1. South African Mining Development Association
Submission to the Portfolio Committee on Mineral Resources
20-August 2014
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2. South African Mining Development Association
The South African Mining Development Association was started in 2000 as the Junior Mining Initiative by South African junior and black economic empowerment (BEE) mining investors.
While the founders' initial impetus was to present a united response to government on the Minerals Bill, the need for a strong, permanent lobby, representative of the interests of junior mining companies on several fronts, soon became apparent.
The need for and support of such a body was confirmed subsequently by research conducted by the Minerals and Energy Policy Centre (MEPC).
In the research conducted by the MECP on the junior Mining sector the following definition of junior mining companies was concluded. e.g
Junior Miners are companies with an Asset base of R50 million to R7 billion.
Above R7 billion are the majors.
Below R50 million are Small Scale miners.
Below the small scale miners are the Artisanal miners.
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3. South African Mining Development Association
Vision
SAMDA's vision is to be the vehicle for the development of a vibrant and sustainable junior mining sector which contributes towards the growth and prosperity of the mining industry.
Mission
to create an enabling environment for raising finance;
developing technical and other skills;
practicing responsible environmental management and sustainable development; and
the maintenance of standards of good practice in the junior mining sector
To Lobby;
government;
organised labour; and
other stakeholders and institutions
to promote mutual understanding
to encourage local and international investment
to conduct research to understand the sectors needs
to promote beneficiation
to build African and global alliances
and to facilitate the transformation of the mining industry by promoting emerging junior mining operations and those who are historically disadvantaged.
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4. ELEMENTS OF THE CHARTER - A TOOL TO REALIZE THE NATIONAL DEVELOPMENT PLAN VISION FOR 2030
The Elements of the Mining Charter are some of the Mining Economy’s National Development Plan tools in eliminating poverty and reducing inequality by 2030.
IN SECTION 100 (2)a OF THE MINERALS AND PETROLEUM RESOURCES DEVELOPMENT ACT, THE MINING CHARTER WAS CREATED as a historic charter for the transformation of the mining sector that would introduce elements of sustainable growth of the mining industry, with the intention to ensure transformation of the mining industry.
Below are the elements of the Mining Charter:
Ownership - 26% equity participation by May 2014
Procurement and Enterprise Development
Beneficiation
Employment Equity - 40% black managers by May 2014
Human Resources Development – Skills Development Spend by May 2014 should be 5% of payroll
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5. ELEMENTS OF THE CHARTER - A TOOL TO REALIZE THE NATIONAL DEVELOPMENT PLAN VISION FOR 2030
Mine Community Development through Integrated Development Plans and Social and Labour Plan
Housing and Living Conditions Requirements:
- To attain the occupancy rate of one person per room by 2014;
- To upgrade or convert hostels into family units by 2014;
- To promote home ownership.
Sustainable Development through:
- Environmental Management Plan
- Rehabilitation
- Waste Removal and Storage
- Improve Health and Safety Performance
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6. Ownership - 26% equity participation by May 2014
The charter requires a minimum effective participation of 26% by HDSA by the 1st of May 2014
The current Ownership Structure is a neo-colonialist ownership model that perpetuates ownership of the country’s resources and mines by foreign investor monopoly.
26% Broad Based Black Economic Empowerment Ownership through Unencumbered Net Value in the mining industry by 2014 has not been reached by the majority of the mining companies.
Many of The Broad Based Black Economic Empowerment investors that have not yet realized 26% unencumbered net value by the 1 May 2014 as prescribed by the Mining Charter through section 100 (2) a of the MPRDA are the following:
Employee Ownership Schemes (ESOPs)
Community Trusts
Broad Based Business Trusts
BEE Technical Producers
Women In Mining
Youth In Mining
People living with Disabilities
Ownership is still unrealised in the majority of Broad Based Black Economic Empowerment transactions.
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7. Ownership - 26% equity participation by May 2014
According to the research of the JSE Top 49 Mining Companies conducted by SAMDA In 2014
The market capitalisation of the Top 49 JSE-Resources companies is R2,574 trillion (100% of the resources sector’s value on the JSE main board).
The charter requires a minimum effective participation of 26% by HDSA in each of the 49 listed companies
If all the Top 49 Listed Mining Companies had 26% HDSA ownership of R2,574 trillion the value would have been R669 billion HDSA participation in 2014.
The majority of black producers do not own mines because the shareholding has not been paid up due to Transfer Pricing
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8. WHAT IS TRANSFER PRICING
The term ‘transfer pricing’ is used to describe arrangements involving the transfer of goods or services, at an artificial price, in order to transfer income or expenses from one enterprise to an associated enterprise in a different tax jurisdiction.
These companies sell the companies commodities to its marketing divisions at lower than market related prices.
This results in the exportation of profits to the tax heaven off shore accounts and the declaration of low profits and the payment of low tax in the country where the commodity is being produced and exported from.
The mining houses fails to be charter compliant because of the limited or no profit declared thus resulting to the Balance Sheet reflecting insufficient funds to pursue the elements of the charter.
BBBEE partners to mining companies are robbed of profits and no dividends are paid.
Lack of Dividend payments in some companies results in BBBEE partners being unable to fund their shares, while the non-BBBEE partner enjoys marketing fees and management fees in the absence of dividend payments.
Below is the list of some of the companies that practice transfer pricing and are non charter compliant.
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9. The Majority Of The JSE Top 49 Mining Companies Has A Charter Non-Compliant Ownership Profile (2013/2014)
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10. Alignment of the Mining Charter with DTI’s B-BBEE Codes of Good Practice
The alignment of the Mining Charter with DTI’s B-BBEE Codes of Good Practice has not been made despite the fact that the Mining Charter has a 2014 deadline to comply with.
We suggest that the immediate alignment of the Mining Charter with DTI’s B-BBEE Codes of Good Practice must be done as it is long overdue
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11. Procurement and Enterprise Development
PROCUREMENT AND ENTERPRISE DEVELOPMENT OF THE CHARTER BY 2014, CONTRIBUTES TOWARDS THE ACHIEVEMENT OF THE NDP WITH THE AIM OF CREATING SUSTAINABLE BUSINESSES THROUGH THE MINING ECONOMY BY 2030.
The following graphs demonstrate how the mining industry is able to develop BEE mining support industries through Preferential Procurement from 2006, 2008 to 2013.
Kindly note that this research does not include all the mining companies in South Africa.
This research demonstrates that a mining industry that is procurement driven does generate economic growth and job creation and by so doing contributes towards the aspirations of the NDP.
It is unfortunate that many of the mining companies procure goods manufactured off shore, eg. China,etc or bigger cities in South Africa instead of promoting goods manufactured in South Africa or in mining towns to contribute towards Local Economic Development .
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12. Procurement The Leading Force Behind Enterprise Development
Develop BEE mining support industries
Approximately $600 million to HDSA 500 Buyers 4
Total annual procurement budget – estimated at $6 billion 3
33 mining houses; 15 venues; 6 provincial governments 1
suppliers (2500 Narrow Based HDSAs
500 BBEE) 2
Source: SAMPPF
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13. Procurement an Engine for Economic Growth
Develop BEE mining support industries
Approximately $950 million to HDSA 600 Buyers 4
Total annual procurement budget – estimated at $8.5 billion 3
66 mining houses; 15 venues; 6 provincial governments 1
suppliers (4500 Narrow Based HDSAs
12000 BBEE) 2
Source: DECTI
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14. BENEFICIATION
Mining companies must facilitate local beneficiation of mineral resources of mineral commodities by adhering to the provision of section 26 of the MPRDA and the mineral beneficiation strategy.(Mining Charter, Pg 2)
It is unfortunate that a majority of the companies import finished (manufactured) goods from off shore instead of manufacturing goods locally .
By complying to the mining charter through Beneficiating minerals, small and medium enterprises and manufacturing industries will be promoted and thus stimulating job creation and economic development.
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15. STRATEGIC MINERALS The State has adopted a Strategic Minerals Investment Policy in the following Minerals:
Rank
Commodity
Needs of the Country and the Value Chain 1
Coal
Energy supply risk 2
Gold
Job creation potential-jewellery beneficiation 3
Iron Ore
Infrastructure and job creation prerogative 4
Manganese 5
Diamonds 6
PGM
SA’s international dominance; job creation– energy supply 7
Chrome
SA’s international dominance 8
Vanadium 9
Titanium
High technology industries 10
Nickel
Niche steel products 11
Uranium
Clean Energy
SAMDA proposes that the State include the following commodities to be Additional Strategic Minerals: 12
Phosphate
food security and fertilizer supply 13
Limestone
Required for cement manufacture and construction projects 14
Shale Gas
Energy supply risk and Job Creation through industrialization 15
Oil (Petroleum)
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16. BENEFICIATION ENGINE FOR ECONOMIC GROWTH IN THE PARADIGM SHIFT
Phosphate
FOOD SECURITY THROUGH
ROBUST AGRICULTURE
Limestone
INFRASTRUCTURE DEVELOPMENT
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17. STEEL VALUE CHAIN (IRON ORE, MANGANESE, NICKEL, VANADIUM & CHROME
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18. ENERGY COMMODITIES (COAL, URANIUM AND THORIUM)
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19. JOB CREATION AND ECONOMIC GROWTH THROUGH BENEFICIATION OF GOLD, DIAMONDS, COPPER AND PHOSPHATE
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20. EMPLOYMENT EQUITY & HUMAN RESOURCES DEVELOPMENT
The mining industry is behind in producing active HDSA executives compared to State Owned Companies, eg: Chief Executive Officers, Chief Operating Officers ,Managing Directors, Finance Directors, etc.
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21. MINE COMMUNITY DEVELOPMENT through Social and Labour Plans
The lack of effective investment in community development through Social and Labour Plans as well as the lack of charter compliance have contributed to community unrest through service delivery protests especially in the mining towns and villages. Eg: Marikana, Bekkersdal, etc.
The majority of the mines are developed in underdeveloped rural areas where communities continue to be poor while their mineral wealth is being explored, exploited and exported.
Communities continue to demand that the mineral wealth should benefit all South Africans and resist exploitation.
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22. HOUSING AND LIVING CONDITIONS
It is unacceptable that Hostels still exist in 20 years of our democracy despite the housing and living conditions standard requirements of the Mining Charter and Section 100 (1) of the MPRDA.
Mining towns and villages are currently overburdened by informal settlements instead of decent housing and living units.
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23. MINING CONTRIBUTION TO THE SOUTH AFRICAN ECONOMY
The mining industry has a Direct And Indirect contribution to the whole economy as demonstrated in a few examples below:
17% of GDP (directly and indirectly)
38% of merchandise exports (primary and beneficiated mineral exports)
19% of private sector investment
11.9% of total investment in the economy
50% of volume of Transnet’s rail and ports
16% of formal sector employment (directly and indirectly)
94% of electricity generation via coal power plants
40% of electricity demand.
About 37% of the country’s liquid fuels via coal
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24. MINING CONTRIBUTION TO THE SOUTH AFRICAN ECONOMY vs TRANSFER PRICING & IMPORT PARITY PRICING
This direct and indirect contribution gets negatively affected through transfer pricing, because the true profits that are accrued from the sales of the commodities remain in the offshore tax heaven accounts and insufficient income is declared in South Africa resulting in limited tax payments or no tax payments to the Receiver of Revenue and other non-mining sectors of the economy benefiting less.
Import Parity Pricing Models of the mining industry allows the South African producers to sell its commodities to the local market at international prices even though the commodity is produced from a South African Mine, e.g Iron Ore. This has a crippling effect on the development of the Steel Beneficiation Value Chain and making the production of an end product an expensive exercise and the development of the manufacturing industry uncompetitive and the creation of small and medium enterprises challenged.
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25. 1st May 2014 CHARTER COMPLIANCE YEAR FOR ALL MINING COMPANIES
1ST OF MAY 2014 ALL MINING COMPANIES SHOULD HAVE BEEN CHARTER COMPLIANT
All mining stakeholders that adhere to Section 100 of the Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter will automatically be contributing towards The National Development Plan and contributing towards the sustainability and growth of the South African Economy.
By enforcing the Charter Compliancy Implementation from the 1st of May 2014, the mining industry stakeholders and in particular the mining producers will be embracing the National Development Plan’s Vision for 2030 from 2014.
The Department of Mineral Resources has all the powers to enforce the law by using the clauses in the MPRDA that will penalize and address non compliance and defaulters of the law.
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26. THE SOUTH AFRICA FIRST STRATEGY!!
All South Africans should be committed to a South Africa economic and investment strategy and model. That will ensure the economic sustainability of the country and the people of South Africa.
Canada provides an excellent example of the country first policies and sentiments. E.g:
The Canadian government blocked BHP Billiton's $39 billion bid for Potash Corp, the world's biggest producer of a key crop nutrient, halting what had been the world's biggest takeover.
Industry Minister Tony Clement said, "In Canada, our natural resources are an important economic driver, ...I have come to the conclusion that BHP Billiton does not present a likely net benefit to Canada.” (2011).
Like Canada, South Africans must adopt a ‘South Africa First!’ Strategy for the net benefit to South Africa.
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27. Investors: Partner With Africa In The Long Walk To Economic Freedom
I have walked that long road to freedom. I have tried not to falter; I have made missteps along the way. But I have discovered the secret that after climbing a great hill one only finds that there are many more hills to climb. I have taken a moment here to rest, to steal a view of the glorious vista that surrounds me, to look back on the distance I have come, but I can rest only for a moment, for with freedom comes responsibility, and I dare not linger, for my LONG WALK HAS NOT YET ENDED.
(Nelson Mandela)
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