation should be rebated to “global price less 30%”, on sale of the beneficiated product A 5% production tax would generate R4.5bn at today’s mined volumes A 30% discount for PGMs currently used in the industry = R2.95bn Therefore it will generate a surplus of R1.55bn to the SA Fiscus Assume, by 2022: The SA PGM mining industry grows at 10% pa – revenue will grow from R90bn to R190bn and the 5% tax would generate R9.5bn pa The SA catalytic converter industry grows to 30% of available global demand and produces 43 million units/annum. Rebate = R9bn pa This is still a surplus of R0.5bn, but now with extra value addition of R11.5bn to the economy and additional tax revenue of R4.6bn WIN-WIN SCENARIO 25

26 A POSSIBLE FUNDING MODEL TO ACHIEVE THIS 26 5% production tax R4.5bn to Fiscus Local Converter industry (currently 10% of global market) R2.95bn beneficiation rebate, paid on sale of product Balance of R1.5bn to Fiscus Growth of new industries, R&D, etc Export prices should rise with production tax Growth of SA Converter industry to 30% of new global market SA PGM Mines (70%global reserves) Exports 89% Local 11% Incentives

27 TABLE OF CONTENTS Overview of the Current Catalytic Converter Industry Beneficiation Proposal Impact of the Proposed Strategy Conclusion 27

28 CONCLUSION This proposal will : – Generate some 75,000 new jobs – Generate R15 bn /annum in value add to the SA economy – Produce tax revenue of about R10 bn/annum, excluding benefits derived from new industries – Provide a stimulus to new PGM industries such as fuel cells – Generate other value additions within the catalytic converter industry, such as exhaust components and exhaust systems. 28


30 30 Issues raised and potential responses Following the presentation about our project at the MIDC, several negative views have been received, specifically that the platinum mines cannot afford to give a discount to the local catalytic industry; and their shaky profitability will be further negatively impacted; SPECIFIC POINTS NOTED: 1.The investors in platinum stocks will sell their reserves, in order to make a quick profit, and thus flood the market, causing a reduction in prices, a reduction in production, etc. Possible; but this will be a short term problem. 2.Concerning the jewellery market; as PGM will be more expensive, people will buy more gold, silver, titanium jewellery, causing a drop in demand for platinum. The extra premium is 5% on metal, which will have a 1% or 2% effect on the price of finished jewellery. Platinum is already a premium product. 3.People will be more incentivized to recover platinum from old converters, causing a drop in demand for newly mined platinum. This is already happening anyway – will 5% make a difference?

31 4. It is unfair to subsidize the catalytic converter industry at the expense of the mining sector. Agree. But where is the value add occurring? And what are the mines contributing to the real value of our PGM resources? 5.The prices of cars will increase, leading to less demand for cars. We can’t see it happening on a cost increase of $2.50 per car (cat costs +/- R1000/unit = $100, of which PGM is 50%. 5% of $50 = $2.50) 6.Subsidies hide inefficiencies; the catalytic converter industry should focus on being more efficient instead of asking for more subsidies. The cat industry is cost competitive – but the industry cannot overcome geography. 7.There will be more Research & Development to find substitutes for PGMs in catalytic converters. This is happening anyway. Will a $2.50 increase change this significantly? 8.OEMs are reluctant to put all their eggs in one basket by getting their catalytic converters to be manufactured in South Africa, which is renowned for its labour instability environment. The South African industry only needs to get them to put 1/3 of their eggs into our basket – that is why we need the 10% discount. 31


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