Date: 06/03/2007

Source: Department of Minerals and Energy

Title: Sonjica: Mining breakfast in Toronto


Opening address of the Minister of Minerals and Energy, Ms Buyelwa Sonjica, at the Mining Breakfast in Toronto, Canada

Challenges facing the South African mining industry during the first two decades of the 21st century

Master of Ceremonies
Distinguished ladies and gentlemen

I am deeply honoured to be given the opportunity here in Toronto this morning to present the opening address at the eighth annual Mining Breakfast, which also coincides with the 75th anniversary of the world famous Prospectors and Developers Association of Canada Convention.

The Department of Minerals and Energy, which I lead, is responsible for legislation with regards to issues of mining and energy. Whereas this is true for the two legs of my portfolio, today I will confine myself to those issues impacting on mining.

The exploitation of minerals laid the foundation for the development of the modern South African economy. It was mainly on the back of such mining activities that rapid growth in infrastructure occurred and emerging manufacturing and financial services sectors flourished and supported the growing mining industry during the first half of the 20th century.

Today, despite being succeeded by the manufacturing and services sectors in terms of contribution to the South African Gross Domestic Product (GDP), our mainstream mining industry still accounts for over 30% of the market capitalisation on the Johannesburg Stock Exchange (JSE) and is characterised by its high degree of technical expertise and the facility with which it is able to mobilise capital for new ventures.

Ladies and gentlemen, South Africa's mineral wealth is legendary as many speakers have testified in the past. Suffice it to say that we have the largest resources in the world of platinum group metals (over 85 percent) chromium (over 70 percent) manganese (80 percent) and gold (40 percent). We also contribute significantly towards the global production of coal and iron ore, to name but a few.

Gold, which was the main contributor to the revenue generated by the mineral industry for over a century was recently replaced by platinum group metals as the top revenue earner. In 2005 gold was displaced to third place in the income stakes behind coal. Our currently exploitable gold resources are rapidly being depleted as grades are falling and costs rising. Most of the remaining 40 percent lie at depths greater than 4 000 metres below the surface and are presently too deep to mine. With the current high prices being fetched for platinum, palladium and rhodium, the platinum group metal industry is very buoyant and expanding very rapidly. Platinum group metals are today the new stars of our mining industry.

We have recently entered a new millennium and if many analysts and market watchers are to be believed at the same time a new bull phase in the commodity cycle has commenced. It appears this is one that could last for a few decades, if the main drivers of booming commodity prices, the exploding economies of China and India, are anything to go by. It is therefore imperative for those of us who live in the so called "developing world" to take full advantage of the current boom in prices before the cycle reverses again.

In Africa, over the last five years or so, mineral commodities have become the potential life blood that could finally bring economic growth and development to many areas of the continent where poverty is a major problem creating real wealth and as a spin off the prospect of social harmony in the current strife torn areas.

Even in South Africa, current production rates are insufficient to meet the tremendous increase in demand despite our longstanding history of mining and well established infrastructure. To capitalise on the current boom we need to invest significantly in increasing the output capacity of existing as well as new mines. South Africa still has an abundance of the key mineral products needed to sustain the rampant economic growth currently taking place in the world and so not exploiting the current cycle of booming demand for mineral commodities to the full will represent a major lost opportunity which the South African economy can ill afford.

Going forward into the future, there are other key elements of our complex mining industry of which not all will lie beyond our control or influence. These will continue to present stakeholders with increasingly challenging options.

To this end a comprehensive study which is expected to identify current and potential challenges that could affect the industry's future sustainability is being carried out.

Ladies and gentlemen, we the main stakeholders making up the South African mining industry have committed ourselves towards pooling our resources to ensure that we remain the mineral producing success story of Africa. We owe this to all the people of our country as well as to all the investors, old and new, that are counting on the industry's propensity to continue delivering economic rewards.

We also have to fulfil our duty as an economic sector in conformity with the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) programme as articulated by our Deputy President in 2005. This programme aims at attaining an annual economic growth rate of 6% by 2009 and halving employment by 2014.

The Department of Minerals and Energy will, therefore, continue promoting investment in unexploited or minimally exploited but economically viable mineral deposits thus maintaining and enhancing our currently high global competitiveness in mineral production and sales. Steps taken at state level to ensure that mineral exploitation continues to play a major role in supporting our economy will involve the Department of Minerals and Energy in co-operation with other related government departments. The steps taken will include:

* maintaining ongoing macroeconomic stability
* advising on the need to maintain a fiscal environment that will always encourage investment in the industry
* maintaining competitive energy prices.

We will also continue supporting research and development as well as developments in mineral technology and the transfer of benefits arising from these into the economy.

There is a very real need for assisting in mining promotion at three separate levels, these being:

1. Large scale mining needs to be continually encouraged for this is the level from which the major economic advantages for the economy will accrue.
2. Junior mining needs to be welcomed and encouraged as these have proven themselves to be extremely resourceful worldwide, pioneering many of the mining projects currently being developed.
3. Small scale mining should also not be neglected especially in Africa. Often stigmatised by its environmental degradation, artisanal 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 will also ensure a high level of governance in the mineral and energy sectors of our economy so as to secure safe and healthy working conditions in mining and ensure a clean, healthy and unpolluted physical environment.

As many present in this audience today probably know, governance of the South African mineral industry has always been built around free market principles with government doing the regulating and law enforcement and the private sector their own marketing and sales. Unfortunately, over the long term, not all of South Africa's citizens have been able to receive their fair share of the economic benefits or rewards emanating from the country's mining sector. For some 100 years black people were prevented from participating fully in the mainstream economy of the mining industry.

The legacy of apartheid and colonialism systematically excluded black people, who form the majority of our population from meaningful participation in the economy. Furthermore, this policy was entrenched through the actual imposition of mining laws that specifically prevented black people from owning or working in managerial positions in mining ventures except as menial and lowly paid workers.

The above are some of the reasons that South Africa has taken a decision to ensure the addressing of past imbalances takes place and that this will include actively making it a point that women are empowered to not just work in the mines, but become actual owners and thereby active role players in the industry.

Since the advent of democratic government and a new Constitution in 1994, therefore, after a phase of thorough policy revision once again involving full consultation with all participants, our mineral legislation was completely overhauled and re-constituted as the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 which came into force on 1 May 2004.

The new legislative framework has subsequently made significant strides towards redressing the imbalances of the past. One of its products is the Mining Charter, a document, ladies and gentlemen, espousing the cause of Black Economic Empowerment (BEE) and which is founded on an accord reached between government and the private mining sector.

Since 1996, 10 years of consistent economic growth has been recorded and macroeconomic growth and monetary stabilisation have been achieved. With regard to the introduction of the Mineral and Petroleum Resources Development Act (MPRDA) and Mining Charter, I can report that existing mining operations have not been disrupted and the Department has instead observed an increased interest in exploration applications both from local and foreign investors. Furthermore, the inclusion and participation of blacks has not disrupted the economy and has instead contributed towards economic growth.

There has been much interest shown from all sides in how the Department of Minerals and Energy is faring with the application process under the MPRDA. I am pleased to report that we have, from the time of enforcement of the Act on 1 May 2004, received a total of 10 900 applications of which 94 percent of the prospecting rights' licences, 62 percent of the mining rights' licences and 84 percent of the mining permits have been finalised. This means that the Department is now successfully processing prospecting licences and mining permits within the six month timeframe stipulated in the Act for completion and inside the one year time allowed for the finalisation of mining rights.

The National Mining Promotion System (NMPS) forms an integral part of our future goals for regulating the mining industry and as such represents a major challenge for the Department. The first stage of a GIS-based cadastral system set up to cater for the processing of licensing applications is up and running and is already leading to much quicker turnaround times for the processing of prospecting and mining applications.

Hence the period for processing mining rights in South Africa is not now really any different from most other mining jurisdictions worldwide.

I have been informed that one of the delegates at the BEE seminar on Saturday, 3 March, singled out a recent delay in the application process tendered by one of his clients. The client was immediately contacted and informed him that the application was actually finalised and his company communicated with, which process he was able to verify with his colleagues. He has since sent a sms apologising for his error. I have been asked by the officials from the Department travelling with me to indicate to him that his apology is accepted.

Recently we in South Africa have taken the processing of our minerals further down the mineral value chain and the economic gain achieved over and above exporting minerals in their primary form and even as refined metals has for us become abundantly clear.

If we as a country are going to remain or grow in a competitive sense internationally, therefore, where economically justified higher levels of value addition to existing products is needed before exports occur: first of all to primary minerals and secondly even to processed minerals where the opportunity to exploit markets exists.

The African Mining Partnership is an outcome of the New Partnership for Africa's Development (NEPAD) programme which was conceived at the Organisation of African Unity (OAU) summit in Lusaka in 2001. Many African countries possess abundant mineral resources such as: gold, copper, diamonds, oil and heavy minerals. It therefore makes perfect sense for the African ministers responsible for mining to get together and share experiences and expertise.

I have to emphasise that South Africa continues to be a good investment destination because we have the competitive advantages of good infrastructure, and long term expertise that has assisted with development and sourcing of the necessary technology. We also have a legal and financial framework that speaks to the needs of the investor. As our Minister of Finance has already alluded to it, the issue of flow through shares is taken seriously by government as this will help in further entrenching the best environment for investors.

Before closing my presentation here today, I would like to challenge all major stakeholders to share responsibility for the developments that will affect the future of our mining industry. The principles of private enterprise within a free market have allowed the South African mineral industry to develop and flourish without undue state intervention for well over a century, and 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. In how we react to global developments in concert will determine whether we stand to gain or fall together.

Ladies and gentlemen, I thank you very much for allowing me to address you here today.

Issued by: Department of Minerals and Energy
6 March 2007

Last Modified: Tue, 13 Mar 2007 08:20:00 SAST