This is the Mining Industry. Long Cold winters and Short beautiful summers

Transcription

1 This is the Mining Industry Long Cold winters and Short beautiful summers Delivered by: Mr. Mike Teke 4 October 2013

2 Today s conversation This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry?

3 PWC Annual Mining Report Titles 2005 Enter the Dragon 2007 Riding the wave 2008 as good as it gets 2009 When the going gets tough 2010 Back to the Boom 2011 The game has changed 2012 The Growing Disconnect 2013 A Confidence Crisis This Too will Pass!

4 Today s conversation This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry

5 Shifting Risks in the Global Mining Space Skills shortage 2. Industry consolidation 3. Infrastructure access 4. Maintaining a social license to operate 5. Climate change concerns 6. Rising costs (cost inflation) 7. Pipeline shrinkage 8. Resource nationalism 9. Access to secure energy 10. Increased regulation Resource nationalism 2. Skills shortage 3. Infrastructure access 4. Cost inflation 5. Capital project execution 6. Maintaining a social license to operate 7. Price and currency volatility 8. Capital management & access 9. Sharing the benefits 10. Fraud and corruption Capital allocation and access 2. Margin Protection and productivity improvements 3.Resource Nationalism 4.Social Licence to operate 5.Skills shortage 6.Price and currency Volatility 7.Capital project execution 8.Sharing the benefits 9. Infrastructure access 10.Threats of substitutes Source: Business Risks Facing Mining and Metals, and 2013/2014 Ernest & Young

6 Changing World markets. Since 2008, the global commodities markets have been hit by the multiple effects of : The slide into recession in Europe due to the sovereign debt crisis (a critically important market for platinum), The slowdown in economic growth in China (from >10%p.a. in 2008 to 7.7% now), The continued below potential growth performance of the US economy, The global sovereign debt crisis (especially in developed markets EU, USA, Japan), The impact of quantitative easing (low interest rates and printing money) on commodity prices, The recent drying up of liquidity towards mining projects (concern that quantitative easing is not working and the slower growth levels). Source: Chamber of Mines

7 Rising urbanisation, 3 billion people to urbanise by 2050 (most of the growth in Africa) World urban population growth (Billion people) Urban Pop. China India Other Asia Africa RoW 2050 Urban Pop. Source: UN, McKinsey

8 The Global Mining Space Top 6 minerals, expected greenfield production growth for the period Citibank - growth projects by commodity on a production volume basis, Nickel, 11 Uranium, 1 Coking coal, 11 Copper, 27 Gold, 15 Iron ore, 21 Thermal coal, 16 Source: CitiBank

9 The Fraser Institute Vision: A free and prosperous world where individuals benefit from the operator choice, competitive markets, and personal responsibility. Mission: To measure, study, and communicate the impact of competitive markets and government interventions on the welfare of individuals. South Africa has fallen down the rankings 54/93 in 2012 to 64/96 in Based on existing regulations and practice, S.A. is ranked 77 out of 96 countries in 2013 from 62/93 in Comments; 1. Canada Canadian mining regulation and legislation are generally easy to operate under - A producer company with more than US$50M, Company president 2. Alberta Strong mining province, open for business. - An exploration company, Company president 3. New South Wales Stable, not corrupt, has technical potential, skilled labour force, not too green, and sensitive to how mining assist remote development and usefulness of royalties. Pro-mining conservative government. - A consulting company, Company president Continued

10 4. Australia in general Across Australia, political and regulatory panic is seriously impacting the quality and timeliness of decisions, and certainty about access to land is very concerning. The Twitter factor is determining political attitudes and actions, and regulators are reacting to minimize the perceived risk exposure of their ministers. - A consulting company, Company president 5. Botswana Can get work done. Reasonable approval process. Not excessive regulations. Clearly pro-mining culture. Honest civil servants - A producer company with more that US$ 50M, Manager 6. South Africa Strikes, demonstrations, military killing workers. - An exploration company, Vice- president Country with an unworkable political structure - An exploration company, Company president 7. South Africa & Zimbabwe Both South Africa and Zimbabwe are driving social experiments not driven by logic and economy, but by ideology. In the absence of reason, primary industries become the cash cows to fund the un-fundable. The rise of oligarchs in both countries evidences decline. - An exploration company, Vice-president Source: Fraser Institute 2012/13

11 Today s conversation This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry?

12 The South African Mining Industry SA s Mineral Value: 6 main commodities Manganese: 8.8MT produced in 2012, accounted for >20% of global production, 8646 employees. PGM s: 254.3T produced in 2012, with Pt. accounting for 128.6T. #1 producer in the world, 2 nd largest mineral export, employees. Gold: 167.2T produced in 2012, accounted for 6% of global production, ranked 6 th largest in the world, largest component of mineral exports, employees. Diamonds: 7 million on carats produced in 2012, accounted for 12% of global production, employees Source: Chamber of Mines Coal: 258.6MT produced in 2012, largest part of mineral sales, 3 rd largest component of mineral exports, employees. Iron Ore: 67 MT produced in 2012, 4 th largest component of mineral exports, employees.

13 South Africa has significant geological potential South Africa, is not mature mining real estate! The country still has significant geological potential Global rank South African reserves for key minerals, 2008 PGM's Manganese Chromium Gold Alumino-Silicates Vermiculite Vanadium Zirconium Minerals Titanium minerals Fluorspar Antimony Phosphate rock Nickel Uranium Lead Coal Zinc Silicon Iron ore % of global Source: DMR/USGS

14 Perceptions and realities about mining PERCEPTION REALITY Is a Dirt Digger Another R300 billion and jobs created in downstream industries Is uncaring about the lives of workers and does not pay well 67% reduction in fatality rate, average wages per employee up 12% p.a. Does not care about the environment, communities Poverty at the doorstep of prosperous mines Spent R1.4 billion on communities, R4 billion on skills and R25.8 billion in corporate taxes in Profits and benefits exported to a small bunch of Capitalists Shareholders balanced 50% local, 50% offshore, R12 billion in dividends Resistant to Transformation >R150 billion in BEE deals concluded, good progress on all pillars of Charter Does not matter to SA- Ingi Saldago- Business Report- Eskom was right to switch off the Mines 19% of GDP, 50% of exports, 1.3 million jobs, 94% of electricity, 17.2% of corporate tax Source: Chamber of Mines

15 The recent negative news items have resulted in an underperforming mining index on the JSE

16 index 1993=100 Unfortunately, mining has been the worst performing sector of the SA economy over the past two decades South Africa: Trends in real GDP (real 2005 rand terms) per sector, base indexed to 1993 (source: StatsSA) Agriculture, forestry and fishing Mining and quarrying Manu-facturing Electricity, gas and water Construction Wholesale & retail trade; hotels & restaurants Transport, storage & communication Finance, real estate & business services General government services Personal services Overall GDP

17 Fatalities Health and Safety is Key Zero Harm is still the Goal Section 54s Fatalities in the RSA mining industry to date

18 Today s conversation This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry?

19 Confluence of factors have served to complicate the labour market situation Rapid urbanisation (fastest in Africa, people seeking jobs in platinum belt) Political opportunists seeking to capitalise on the situation Workers battle garnishing orders and too much exposure to micro credit Poor service delivery by municipalities, insufficient bulk infrastructure, land for settlement Inter-union rivalry Labour unrest High poverty rates Perception that mines are not doing enough to help local communities High unemployment rates (26.2% versus national average of 24.9%) Perception that mining companies can pay much higher wages Increasing levels of protest against poor service delivery (average 8.8 protests per month in RSA) Source: Chamber of Mines

20 Elephants in the Room AMCU is here Conditions of service, Garnishee orders, Migrant Labour etc MPRDA Amendment Bill. Safety, Costs and Productivity(Work Ethic) Transformation May 2014? Source: Chamber of Mines

21 Today s conversation This too will Pass! The Global Mining space The State of South African Mining The Impact of recent Labour Issues How do we stabilise the industry?

22 How do we stabilise the industry? Acknowledgement that the Game has changed in the Labour front Begin to engage on Productivity(Work Ethic) and Growth matters Accelerate on economic Growth enablers like skills development, investment, infrastructure development etc Eradication of Negative Messages about our Country! Accelerate delivery on the Transformation agenda- This is about Hope! This Too will Pass! Putting South Africa First