Discussion Document on a Minerals and Mining Policy for South Africa

Compilation

Aim

Contents

• Preamble

• Mineral Policy Process

• How To Make A Submission For The Green Paper On A Minerals And Mining Policy For South Africa

• What This Document Contains

• Introduction

1. Business Climate
   1.1 Points Of Departure
   1.2 Investment And Regulatory Environment
   1.3 Taxation
   1.4 Electricity
   1.5 Transport
   1.6 Competition

2. Access And Ownership

3. Resource Management
   3.1 Mineral Rights
   3.2 Security Of Tenure

4. Exploration

5. Environmental Management

6. Small-scale Mining And Mineral Development

7. Exploitation

8. Downscaling

9. Mining Safety And Health

10. Human Resources
    10.1 Human Resource Development
    10.2 Housing And Living Conditions
    10.3 Migrant Labour
    10.4 Industrial Relations And Employment Conditions

11. Mineral Beneficiation

12. Mineral Marketing

13. Research And Development

14. Regionalisation And Internationalisation

15. Governance
    15.1 Management And Promotion
    15.2 National, Provincial And Local Authority
    15.3 Stakeholder Consultation

Draft Discussion Document on a Minerals and Mining Policy for South Africa

Preamble

This initiative aims to create a dynamic process to address the present and future challenges to the industry. It further proposes to bring about change within the context of a dedication to partnerships, social commitment, and environmental responsibility. It aims to seek a prosperous and enduring mining industry within the framework of an evolving and sustainable South African society.

The problems confronting the South African industry are many and varied. In the gold sector, where the price has remained static for a long time, a number of mines are nearing the end of their working lives and are having to contend with rising operation costs, increasing depths and actual or potential retrenchments. The industry as a whole is responding to the far-reaching recommendations of the Leon Commission on Health and Safety, as well as adapting in all areas of socio-economic life to the country's new policy and institutional environment. Environmental pressures are becoming increasingly potent in respect of individual mining projects, with prospectively direct implications for cost. Externally, there is increasing competition, both in commodity markets and for investment, from countries that have significantly lower cost structures and that arguably are ahead of South Africa in terms of economic reform.

The overall picture is far from gloomy, however. South Africa remains by far the largest producer (and holder of reserves) of many of the world's principal minerals. There are, even in the troubled gold sector, major new capital projects being implemented. Further, fresh approaches to the organisation of work, including but not confined to the introduction of so-called "full calendar operations", offer the prospect of major advances in the utilisation of labour and capital; if realised, such improvements could transform the outlook for the gold mines. In addition, certain sectors - notably coal, ferro-alloys and some base metals - are currently enjoying very favourable world market conditions, which are enabling the companies to commit to sizeable investment programmes and to position themselves well in relation to future price fluctuations.

Against this complex background, the industry's principal stakeholders - Government, business and labour - have concluded that a consultative and non-adversarial process is needed to develop a strategic vision and policy framework for the industry to take it into the next century.

It is the intention, through this document, to provide information and to stimulate debate on a mining and minerals policy for South Africa in a process that is transparent and accessible to all stakeholders in the mineral industry. In this regard, ample opportunity will be given for participation through public and plenary meetings, bilateral discussions, workshops, and by means of written comment.

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Mineral Policy Process

1. Background

The Working Group comprised of two representatives from each of the following constituencies: Mining business, organised labour, the Department of Mineral and Energy Affairs and the Parliamentary Portfolio Committee on Mineral and Energy Affairs. NEDLAC declined to participate in the Working Group, but the Trade and Industry Chamber of the Council took the view that the draft policy document should be tabled with NEDLAC.

The Working Group had the following mandate:

To work out a mechanism and the time-frame whereby minerals policy formulation can proceed urgently, by means of an open and transparent process, allowing for full participation by all stakeholders. To report back to the full meeting of the stakeholders on the proposed mechanism.

The Mineral and Energy Policy Centre (MEPC) acted as a secretariat to the Working Group, which met on eight occasions.

2. Recommendations of the Working Group

The process recommendations should be reported to the direct stakeholders (Government, labour, business) in the mining industry.

2.2 Public Consultation About the Process

Once the direct stakeholders have given their approval, a public meeting will be convened (via media advertising as well as by direct invitation, where feasible) for presentation of the process recommendations. The meeting should be chaired by the Minister of Mineral and Energy Affairs.

The Working Group will, in the light of the public meeting, formulate final proposals for the policy development process.

2.3 Working Group

The Working Group should be dissolved as soon as the Steering Committee (see below) comes into being.

2.4 Creation of a Steering Committee

2.4.1 A Steering Committee should be established to finalise and oversee implementation of the Working Group's proposals.

The Steering Committee should be a tripartite committee comprising representatives of business, labour and Government (from both the legislative and executive branches). The number of representatives, to be appointed by their respective constituencies, should be:

Minimum                            Maximum
* Mining Business                     24 
* Organised labour                    24 
* DMEA                                24 
* Parliamentary portfolio committee   24

2.4.3 The Chairman of the Steering Committee should be drawn from Government.

2.5 Public Meeting/Plenary of Stakeholders

2.5.1 At the public meeting, the Minister as chairman will seek broad consensus on the formation of a public forum which will represent all interested and affected parties to the process.

The forum contemplated may take the form of a public meeting or a representative plenary of direct stakeholders and all other interested parties.

2.5.2 Meetings of this forum will be convened at appropriate intervals. The Steering Committee will report back to the forum for the purpose of:

• keeping all parties informed of progress;
• soliciting the views of all parties;
• seeking broad endorsement of policy proposals.

2.6 Role of the Steering Committee

2.6.1 The Steering Committee will take receipt of a chopping block document, which will be jointly prepared by the DMEA and the MEPC. It will be based on the DMEA policy principles document (November 1994); the ANC draft mineral and energy policy discussion document (November 1994); and the industry (June 1995), National Union of Mineworkers (August 1995) and other responses to these documents.

This document will have the following characteristics:

1. The Drafting Committee will have some licence in identifying the key themes, in a way which makes intellectual sense, based on the source documents noted earlier.

2. Where feasible, the format will follow that of a White Paper. Accordingly, where principles are agreed, it will be possible to draft policy guidelines. But where there are materially different views, these will be set out.

3. It will concern itself with principles but will include sufficient detail to substantiate the positions presented.

4. The target date for production of the initial document by the drafting committee is end-August 1995.

5. The Steering Committee will be responsible for revising the chopping block document to a point where it is suitable for public discussion.

3. Public Meeting

PROCESS FOR PREPARATION OF A MINERALS AND MINING WHITE PAPER

 
              Recommendations of the Working Group on
                      Minerals Policy Process

                          2 August 1995
                              
               Stakeholders meeting (24 April 1995)
                                | 
                          Working Group-------------------------+
                                |                               |
                         Recommendations                        |
                                |                        Chopping Block 
               Public meeting (end September 1995)           document
                                |                          (end August)
                          Working Group                         |
                                |                               |
                 SC approves discussion document<---------------+ (end October 1995) | Public meeting / plenary (end November 1995) | Bilateral consultations (January February 1996) | Open Workshops (end March 1996) | Public meeting / plenary (May 1996) | Green Paper (end July 1996) | White Paper (October 1996) | National Conference (November 1996) 

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How to Make a Submission for the Green Paper on a Minerals and Mining Policy for South Africa

1. Basic Information

Name
Title (position)
Company or Organisation
Postal address
Telephone number
Fax number

2. Option 1: Statement of a Vision for the Minerals and Mining Policy

It is envisaged that these statements of vision for a minerals and mining policy for South Africa will afford interested parties an opportunity to present the key issues and solutions as they see them. Similarly, it will afford all concerned an opportunity to learn how others approach the matter and so contribute to developing a common strategic vision among all stakeholders.

All such submissions will be circulated unabridged in a separate volume to supplement this discussion document.

Statements of vision should include the name of the party making the submission and be separate from other comments made in their submission.

3. Option 2: Comment on the Discussion Document

Submissions on specific points should, therefore, be formatted thus:

• Section number:

• Motivated comment:

• Suggested new wording:

4. Deadline for Submissions

Mineral Policy Discussion Document
Private Bag X4
Braamfontein 2017

Fax: (011) 403 2061

E-mail: Richard@mepc.org.za

The Director
Minerals Bureau
Tel: (011) 339 4414

What this Document Contains

1. Points of Departure

2. Background Information and Perceptions

3. Issues and Arguments

* These principally refer to the chapters on Mining Safety and Health and on Research and Development, where events subsequent to the drafting of the base documents (such as the recommendations of the Leon Commission) necessitated additions.

4. Policy Proposals - Views Expressed

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Introduction

In as much as there is considerable agreement between different parties on the issues and policies needed, there is also considerable disagreement on substantive matters, as well as upon the mechanisms proposed to effect certain policy objectives. This discussion document reflects these differences and sets out the, at times contradictory, prescriptions advanced by the parties.

The issues and the views presented in this document provide a point of departure for the development of positions that will undoubtedly mature through the course of the minerals policy process. They will serve as the basis for the consultative process leading to the drafting of a new mineral policy white paper.

1. Background

These efforts were joined in mid-1995 by Mining and Minerals Policy in the New South Africa, issued by the Chamber of Mines on behalf of member and non-member organisations which, in total, employ close to ninety per cent of all persons working in the South African mining industry. The views expressed therein significantly express the interests of employers and mine owners. The fourth substantial contribution was made by the National Union of Mineworkers with Mining and Minerals Policy for a non-discriminatory, efficient and prosperous Mining Industry in South Africa, released in August 1995 on behalf of its 325,000 members, presenting views on the appropriate objectives of government policy and means of reaching them.

Extensive commentary has been made on the views expressed by the DMEA and the ANC as these were circulated for public comment. These comments are accommodated in the compilation of this draft discussion document.

2. Central Tenets of the Main Parties

Informing the views of the ANC are these key themes: that minerals in the ground are part of the nations' wealth; that workers and the nation should get their fair share of the wealth generated; and the minerals mined should be integrated into the rest of the economy through further processing prior to export. In the range of issues dealt with by the ANC's contribution, common themes are the need to transform the mining and minerals industry to serve the whole population; to supplement the vital regulatory functions of Government with a promotional role; to widen access and ownership to those historically discriminated against; and to improve the skills, working and living conditions or workers in the industry. It should also be noted that some issues raised are flagged for attention rather than leading to policy proposals.

The DMEA principles provide a point of departure for the elaboration of policy proposals, and as such are without explicit argument demonstrating the policy proposals that flow from the principles. Emphasis is laid on a limited role for Government intervention, market oriented and sound business principles in steering the industry to develop the country's wealth to its full potential, and maximum benefit for all the country's people.

The owners lay stress upon the need for policies that serve the mining industry, and by extension the long-term national economic interests, encompassing in the short term the success of the RDP. The need to revitalise the gold mining sector is singled out within the general theme of the need to develop new approaches to aspects of the organisation of work within the industry. The industry calls for Government to restrict its role to the provision of an enabling environment for the industry to prosper. A basic premise of the owners' views is that their needs are not in conflict with other stakeholders, and this carries over into a central theme of the need for a collaborative approach to design and implement policy by the industry's trilateral stakeholders of Government, labour and business.

In the NUM contribution the point of departure is that the living and working conditions for black employees in the mining industry constitute a national scandal and that its features that are racist, authoritarian and exploitative should not be tolerated within a democratic order. A central theme running through the document is for Government to intervene to re-frame the industry, in order to remove discrimination and promote efficiency, so as to move the industry into the 21st century. This contribution lays stress upon the need to address the human aspects of the industry and provide for worker representation and participation.

3. Understanding Mining

• Minerals in the ground do not constitute wealth. Wealth is created only when mining is conducted profitably. Production of a product at a loss, or at a profit insufficient to provide a real, market-related return on investment, does not add wealth to the country.
• Mining is a risky business, especially in South African gold mining and to a lesser extent platinum mining, where mining is conducted at depth, compounded by the inevitability of imperfect geological assessments, natural hazards and the changes that can occur during the long lead times required to bring mines into production and during the life of the mine.
• Mining is an international business in which companies compete in product markets and countries compete to attract and retain mining investment.
• Mining can effectively be undertaken only by the private sector. The role of the Government is to create a policy and regulatory framework, as well as the macro-economic environment conducive to the private sector's willingness to take the necessary investment risks.
• Security of tenure is essential for investors to develop a project.
• Mines have finite lives, are place bound, impact on the environment and are subject to costs which cannot be passed on to the customer because of the international nature of their business.
• Working cost increases not matched by price increases raise the pay limit, thereby rendering parts of an orebody uneconomic to extract.
• Measures which raise working costs affect both the longevity and profitability of a mine.
• South African producers increasingly find themselves competing with producers located in developing countries which enjoy competitive advantages over our industry.
• South Africa has an exceptional minerals endowment. In several minerals - including strategically important metals such as platinum, vanadium, manganese and chrome - not only is the country already the world's largest producer, but it also has the potential to produce far more than world markets can absorb. Expansion of the country's supply capacity must be approached with circumspection because of the likely damage to price and hence to the ability of existing South African producers to create wealth for the country.
• Mining in South Africa is, by and large, a mature industry and mining companies will increasingly look abroad for development opportunities. The potential for local discoveries, which undoubtedly still exists, will become increasingly costly to realise.

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1. Business Climate

1.1 Points of Departure

1. The policy shall endorse free-market principles and shall allow government intervention only to the extent of meeting the aims of the policy.

2. The policy shall recognise the major contribution that the mineral industry has made and can make to the economic and social development of the country.

3. The Government shall create a stable legal and fiscal climate that is conducive to technological innovation and entrepreneurial initiatives and that rewards the results thereof in an orderly free-market economy.

4. The Government shall promote and encourage investment in all sectors of the mineral industry.

5. The Government shall promote the establishment of secondary and tertiary mineral-based industries aimed at creating job opportunities and adding maximum value to mineral raw materials.

1.2 Investment and Regulatory Environment

1. The creation of wealth and accelerated growth in the economy of South Africa will require increasing investment in the mineral industry. Mining and mineral processing are, on the whole, high risk and capital intensive activities which require the mobilisation of large amounts of capital.

2. South Africa can benefit from foreign investment in mineral prospects in several important ways. Foreign investment will reduce domestic capital shortages and spread risk. Furthermore, foreign direct investment is particularly important for three reasons: mining is a global industry and specialist expertise can be brought to bear upon a prospect by international corporations; organisational and production methods and management is introduced into the local industry with potentially invigorating effects; foreign companies bring with them links to other markets and new technology.

3. Mining is an international business and South Africa has to compete against other developed and developing countries to attract both foreign and domestic investment.

1. Account needs to be taken of the characteristics of mining finance in that risk levels are high, lead times to a return are frequently long and ongoing levels of capital investment are required.

2. Prospective investors need certainty in the ability to do business, and this can be largely assured by a well developed regulatory framework, usually referred to as a mining code.

3. Potential investors place a high premium on the maintenance of macro-economic stability.

4. Foreign investors will require political and social stability as well as a smoothly functioning labour market and industrial relations. They will also need provisions for repatriation of profits and capital.

5. Labour market conditions in South Africa are not favourable relative to many of the countries competing with South Africa for investment funds.

6. The mobilisation of funds for exploration by small mining companies is inhibited by the regulatory structure of the Johannesburg Stock Exchange.

7. The extraction of mineral resources does not generally require permanent occupation of land. Subject to environmental and any other appropriate considerations, South Africa has long and successfully operated a policy whereby, if there are mineral deposits which can be turned to profitable account, mining should take precedence over housing, commercial or industrial activity in land-use planning. Once mining is complete, the land can be made available for alternative use.

8. To operate effectively and to utilise to the maximum the existing physical infrastructure that has been created at massive capital cost, the mining industry must have the option, where technically feasible, to run on a continuous basis, in line with international practice.

1. Government should create a macro and regulatory environment conducive to economic growth in which the mining industry can make effective use of its human and capital resources.

2. Measures are required to attract investors through improving the investment climate of South Africa. Such measures include access to information, finance, the freeing up of mineral terrains for exploration, the creation of a suitable tax system and many others.

3. There is a need for internationally competitive labour market conditions and regulatory framework.

4. The State's role is to gather, collate and disseminate geological and mineral information to prospective investors.

5. The institutional framework for the mineral sector should include the establishment of a minerals promotion body, independent from the state's regulatory bodies, charged with the task of disseminating information to potential investors and facilitating exploration and investment.

6. South Africa's well established infrastructure with regard to research and development, mining equipment and services, finance and technical skills base should be marketed to promote investment in the sector.

7. Measures to attract foreign junior resource companies (JRCs) and to stimulate the development of local flexible medium sized mining companies are required.

8. The deployment of mineral attaches (councellors) should be considered for key countries.

9. Subject to environmental and other relevant factors, mining should continue to take precedence in use of land.

10. The State has an important role to play in providing financial assistance for the development of projects which are considered to be of strategic or social importance but are not economically attractive to private enterprise.

11. Regulations which result in the undue constraint of industry's performance should be abolished. Significant among these is the statutory provision that prohibits continuous mining operations.

12. Mines that are struggling may apply to work on Sundays. No mine should be permitted to work on Sundays unless this has first been comprehensively negotiated with unions representing the majority of workers and the Government Mining Engineer is satisfied that health and safety will not be compromised in any way. All such arrangements should be monitored and reviewed on an annual basis.

1.3 Taxation

The demands of international competitiveness include timeous strategic planning, implementation and positioning. This can only be done in a stable political, fiscal and legal climate which would improve security and certainty and allow for a reasonable return on capital. South Africa's mineral endowment should be exploited to the maximum benefit of the entire community; a balance should be struck, however, between fiscal requirements and the financial needs of the industry.

1.3.2 Issues And Arguments

1. A country's economic and fiscal policies are critical issues upon which its relative attractiveness will be judged. Potential investors place a high premium on a consistent and stable fiscal regime that compares favourably with other prospective investment sites and that will allow for a reasonable return on capital.

2. With the exception of gold mines, mines are subject to the same tax regime as other industries. Gold mines are taxed by means of a formula linked to profitability. This has allowed gold mines to successfully negotiate difficult periods and has given the State a reasonable share of windfall and differential rent. In addition, it has allowed a tax window for marginal mines.

3. The taxation system must recognise that mining turns to account a non-renewable asset. It must also recognise the huge capital commitment and long lead times typically associated with South African gold and platinum mines. These considerations require a dual system of accelerated depreciation and capital allowances in order to encourage the industry to look for new assets to bring to account.

4. Inflation has a significant effect on the value of capital expenditure write-offs.

5. Mineral beneficiation projects are also capital intensive and have long lead times, yet do not enjoy the same tax benefits as mines.

6. Minerals are one part of a country's natural wealth or patrimony for which users must pay rent to the "people" or State to deplete. The State derives its share of rent from the industry through both the taxation levied on the industry, as well as income from rentals (royalties) on State-owned mineral rights. Royalties to compensate the State for the depletion of its mineral wealth are generally calculated on the volume or value (sales) of the mineral mined.

7. Funding the RDP and other Government programmes requires collecting more tax. This can be done by raising tax rates or, preferably, increasing the tax base in the following ways: First, by providing incentives that will stimulate the industry and bring new mines into production. Secondly, by encouraging the return of mineral rights to the State, revenues from rentals for access to these rights will be increased. Thirdly, by introducing a Minerals Right Tax which would serve both to increase revenues to the fiscus, as well as encouraging exploration activities and the possibility of new mines.

8. Taxation of the industry must be based on profits and not on inputs that result in cost increases or royalties that reduce revenue. It must be borne in mind that increasing costs (and revenue-based royalties) have the dual effect of sterilising the orebodies of existing mines and inhibiting investment in new mining ventures.

9. South Africa's rate of mining taxation is high by international standards and not favourable compared to many of the countries competing with South Africa for investment funds.

10. The South African tax system has allowed the essential principle of taxation on profits to be violated, notably by regional service levies.

11. The Minister of Finance, together with the Financial and Fiscal Commission, should have overriding responsibility to ensure that provincial and local authorities do not apply levies and other imposts which negatively affect mining costs and therefore production capabilities. They should asses the level of taxes in their entirety - national, provincial and local after canvassing the views of the mining companies and other interested parties prior to finalising recommendations.

12. The system of ring-fencing discourages the use of the financial strengths of an existing company to invest in the establishment of new mines.

1. A stable system of taxation is required.

2. Internationally competitive taxation is needed.

3. Retention of the system of accelerated depreciation and capital allowances is required.

4. To consider a Mineral Rights Tax on privately held mineral rights that could be offset against any exploration expenditure.

5. To consider the imposition of a small levy on all minerals extracted, based on the tonnage removed (depleted). Such levies should be low so as not to inordinantly raise the investment threshold and should be mineral specific. Part of the levy could be used to fund past environmental rehabilitation and possibly mineral promotion organisations.

6. To consider the application of a small beneficiation-related levy on all minerals exported, at a declining rate depending on the degree of beneficiation (zero for the export of metals).

7. Taxation on profits, not via levies or imposts that increase costs.

8. To consider the extension of formula taxation to all mining (not just gold and uranium), but with mineral specific formulas.

9. To reassess ring fencing in order to encourage development of otherwise uneconomic mineral deposits. However, the removal of ring fencing should be qualified and discretionary.

10. Abolition of ring fencing.

11. To consider the increase of tax deductible capital for gold mines at the rate of inflation from the year of expenditure to the year of write-off, to compensate for the effects of inflation on the cost of capital.

12. To extend the gold mining inflated capital write-off system to other mining as well as mineral beneficiation projects (rather than a re-introduction of 37E).

13. To expand the industry tax base by promoting minerals development through encouraging foreign and local investment in exploration by introducing creative minerals tax incentives that could include greater than 100% write-offs and, possibly, flow-through share schemes.

14. Provincial and local government's taxes, levies and surcharges should accord with the principle that mining be taxed on profits.

15. The Minister of Finance, together with the Financial and Fiscal Commission, should assess the level of taxes in their entirety after canvassing the views of mining companies and other interested parties prior to finalising recommendations.

16. Profit sharing across the industry should be facilitated by new tax laws and tax paybacks to ensure that the "same job, same pay" principle can be implemented across the industry.

1.4 Electricity

Increasing investment and beneficiation in South Africa's mineral industry, as well as the maintainance of comparative advantages, will require an efficient physical infrastructure as well as competitive and stable costs of public services and goods.

1.4.2 Issues And Arguments

1. The mining industry is a substantial consumer of energy as well as a producer of energy feedstocks, notably coal and uranium.

2. Together with minerals processing, mining consumes a very significant proportion of electricity produced in South Africa, and the cost of electricity has an import impact on the industry's competitiveness. Safety and operational considerations require that the industry be assured of reliable and stable supply. For these reasons, direct supply by Eskom is favoured, rather than by local authorities, because of the former's far superior managerial and technical competence and its ability to supply at lower and more commercially structured tariffs.

3. The national electrification programme is a significant part of the RDP. However, there is opposition to cross-subsidisation in electricity tariffs between different classes of consumers as a means of financing this programme. The view has been expressed that where financial support is required, it should be confined to capital expenditure. It should also be explicit and costs should be borne by the fiscus.

4. Activities and developments that would increase the efficient use of energy in the industry need to be investigated and implemented.

1. A stable supply of energy at the present level of prices must be secured to maintain the level of mineral exports and to increase beneficiation.

2. Special electricity supply contracts related to the prices of commodities between electricity suppliers and mining and minerals processing industries should be encouraged as these lead to increased mining and promote beneficiation. They furthermore help to reduce the effects of cyclical volatility experienced by producers in the minerals industry and the State in terms of revenues.

3. In the case where an electricity supply authority is incapable of effectively providing the necessary quantity and quality of supply needed by a large industrial firm such as a large mineral beneficiation plant, another utility should be allowed to provide electricity to the industry in that supply area.

4. Bulk supply of electricity should be provided directly by Eskom, rather than by local authorities.

1.5 Transport

Increasing investment and beneficiation in South Africa's mineral industry, as well as the maintainance of comparative advantages, will require an efficient physical infrastructure as well as competitive and stable costs of public services and goods.

1.5.2 Issues And Arguments

1. Although South Africa has huge and varied mineral resources they are generally far from the coast for export. Hence the bulk of South Africa's minerals need to be transported long distances to the coast which makes transport (road and rail) and port handling costs critical to their competitiveness. In addition, geographically, South Africa is far from all the main markets for its minerals, namely Europe, North America and the Pacific Rim, resulting in greater seaborne costs than those of its main competitors.

2. Rail transport in South Africa is the monopoly of Spoornet.

3. Ports are a virtual monopoly of Portnet, except for Richards Bay Coal Terminal (RBCT) which is owned by the large coal exporters.

4. Small scale coal producers are forced to use the more costly ports, such as Durban and Maputo, for exports.

5. Before 1975, Maputo used to handle over 40% of South Africa's northern provinces' trade. This fell off with the independence of Mozambique and later sabotage of the line. The port is currently in need of major rehabilitation.

1. A review is needed of current pricing policies and practices within Spoornet and Portnet, with a view to facilitate mineral exports.

2. Methods whereby effective competition in mineral transportation can be fostered need to be investigated.

3. Dedicated mineral rail lines such as Sishen-Saldana and Richards Bay, need to be re-assessed and if necessary, the concept expanded.

4. Private facilities such as the Richards Bay Coal Terminal must be investigated to ensure that other potential exporters are not excluded, particularly from future expansions. Small scale operators must also be catered for.

5. The feasibility of constructing a second coal terminal, for exports beyond the expanded capacity of the RBCT, needs to be assessed to ensure that coal exports are never limited by rail or port capacity.

6. The possibility of rehabilitating the port of Maputo to handle its former share of South African trade needs to be assessed, as it offers the shortest route to the coast for many minerals.

1.6 Competition

In a free-market economy economic efficiency flows from the discipline and flexibility established by effective internal and external competition. The continued well-being and international competitiveness of South Africa's mineral industry is therefore dependent on productive internal competition in respect of mineral exploitation and the provision of mining-related services.

1.6.2 Issues And Arguments

1. Significant economic control is exercised by a small group of shareholders, often families, who control the major mining houses that dominate the South African economy. In some of the mining houses a unique form of corporate structure are found that is tightly bound up with a sophisticated financial service sector. They hold an extensive portfolio of industrial interests in an industrial holding company with its own group of financial institutions. Control is exercised by pyramid structures of strategic holdings in subsidiary companies, cross holdings and interlacing directorships that tie together the majors and extend their control to all aspects of the economy.

2. Market structures arising from conglomerate domination contain some critical problems as they result in oligopolistic markets. Contrary to examples of vigorous competition between large conglomerates in their own domestic markets such as in Korea and Japan, key product markets have become, in effect, dominated by single firms. What has happened in South Africa is that the conglomerates have turned to market sharing agreements through a range of collusive practices that carves up markets between themselves and results in collusion to refrain from competing in some markets in return for undisturbed operations on other, unrelated markets.

3. These oligopolies result in over-priced mineral-based inputs to the high value-added manufacturing sector, making them internationally uncompetitive.

4. Due to the dominance of the mining sector by a few very large conglomerates, the potential of the small- and medium-scale mining sector has not been fully realised.

5. Conglomerate size in itself is not important, large well-resourced groups are necessary for South African firms to compete internationally, so size is not necessarily a problem.

6. The major mining houses have provided resources on the scale necessary to exploit big projects, particularly deep level gold mines.

7. Evolution of a better spread of ownership should take place through natural business activities and not through Government intervention. More generally, there is much to be gained through creating among mining and other employees an understanding of share acquisition opportunities available through the Stock Exchange.

1.6.3 Policy Proposals - Views Expressed

1. Measures to promote the unbundling of the conglomerates, such as a prohibition on pyramid companies, should be investigated. Three objectives shall inform the investigation on unbundling:
   • measures to introduce new actors to the mining and mineral processing sector;
   • measures to increase competition and remove the propensity for collusion in oligopolistic markets;
   • encourage mining companies to focus on their core mining business in line with global tendencies to specialisation and focused business activities.

2. Investigate measures to dilute control of the mining industry by a minority of shareholders and increase participation of a wider spread of citizens through measures such as effective employee share ownership schemes and management and worker buy-outs.

3. Foreign as well as domestic ownership patterns should be transparent to all stakeholders.

4. A wider spread in the ownership of assets should be realised through natural business processes. Government intervention is neither appropriate nor necessary.

5. Provided there is effective competition in both producer and end-use markets, expansion of the country's supply capacity must be approached with circumspection because of the likely damage to price and hence to the ability of existing South African producers of created wealth for the country.

6. In view of the needs of the RDP, the cost of construction materials must be kept as low as possible while increasing productive output. This can be realised by encouraging strong competition policies while investigating the effects of cartels and price and market share agreements.

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