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Date : 14/11/2006
Source: Department of Minerals and Energy
Title:Sonjica: China Mining Conference


Address by Ms BP Sonjica, Minister of Minerals and Energy, South Africa at the China Mining Conference

Programme Director
Minister Sun, Minister of Land and Resources of China
Diplomatic Corps represented here
Senior government officials from across the globe
Captains of industry
Distinguished guests
Ladies and gentlemen
It is an honour for me to be presenting to you this morning on the occurrence of the natural resources in South Africa and more particularly on the transformation of this industry that has helped us in attracting investment to our country after the advent of democracy in 1994.

Prior to the democratic era of 1994, South African mining industry was in the grip of political sanctions imposed on our country by the United Nations, forcing the industry to turn inwards, i.e. towards the domestic economy, for growth opportunities. However, there was limited expansion in new domestic mining projects taking place at that time because of low demand for mineral commodities and hence low prices.

The gold mining industry was on the verge of its first major crisis as a result of widespread retrenchments of staff because of rising costs, a lower gold price and rapidly decreasing grades of ore mined. The only major mining-related expansion that occurred was further downstream development into the fabrication of stainless steel.

Moreover, the privately held mineral rights system then in place enabled the large dominant companies to openly sit on substantial mineral assets, large chunks of which had been purchased from previous owners for much later exploitation. This led to a restriction of access to new players for exploitable minerals. With long term plans for mining held in safe custody and international ventures blocked by sanctions, these dominant groups were able to spread their tentacles into other sectors of the South African economy.

By the mid 1990s, however, a new democratic dispensation allowing the stranglehold on the range of economic activities to be lifted had arrived. Hence major mining companies began re-assessing their priorities which entailed divesting from non-core industrial-related projects and a new drive to search for mining opportunities in the rest of Africa and elsewhere in the world.

Today, we have fewer conglomerates and leaner and flatter management hierarchies in the South African mining industry. By 1995 all six of the original dominant corporations had collapsed their tightly held structures. Since 1990, two had re-located their headquarters and moved their major listings offshore. One of these, through mergers and acquisitions, has become the world’s largest mining company; two no longer exist except as cash shells or as minor entities with no real future, and the remaining sixth has been transformed into what is currently South Africa’s largest Black Economic Empowerment (BEE) company.

Despite ongoing attrition and the disappearance of these once large and dominating entities, we as a country, want to believe that our mining industry has performed reasonably well since the dark days at the beginning of the 1990s; which goes to show that the changes effected on mining in this country have not been bad at all. As an example, a cursory examination will demonstrate that there have been big increases in the volume of commodities produced for sale on world markets and the total sales value of these commodities has increased by about 32 percent in real terms since 1991; this after discounting for inflationary and weak currency effects.

The transfer of mineral rights ownership to the State has placed a much higher demand on mineral regulatory activities and this has boosted human resource requirements, especially in the regions where the burden of processing prospecting and mining right applications has increased manifold. As some of you might be aware, The Department of Minerals and Energy in South Africa has a centralised national office as well as nine regional offices. These are organised in such a way that the central office in Pretoria handles issues and services of a more general nature while the regional offices attends to services which apply to the individual regions.

The central pivot of all mining and mineral industry transformation is undoubtedly the Mining and Petroleum Resources Development Act (MPRDA) of 2002, promulgated on 1 May 2004. You will also be interested to note that this law was passed by our Parliament on the Anniversary of the Freedom Charter, which proclaimed since 1955 that the "national wealth of our country, the heritage of South Africans, shall be restored to the people". The main revolutionary change introduced by the new law was that mineral rights should be vested in the State.

Other rulings endorse security of tenure for existing rights and ongoing orderly regulation in an orderly manner. The other main requirement insists that there should be equal opportunity for all. The promulgation of the MPRDA introduced another important document essential to the transformation process, namely, the Broad based Socio-Economic Empowerment Charter, or the Mining Charter for short. The charter is a negotiated document involving government, labour, business and representatives of communities where mining takes place.

There is need to understand that the objectives of the MPRDA are in line with the government’s agenda of transformation. The results of the history we come from cannot be overcome unless government actively relates its work to ensuring the sharing of the wealth of the country among its people.

The process of regulating the mining industry according to the statutes in the MPRDA and precepts of the Mining Charter appear to be up and running and despite the usual crop of teething problems, are respected by most of the players in our mining industry. We still, however, have some way to go in getting agreement on a few outstanding issues, of which the promotion of value addition to minerals is of particularly crucial importance.

The situation as it stands today is such that most of the mining reforms instituted since the proclamation of the MPRDA have been completed. However, in our endeavours of continuing to make the industry more accessible to those who were discriminated in the past, we presented in November 2005 new pieces of legislation to Parliament. These were passed and have recently been signed into separate Acts by President Mbeki, namely:

* the Diamonds Amendment Act No 29 of 2005
* the Diamonds Second Amendment Act No 30 of 2005
* the Precious Metals Act, 2005

These acts have been drafted specifically to encourage further downstream activities in diamonds and precious metals. The Diamonds Acts are aimed at increasing the availability of rough stones in the domestic market, while it is expected that the Precious Metals Act will facilitate more jewellery fabrication in South Africa. In line with inter-government relations and taking South Africa-China relations as an example, we acknowledge and appreciate the efforts of Michael Diamond Factory in the training of our young South Africans in jewellery design.

Programme Director, I wish to assure all who are present that the initial process of reform is therefore complete and no additional outstanding legislation devised specifically for post 1995 reform purposes remains to be drafted.

Although the Department of Minerals and Energy has drafted the relevant laws, it must be emphasised that jurisdiction of the legislation often overlaps with that of other government departments. Hence, the Departments of Environmental Affairs and Tourism, Water Affairs and Forestry, Finance and Health have also taken care to invigilate much of the new laws being administered by the Department of Minerals and Energy.

Although the initial phase of reforms has come to an end, as you know policy and legislation are issues that have to be continuously monitored and updated. This revision of existing and working legislation is ongoing. This is entirely necessary to the extent that whenever some mineral law is deemed no longer appropriate it will be investigated and amended accordingly. This process is needed in order to ensure the future health of our industry, which is particularly fortunate to have such an exceptionally diverse and immensely rewarding mineral endowment to choose from.

With the closure of that intense phase of policy re-formulation and with the writing of new legislation at an end, we in government are faced today with new challenges. Chief among these is the evaluation of the results of our efforts to see if any of our policy and legal innovations have borne or are about to bear any fruit. I sincerely hope that what we have achieved in re-formulating mineral policy, legislation and ultimately regulation will eventually be judged as an honest and realistic intervention aimed at redressing inherited legislation that was patently unjust and out of kilter with equivalent rulings in Africa and elsewhere in the world.

In the meantime the new laws have received their share of criticism in parts of the media. The adverse publicity has focused on poor implementation and management of the legislation to the extent that it is said that junior mining and exploration companies are avoiding South Africa and investing in droves elsewhere in Africa.

However, the situations as reported from our regional offices where applications have to be lodged speak for themselves. It is interesting to note that since the promulgation of the MPRDA, the Department of Minerals and Energy received well over 9 000 applications for various types of rights covering a range of mineral commodities. Thus far, a final decision has been made in respect of more than 3 000 of these applications. This number of applications in a period of two years since the inception of the MPRDA in 2004 is unprecedented in South Africa’s mining and minerals history. It proves without a shadow of a doubt, that investor-interest and confidence are in fact on the rise and not declining as some reports in the media have alluded to. Furthermore, this resurgence of interest in prospecting and mining has been the catalyst that has also prompted black South Africans to venture into prospecting and mining activities.

Despite this, we still receive complaints from mining industry players, most of which are usually about how long it is taking to process prospecting applications. I accept this is a problem and part of the teething process usually affecting all major innovations. A large number of these complaints, I believe, revolve around the conversion of old order rights to new order rights. We are, of course doing our level best to assist the mining companies to comply with Social and Labour Plan requirements, as well as BEE requirements.

Apart from bringing in changes in the Mineral Development Branch to cater for the increased work load due to the flood of applications, the Department has also developed and is continuing to develop a world-class computer-based licence administration system which, once fully operational, will also provide an ongoing service offering mining and mineral-related information to the public. Outside the challenges mentioned above, the other specific challenges we in government face I believe, therefore, will relate mainly to the following:

Black Economic Empowerment

After a good deal of announcing successful empowerment structures, BEE in the mining industry seems now to be showing some of its less-redeeming features. I don’t want to demonise the good that has emanated, as there are many deals with sound fundamentals operating successfully, but there are also many examples of dishonest ventures being put together.

Unfortunately, the BEE process has thus far not been as broadly based as anticipated. The process of empowering Historically Disadvantaged South Africans (HDSAs) started out as a specific political issue needing rectification. I think all fair-minded South Africans agree that if we are to guarantee a future politically stable South Africa, it is necessary that the majority of our population should become fully enfranchised and economically empowered across racial lines.

A lot of the criticisms have revolved around BEE deals as being structured too complex. Some of these are being done to hinder rather than assist the parties from acquiring the required equity in the companies concerned. There are other instances of blatant fronting, where contracts are being put together merely for having HDSAs as tokens, in order to escape the short-term consequences of non-compliance with charter obligations. In other instances the BEE participants are only intent on creating wealth for themselves. There are thus cases where companies have been established solely for speculative purposes in order to make quick profits and without the intention of exploiting any minerals.

These are problems we have to put an end to as quickly as possible otherwise the main objectives of BEE will undoubtedly end in failure. To counteract this, we need to ensure the significant involvement of BEE partners in all aspects of the mining operations

Job creation

Creating jobs is one of our top priorities. The mining industry has been recognised as a crucial sector for decreasing unemployment and contributing towards development of local players. Going hand in hand with this is poverty alleviation. In order to guarantee future stability in our country the presence of large concentrations or communities of people living in abject poverty should be avoided at all costs. One of the ways of reducing poverty in our land is through assisting in the formation of enterprises that create jobs and hence a crucially important function of the department is the promotion of investment in mining.

Skills development

In order to empower people to be able to obtain employment we have to promote diversified and comprehensive skills development. We will continue to exert our efforts in this vein by supporting the Mining Qualifications Authority and other institutions involved with education at the tertiary level. We will also support training programmes at levels below the tertiary level, such as Adult Education and Training (ABET) for those HDSAs that did not receive the advantages of higher education because they were unfortunately born in the wrong time.

Mineral resource exploitation The Department of Minerals and Energy needs to continue promoting investment in unexploited but economically viable mineral deposits in order to maintain and enhance our currently high global competitiveness in mineral production and sales. Minerals have traditionally been one of South Africa’s greatest strengths. Steps taken to ensure that this continues will involve ensuring, in co-operation with treasury and other government departments, ongoing macroeconomic stability, advising on the need to maintain a fiscal and vital investment environment and maintaining competitive energy prices. We should also continue supporting research and development as well as technology development and its transfer into the economy. We should be looking at these mineral issues in more detail. Large-scale mining needs to be continually encouraged for this is the level from which major economic advantages for the economy will accrue.

However, we should not forget Junior Mining which has proved to be extremely resourceful worldwide. It usually occupies the forefront in the development of new mining projects and thus often becomes closely associated in a useful partnership with larger mining companies.

Neither should we neglect small-scale mining. Often stigmatised by its horrendous environmental degradation, artisinal mining can nevertheless be a force for positive change if properly regulated. Promoting small-scale mining is an opportune way for kick-starting job creation and ancillary economic activities in impoverished areas. We also need to continue governing the mineral and energy sectors of our economy so as to secure safe and healthy working conditions in mining and to ensure a clean, healthy and unpolluted physical environment.

Beneficiation

The need for value addition to our mineral products has become a paramount issue in the South African economy and is seen as essential for its future development. Throughout most of the last 100 years or so of our mining-related history we have been exporting most of the minerals mined as ore or in a semi-processed state. More recently, within the last 25 to 30 years, we have taken the processing of our minerals a little further down the mineral value chain and the gains achieved over and above exporting minerals in their primary and even refined form is clear in black and white for all to see.

Minerals processed into ferroalloys including the production of imported semi-processed alumina for aluminium metal production and a variety of other processed products currently constitute the only real long-term growth sector in our mineral industry. In real terms export sales of primary minerals have declined at an annual rate over the same period.

If we as a country are going to remain competitive in a global sense, therefore, where justified, higher levels of value addition to existing products is needed before exports occur: first of all to primary minerals and secondly to processed minerals.

This means we should be prepared to fabricate more of our semi-processed and processed products further down the value chain into the manufacturing sectors of the economy. It is imperative that we diversify our economy to prepare for the challenges of a new order in the world. If we can develop a stronger and more diversified economy than we have at present it should enable us to deliver the benefits of higher standards of living to our people as well as being able compete on equal terms with other major players in that new order. Having only relatively inexpensive commodities to supply that world with in the future, will not be in our best interests.

Infrastructure investment programme

As part of implementing our government policy on energy security, we have embarked on a process of procuring about 1 000 megawatt of new generation capacity, through a competitive Independent Power Producers process. The primary aim of the project is to ensure that the most appropriate generating plant to meet South Africa’s power requirements is commissioned in time, to avoid threat to security of supply. It is envisaged that the new Independent Power Producers capacity will be developed in time to meet the year 2009 peaking capacity needs.

The government has also directed Eskom to commission a 1,4 billion USD programme aimed at improving generation, transmission and distribution capacity of electricity. The electricity build programme includes the refurbishment of existing power stations, the building of new generation capacity and the generation of alternative, cleaner sources of energy. A number of programmes are already underway. These include:

* the refurbishment of mothballed stations like Camden (2 x 380 MW is already on, with a further 760 MW by 2008), Grootvlei (1130 MW between 2007 and 2009) and Komati (900 MW between 2008 and 2011)
* the construction of two new peaking stations - Atlantis and Mossel Bay (1 050 MW)
* other new base load plants are in the pipeline, including a coal-fired power station code named 'Project Alpha' of about 2 000MW.

Our government is acutely aware of rail and port infrastructure bottlenecks facing the growth of the mining industry. As a first step, we will be convening a joint workshop involving stakeholders from mining industry (including some Russian Federation companies), Spoornet, National Port Authority, Eskom and other key stakeholders with a view of crafting a way forward. The outcome of this process would help shape the development of a coordinated permanent strategy.

Before closing my presentation here today, I would like to share with you our plan on addressing challenges within the mining industry. In order to address the processing challenges the department has unveiled a plan which is designed to facilitate the smooth processing of applications. In terms of this plan all prospecting applications will be finalised within a period of six months from the date of lodgement, whilst mining right applications will take 12 months to finalise. In order to give teeth to this plan, these time frames are incorporated into the performance agreements of the relevant managers. Performance evaluations both of individuals and Directorates will be used an instrument to enforce the adherence to the plan.

In conclusion, I challenge all major stakeholders to share responsibility for the developments that will affect the future of our mining industry. The South African Government’s economic policies are based on the principles of private enterprise and the free market mechanism.

This has allowed the mineral industry to develop without undue State intervention, leaving market forces to dictate the pattern of its development. Furthermore, it is certainly not our intention in government to subvert these principles. Our industry is part of a worldwide interaction of intensely competitive economic activities revolving around supply, demand and consumptive behaviour affecting a broad range of mineral commodities.

I would therefore like to invite you to be part of these exciting times in our economy. I wish to also acknowledge the active participation as a sign of confidence by some of the companies from the Russian Federation, within our mining industry, as an indication of the effectiveness of our regulatory system. This is a challenge to other companies to follow suit.

Thank you.

Issued by: Department of Minerals and Energy
14 November 2006

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