HOW CAN BOTSWANA CAPITALIZE ON THE MINING SECTOR TO ENSURE ECONOMIC GROWTH & DIVERSIFICATION? Botswana Investment & Trade Conference 20-21 November 2013 Bridgette Radebe EXECUTIVE CHAIRPERSON: MMAKAU MINING PRESIDENT: SOUTH AFRICAN MINING DEVELOPMENT ASSOCIATION (Junior Mining Chamber)

The African Socio-economic and Political paradigm shift and resulting economic successes In 2011, the real GDP of Africa recovered and grew by 5.2% after increasing by 5.3% in 2004 and collapsing through 2008-2010 From 2009 to 2011, Africa’s GDP grew at an average annual rate of about 3% In 2011, the GDP increased by an average of 6.3% in African petroleum-exporting countries Africa’s economy is projected to grow by 4.8% in 2013 and accelerate further to 5.3% in 2014. (AFDB- Africa Economic Outlook) To achieve the above we need structural transformation based on natural resources to address the socio-economic and political challenges created by the resource curse. The resource producing countries in Africa need to function under a meaningful and effective transformative legislation. Many countries are in the process of developing such legislative frameworks, eg: The Mineral Petroleum Resources Development Act has been used in South Africa to redress the historic socio-economic and political imbalances in the mining sector. Source: US Geological Survey Minerals Year book 2011

Historically, Investments in Mining had an exploitation culture in Africa: Eg: Case Study South Africa Militant labour force fighting exploitative labour practices No black ownership Monopolistic industry in South Africa pre 1994 No royalty payments to rural communities Ghost towns Neo-colonialism

Economic exclusion of the Majority – a recipe for instability Barney Bernato Monopolistic industry dominated by large mining houses, large-scale mining operations No junior companies History of legal, institutionalized exclusion of blacks and women, eg black advancement prohibited in the following fields: (eg. certificated miners, apprentices) in the mining sector impeded by law (eg. Scheduled Persons Clause, Mines and Works Act) until 1987 After 1987 the historic exploitation of black workers, rural communities and women in the mining industry prevailed Unionisation and major labour uprising a daily practice Civil unrest – the norm Monopoly of the industry by four companies The Junior Mining Sector stifled Financial institutions adverse to junior mining investments The state was not the custodian of the mineral rights hence Foreign investments stifled Godfathers of the old order gold and diamond rush in South Africa Cecil John Rhodes Ernest Oppenheimer Exclusion of Women

Post 1994: Legislative Transformation Major contributor towards paradigm shift State intervention: Need for legislative change recognized through: The Mineral and Petroleum Resources Development Act The State became the custodian of the Mineral rights The Mining industry liberated to the inclusion of Historically disadvantaged South Africans Foreign direct investment flowed. The creation of the Mining Charter and the new mining legislation became the backbone of the paradigm shift Fair Labour Laws Rural Communities became beneficiaries of their Mineral Wealth. Former President Nelson Mandela Opens Parliament 1997

SA Mining Charter from 2004 – Creating an enabling environment in the paradigm shift 26% equity participation in 10 years time 40% black managers within 5 years 10% women participation within 5 years 100% literacy within 5 years BEE procurement Beneficiation Social plan and labour plan

Post 1994: The transformation march towards the paradigm shift State becomes custodian of mineral rights In line with international norms Historically Disadvantaged South Africans and foreign investors get access Growth in Junior mining companies Balancing the playing field

The Mining Industry to Graduate from the following Historic Mining Investment Model: Explore + Extract + Exploit + Export = Ghost Towns + Resource Curse From Exploited Mining Environment To Sustainable Mining Environment Massacres and Ethnic Cleansing Rape of Mineral Wealth fare - Weapon of war Conflict Diamonds the Root of all Evil Conflict Diamonds the Root of all Evil

This land must be healed This land, the whole land Will be healed, must be healed These brazen cities, the swollen mines The mineral of our sweat The teeming ghetto, the dormitory cells In towns and squalid squatter camps Where hope smothers in a tyre These furnaces of human indifference must incinerate With all the heat of a healing fire Those were the dark ages of mining And now the winds of change are blowing A brighter new future our way- A future of Global Mining Transformation A future of the paradigm shift - Don Matera

Mining industry post state custodianship of mineral rights – the fruits of paradigm shift  Liberalisation of mining industry Mining regulation in line with international practice Development of junior mining sector Mushrooming of exploration companies Rural community equity participation and payment of royalties to rural communities Creation of Integrated Development Plans and eradication of ghost towns Robust procurement opportunities Beneficiation - an engine for economic growth       

Robust growth opportunities in the South African mining industry Total contribution of mining in South Africa – 2011 data (estimates) Total contribution of mining: GDP: $49-billion or 19% Jobs: 1 350 000 (16% of total employment) Mining does not account for just 6.2% of GDP. Rather, if the indirect multiplier effects are included the total is closer to 19%. The multiplier effects of mining are significant.

How did South Africa capitalize on the mining sector to ensure mining growth and diversification? Mining remains a key contributor to the South African GDP 19% of GDP (directly and indirectly) 38% of merchandise exports (primary and beneficiated mineral exports) 12% of fixed investment (directly and indirectly) Attracts significant foreign savings (R1.9trillion or 43% of value of JSE)

How did South Africa capitalize on the mining sector to ensure mining growth and diverfication? Mining remains a key contributor to the South African GDP Accounts for 13.2% of corporate tax receipts (R17billion in 2010 and R6billion in royalties. 16% of formal sector employment (directly and indirectly) 50% of volume of Transnet’s rail and ports 94% of electricity generation via coal power plants 40% of electricity demand. About 37% of the country’s liquid fuels via coal

Mining remains a key contributor to the South African GDP Accounts for R441billion in expenditure and R407billion spent locally. The total mining expenditure in 2010 was R441-billion, of which: R228.4-billion was spent on purchases and operating costs (timber, steel, explosives, electricity, transport, uniforms, etc. R78.4-billion went on salaries and wages for mine employees. R49-billion on Capex (the lifeblood of mining). R17.1-billion in tax. R16.2-billion in dividends (only 3.7% of total). R38-billion on depreciation and impairments. R13-billion on interest to the banks

Procurement since 1994 – the leading force behind enterprise development in the paradigm shift 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 41 000 suppliers (2500 Narrow Based HDSAs 500 BBEE) 2 Source: SAMPPF - 2006

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 65 000 suppliers (4500 Narrow Based HDSAs 12000 BBEE) 2 Source: DECTI - 2008

Botswana, A leading example of the country First strategy: A catalyst for economic growth and diversification The Diamond Trading Company Botswana (DTCB), is a successful example of an economic paradigm shift. The relocation of the Diamond Trading Company from London to Botswana is the new beginning of an economic revolution to develop from diamond sorting and valuing into beneficiation of minerals in Africa. The country first approach is implemented through the creation of the DTCB We salute President Khama and the people of Botswana for creating the Okavango Diamond Company which will secure the supply of diamonds to international diamond traders and investors. This is a great step towards liberating the diamond industry into beneficiation and diversification. The Country First Strategy Prevails.

Country First Economic Policies in the Paradigm Shift The majority sentiment is that strategic minerals should not be foreign owned. E.g. let us learn from the example in Canada. 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). ‘Country First Strategy!’ Should result in a net benefit for its people and its economy.

Beneficiation a catalyst for economic growth and diversification In 2010, South Africa as a resource economy was estimated to possess approximately $2.5 trillion in non-energy in situ mineral wealth, making it one of the wealthiest mining jurisdictions in the world. There was a need for South Africa to transform its mining industry culture from exporters of mineral ores or semi-processed minerals to high value intermediate and finished products (Beneficiation).

What has South Africa learned from Botswana’s and Canada's Country First Mining Strategy? South Africa identified 11 Strategic minerals, SAMDA has included two additional minerals which are strategic and pivotal for the country’s developmental needs 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 job creation potential 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 proposed the following minerals to be Additional Strategic Minerals 12 Phosphate food security and fertilizer supply 13 Limestone Required for cement manufacture and construction projects *SAMDA - South African Mining Development Association

Beneficiation: A Government Led Value Chain Strategy The 11 commodities have been clustered according to their value chains. The government has identified five value chains that will be the preliminary focus of the new Beneficiation Strategy. There are instances where some of the commodities share value chains, such as Gold and Platinum. The five value chains are: • Energy commodities(coal, uranium and thorium) • Iron and steel (iron-ore, chromium and manganese) • Pigment and titanium production (titanium and vanadium) • Autocatalytic converters and diesel particulate filters(platinum) • Jewellery fabrication (diamonds, gold and platinum) Each value chain requires specific collaboration and interventions in order to maximise the value extraction of the associated minerals. Each value chain has its own unique beneficiation strategy, which can be further unpacked.

Iron and Steel Value Chain Jewellery Fabrication Infrastructure PGM Value Chain (Energy- Fuel Cells) Energy Value Chain

Beneficiation Incentives Created By Government Through The Following: Industrial Development Zones, eg: Airports or Harbours (Mining companies have the opportunity to establish beneficiation plants at an IDZ) Special Economic Zones (SEZ) - A geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone – eg: Tax incentives from 28% to 15% Corporate tax rate reduction.

Section 12 I Tax Allowance Incentive (12I TAI) (SARS) The Section 12 I Tax Incentive is designed to support Greenfield investments (i.e. new industrial projects that utilise only new and unused manufacturing assets), as well as Brownfield investments (i.e. expansions or upgrades of existing industrial projects). The new incentive offers support for both capital investment and training.   The incentive offers: R900 million in the case of any Greenfield project with a preferred status; R550 million in the case of any other Greenfield project; R550 million in the case of any Brownfield project with a preferred status; R350 million in the case of any other Brownfield project; An additional training allowance of R36 000 per employee may be deducted from taxable income; and A maximum total additional training allowance per project of R20 million, in the case of a qualifying project, and R30 million in the case of a preferred project

INTERGRATED RESOURCES DEVELOPMENT MODELS A Integrated Mining Development Partnership with Local, Provincial and National Government, as well as Producers, Labour, Rural Communities, Business and various other stake holders. Objective is to create a sustainable mining economy in the rural areas where mining production takes place in a model that will develop the mining areas , rather than creating Ghost Towns.

The Integrated Solution Model 26

Municipalities in Context 27

The Mining Industry in Context SLP – Social Labour Plan LED – Local Economic Development 28

Mining Companies involved in Rural Upliftment Partnership Models through Producers Forums: Akanani Mining (Pty) Limited Anglo Operations Limited Anglo Platinum ARM Platinum (Pty) Limited ASA Metals (Pyt) Limited Assmang Limited (Dwarsrivier Mine) Barplats Mines Limited (Rhodium Reefs) Boynton Investments (Pty) Limited Chromex Mining (Pty) Limited Corridor Mining Resource (Pty) Limited Eastern Platinum Limited Impala Platinum Limited Lebowa Platinum Marula Platinum Modikwa Platinum Mine Joint Venture MTC Minerals Northam Platinum Limited Pan Palladium South Africa (Pty) Limited Plateau Resources (Pty) Limited Platreef Resource (Pty) Limited Rustenburg Platinum Mines (Pty) Limited (Eastern Limb Development) Samancor Chrome Limited Sishen Iron Ore Company (Pty) Limited Two Rivers Platinum (Pty) Limited Umnotho weSizwe Investment Holdings Limited Veremo Holdings Limited Westen Platinum Limited (On behalf of Messina Platinum Mines Limited) Xstrata South Africa (Pty) Limited SLP – Social Labour Plan LED – Local Economic Development 29

Public Private Partnership Funds Invested in creating a Sustainable Rural Economy in Sekhukhune District Limpopo 30

RBCT COAL EXPORT ENTITLEMENT

Richards Bay Coal Terminal

Trans Kalahari Corridor T K C

Paradigm Shift Success Stories: The Rural Community Perspective Royal Bafokeng Holdings is an excellent role model for rural community ownership initiatives: Market Capitalisation: R40 billion (This is a combined figure of all its investments on the JSE - 2011). Dividends are invested in rural renewal projects. In past 10 years over R5 billion invested in clinics, education, public utilities. Great mentorship to other rural communities and other socio-economic development projects. Most its mines are situated in rural areas. Mining is a catalyst for rural development. Source RBN financial report : 2006

Paradigm Shift Success Stories: Women in Mining Perspective – MMAKAU MINING ENERGY STEEL AND ALLOYS PRECIOUS METALS 26% 6.5% 65% Eureka Gold Mine Karoo Uranium 9% Hernic Ferrochrome Marula Platinum Mine 100% 15% Mmakau Energy Madibeng Exploration 51% Mmakau Coal SA 26% 51% 26% 26% 100% Dorsfontein Coal Mine Tumelo Coal Mine Brakfontein Reserve Forzando Coal Mine Schurvekop Reserve www.mmakaumining.co.za

Paradigm Shift Success Story: Patrice Motsepe - African Rainbow Minerals African Rainbow Minerals (ARM), is a diversified mining company with interests in platinum, coal, gold, iron ore, manganese and chrome. Market Cap of R41,7 Billion (2013). ARM has spent R300 million in 3 years on Local Economic Development and Social & Labour Plans. R85 million on Rural Community, women, youth, church and trade union upliftment projects.

The Mining Industry Paradigm Shift

Many achievements in the Long Road 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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