The Minister of Public Enterprises, Honourable Mr Malusi Gigaba, presents: An Engagement on Black Emerging Mining Development in securing domestic coal energy supply

South Africa’s Developmental Objectives Building the economy and employment Economic Infrastructure Environmental sustainability and resilience Inclusive rural economy South African trade in the region and the world Transforming human settlements Improving education, training and innovation Health care for all Social protection Building safer communities Building a capable and developmental state Fighting corruption Nation building and social cohesion Source: National Development Plan 2030

Evolution of regulation to assist with Black Economic Development (in the Mining Sector) The Minerals Act allowed for a mining regime based on private ownership of resources The Mine Health and Safety Act provides for protection of health and safety at mines Mining Charter signed (effective 2004) Implementation of the MPRDA 1, introduced a policy of equal access to South Africa’s mineral resources Amendments to Mining Charter to place significant pressure to achieve target of 26% ownership by 2014 South Africa’s mining industry was the largest contributor of economic transformation, with B-BBEE 2 deals worth R150-billion completed Mining Charter Impact Assessment Report revealed; black ownership in the mining sector was at 8.9% in 2009 – well below the target of 15% by 2007 this led to an amendment of the charter to streamline and expedite attainment of objectives Going forward Eskom will use its spend to drive transformation in the sector Note: 1) Mineral and Petroleum Resource Development Act; 2) Broad-based Black Economic Empowerment Source: South Africa’s ranking on the Fraser Institute mineral competitive index improved13 places compared with 2010

Changes in the Coal industry through time Cost plus contracts were put in place to assist the development of : – Rand Coal mines – Anglo Coal mines Eskom was the primary user of coal due to the sanctions and limited foreign investment Increased demand for electricity led to more coal being purchased from smaller miners – resulted in 20 new contracts with Emerging Miners Need to increase Black Ownership and participation leads to the creation of a Black Emerging Mining strategy Signing of MoUs with Emerging Miners to support development Progressing development of the Waterberg Coalfield for long term coal supply security 1960 – mid 1980’sMid 1980’s – 2004’s Onwards Source: 2008– Overview Coal Supply Strategic Study; Mineral and Petroleum Resources Development Act Eskom’s Role in Coal Industry Coal production began in 1870 to supply energy to the Kimberly diamond fields; this coal was exploited from the Molteno-Indwe Coalfield in the Eastern Cape Sanctions and limited foreign investment Export steam coal producers suffered a serious setback as coal prices began sliding steadily as a result plans for expansion were put on hold and some small producers had to close their mines This resulted in excess coal in the market Eyesizwe formation – Arnot and Matla contracts were ceded to Eyesizwe to assist with the development of black empowered entities Conversion of 2 cost plus contracts to fixed price due to increasing international demand for coal Development of Emerging Miners: Kuyasa Mining, Optimum Coal Holdings, Liketh Investments, Umcebo in partnership with established miners 4 major mining companies Glencore mergers with Emerging mining companies Increased demand from India and China Increased drive towards transforming the industry Development of the Waterberg Coalfield “Development of the electricity infrastructure” “Over-capacity and promotion of coal exports” “Electricity and coal supply shortage”

South Africa produces ~ 250 Mt of coal per annum of which Eskom purchases and manages the supply of ~130Mt of coal per annum for its 13 power stations Eskom is one of South Africa’s largest entities in the area of coal purchases Exports 28% Merchants& ResidentialMerchants& ResidentialMerchants& ResidentialMerchants& Residential 1% Metallurgical 2% Industries 4% Sasol 14% Eskom 50% Note: 1) Total Coal Spend in FY 12 on a delivered cost; 2) Previously known as Junior Minors; 3) R28 billion is 80% of R35 billion which is the total Eskom Primary Energy cost which include fuel oil, diesel and other primary energy costs Source: Creamer Media’s Coal Report – May 2012 Distribution of coal sales by customer type Rbn Emerging Miner 2 is a generic term used to refer to all miners excluding the established or major mining companies Black Emerging Miners are those which have a 50%+1 share black ownership Total Coal SpendTotal Coal SpendTotal Coal SpendTotal Coal SpendTotal Coal SpendTotal Coal SpendTotal Coal SpendTotal Coal SpendTotal Coal Spend Black Emerging MinersBlack Emerging MinersBlack Emerging MinersBlack Emerging MinersBlack Emerging MinersBlack Emerging Miners 2 Emerging MinersEmerging MinersEmerging MinersEmerging Miners 7 Established MinersEstablished MinersEstablished MinersEstablished Miners Black-owned

Eskom’s overall requirement for coal is ~4 070 Mt Contracted Un-contracted ~2 100 Mt ~1 970 Mt Eskom Coal Supply for the next 40 years The opportunity for Black Emerging Miners’ Development ~ Mt is the opportunity for development and transformation The regions for development are – Mpumalanga – Limpopo – Waterberg Coalfield The figures presented are as per Eskom’s current planning parameters The development of IPP’s may present further opportunities Eskom will require high grade limestone resources to operate flue gas desulphurisation plants

Increased export competition for a typical “Eskom” specification coal Major investment is required to extend the lives of resources High developmental costs of opening new mines Long lead times to develop operational mining projects Infrastructure weaknesses in heavy haul rail services, ports, water and skills gaps Several challenges are being encountered in coal supply in South Africa Industry Challenges Industry Challenges Technical Challenges Declining coal qualities which will require beneficiation Difficult mining and geological conditions Emerging environmental concerns Insufficient water for mining and coal beneficiation in the Waterberg Inadequate rail infrastructure to transport coal from Mpumalanga to Waterberg Challenges in the Waterberg While coal reserves are declining in some areas, new reserves are coming on-stream elsewhere, two thirds of South Africa's coal reserves and resources are in the Waterberg

Mine Development Fund Mine Development Fund Coal trading as an option to secure coal supply Coal trading as an option to secure coal supply Increase Black Ownership from 26% to 50%+1 share to transform the industry Increase Black Ownership from 26% to 50%+1 share to transform the industry Utilise commercially acceptable levers such as blending and briquetting Utilise commercially acceptable levers such as blending and briquetting Consolidation of smaller Black Owned mining resources Consolidation of smaller Black Owned mining resources Security of coal supply and Development of Black EMERGING Miners Eskom will form the foundation for the development of the Black EMERGING Mining Industry for the security of coal supply and limestone The basis for driving economic transformation

Eskom to partner with various DFIs or private sector funders for the Funding and Development of Pre-feasibility studies Consolidation of resources and infrastructure Eskom to facilitate the establishment of the fund by initially working on items on a project-by-project basis and progressing funds to develop Black Emerging Mining resources Creating a Mine Development Fund Creating a Mine Development Fund Use coal trading as an option to secure coal resources and enhance transformation Use coal trading as an option to secure coal resources and enhance transformation Coal trading, subject to terms and conditions, can be used to develop Black Owned companies in coal beneficiation and processing Coal trading can also be used to assist black mining right holders to acquire the capital to establish mines Increase Black Ownership as a means to transform the industry Increase Black Ownership as a means to transform the industry Eskom to use its purchasing leverage to empower Black Owned suppliers and increase equity stakes to 50% + 1share Eskom to develop Black Emerging Miners throughout the Waterberg by entering into MoUs with suppliers to assist with accessing funding Utilise commercially acceptable levers to increase Black ownership Utilise commercially acceptable levers to increase Black ownership Enter into discussions to increase Black Ownership participation by utilising various commercially acceptable levers Enter into partnerships with Established Miners to participate in skills development of the Black Emerging Miners Consolidation of smaller Black Owned mining resources for development Consolidation of smaller Black Owned mining resources for development Identify Black Owned mining resources that could be consolidated into larger entities for development Investigate synergies for the establishment of coal processing plants Eskom’s Approach to transforming Black Ownership in Coal Supply

Partnerships between emerging miners will need to be underpinned by the following principles: Strong support and alignment with the role Eskom plays as part of a National strategic asset Strong support and alignment with established mining houses and industry forums Joint focus on resourcing the industry (especially with skills) Ethics and integrity of suppliers in line with Eskom’s values and objectives Open and transparent supplier relationships underpinned by a willingness to share information / partner with Eskom Business sustainability and supplier stability over long term relations - pricing based on efficient costs plus a fair risk adjusted return Mechanisms to differentiate activity so that engagements are with parties who are in the business for the long term Operational performance - willingness of supplier to commit to continuous improvement with a shared benefit to both parties B-BBEE compliance and strong ability to promote transformation Legislative compliance Unfolding the strategy with strong consultation and collaboration with all parties

Comments and Suggestions Session The session will focus on comments and suggestions for implementing the Black Emerging miners strategy Public Participation forms will be provided for any suggestions and comments you may have This engagement will be followed by an RFI to gather industry data, which will be used to determine the most appropriate intervention methods for the current industry circumstances Mine Development Fund Mine Development Fund Coal trading as an option to secure coal supply Coal trading as an option to secure coal supply Increase Black Ownership from 26% to 50%+1 share to transform the industry Increase Black Ownership from 26% to 50%+1 share to transform the industry Utilise commercially acceptable levers such as blending and briquetting Utilise commercially acceptable levers such as blending and briquetting Consolidation of smaller Black Owned mining resources Consolidation of smaller Black Owned mining resources Security of coal supply and Development of Black EMERGING Miners Eskom will form the foundation for the development of the Black EMERGING Mining Industry for the security of coal supply and limestone 12345