Stakes are high as SA mining faces pivotal moment

Independent Newspapers

Cynthia Carroll chief executive of Anglo American. Photo: Leon Nicholas.

We are at a pivotal moment in the history of the South African mining industry. Following the publication of the State Intervention in Mining Sector (Sims) report, and on the eve of the ANC policy conference, there could be no better time for the partners in the industry to come together in consultation about the future.

A successful future for the mining industry will herald a successful future for South Africa because mining plays a critical role in the economic life of the nation.

For the last century, mining has been the engine room of the South African economy, and it is still at the heart of the economy today.

In 2011, the mining industry generated 9.6 percent of South Africa’s gross domestic product and 35 percent of its export revenue. More than 500 000 people are directly employed in the industry, while at least another 500 000 jobs are indirectly dependent on mining.

South Africa remains the country with the world’s largest mineral endowment, with resources with an estimated value of $2.5 trillion (R21 trillion).

The future opportunities are enormous. Creating that successful future will require true partnership between all the stakeholders in the industry.

It is therefore entirely appropriate that this Mining Lekgotla brings together three of the key industry stakeholders: the Department of Mineral Resources the National Union of Mineworkers (NUM) and the Chamber of Mines.

As partners, we all share the wish for mining to prosper for the benefit of all South Africans. We all want to eliminate the triple evils of poverty, unemployment and inequality. But we all know that creating a prosperous future will require hard work and tough choices.

We have already shown that partnership works.

Our ground-breaking work in the Tripartite Initiative on safety and health in the mining sector has made a real contribution to the lives of the people who work in the industry and their families.

And, while we have a long way still to go, the work of the mining industry growth, development and employment task team has shown the power of working together to develop solutions to the challenges the industry faces. It is not just that partnership works. In our industry, the truth is that partnership is the only approach that works.

The policy choices South Africa will make over the coming weeks and months will have a profound impact on the future of the mining industry.

Those choices must be made wisely. We are at a crossroads. There is a clear path that will lead to prosperity and there are blind alleys that we must avoid.

I have made clear many times my total opposition to nationalisation.

Other voices – most notably those of Mining Minister Susan Shabangu and our partners in the NUM – have also argued consistently and courageously that nationalisation would be the wrong path for South Africa. Yet, there are still siren voices in the wilderness who argue for nationalisation as a miracle cure for all ills.

Indeed, only this last weekend, one of those voices called again for nationalisation, not just of mining, but in effect of everything.

As the Sims report itself has said, nationalisation would be “an unmitigated disaster for our country and its people”.

But with the threat of nationalisation behind us there will still be important policy choices to be made. In making those choices, the government and political parties must be guided by the need to create a climate for mining that is globally competitive, making South Africa the destination of choice for mining investment.

In creating a globally competitive industry, the starting point is the need for policy stability and predictability.

Mining companies make huge capital investments for the long term. They simply will not make those investments if there is a fear of arbitrary and unpredictable regulatory change.

For policymakers, grappling with difficult problems, there is always a temptation to believe that policy reinvention will find the magic answers that have eluded us in the past. But so often the solution lies in implementing effectively the policies that are already in place, rather than tearing them up to make way for something new.

I firmly believe that this is the case in relation to the fundamentals of mining regulation in South Africa. A huge amount of work has been carried out by the government to create the Mineral and Petroleum Resources Development Act, to develop and then revise the Mining Charter and to put in place the supporting framework of social and labour plans.

We should build on those foundations, not change them.

In the words of Minister Shabangu’s speech: “The fundamentals that we have built since 1994 have been correct. The building blocks are there.”

To change those fundamentals now, in the manner proposed in the Sims report, would be extremely damaging to international perceptions of South Africa.

The path to prosperity lies in completing the implementation of the regulatory framework already in place, rather than in creating something new.

The system of taxes and royalties needs to provide for a fair and appropriate sharing of risk and reward. It needs to encourage the responsible development of the mining sector and to recognise the long-term and capital-intensive nature of the investments the industry makes.

The Sims report contains proposals for a new resource rent tax. It argues that the proposed new tax is necessary to ensure that the state benefits appropriately from the profits the mining industry earns.

Yet, the existing royalty regime was introduced for exactly this purpose.

Further changes to the fiscal regime would create a grave risk of making South Africa internationally uncompetitive.

Minister Shabangu also said: “Our current tax system is fair and competitive and it is working well. It is very important for us to continue to create certainty and stability in the mining industry.”

I wholeheartedly endorse those remarks. With a stable and fair regulatory and fiscal framework providing the policy framework for success, the next important task is to provide the physical infrastructure the mining industry needs.

To develop to its full potential, the industry needs adequate rail, port, energy and water supply. The potential to boost the production of coal, iron ore, manganese and other minerals is enormous if the right infrastructure can be provided.

We are therefore fully supportive of the announcement of massive investment in infrastructure made by President Jacob Zuma in his State of the Nation address in February. Anglo American stands ready to partner with the government and with others in the private sector to make those plans a reality.

The recognition in the Sims report that partnership between the public and the private sector is crucial to future infrastructure development is timely and welcome. Likewise, the report is absolutely right to highlight the importance of skills development, particularly in maths and science.

With the right policies and infrastructure in place, I am convinced that the private sector can be relied upon to develop a mining industry that continues to grow its contribution to South Africa’s development.

We are supportive of the development of the state-owned mining company, as long as the playing field is level.

And the Sims report’s idea of a sovereign wealth fund also has merit, provided that it is funded from existing taxes and royalties and is structured as a mining development fund focusing within South Africa.

Anglo is very positive about beneficiation. We have clear strategies in place to add value to all the minerals we mine. But the critical point is that beneficiation always needs to be based on a sound business case.

It is vital that the benefits of mining should help to create a broad-based and robust economy beyond mining itself. This can only be done by allowing the market to focus on sectors in which South Africa has a genuine competitive advantage.

South Africa’s policies must take account of the reality of global competition. The Sims report sometimes loses sight of this fact. Similarly, elements of the report are based on a false dichotomy between mining for export and mining for the domestic market.

The truth is that South Africa has plentiful mineral resources which are more than capable of both growing exports and providing the commodities for which there is a real demand domestically.

Taken as a whole, the Sims report has praiseworthy goals for the development of the mining sector and the broader South African economy. But the road to ruin is paved with good policy intentions.

Existing legislation and policies, if combined with the right investment in infrastructure and skills, already support the achievement of the Sims goals.

We must avoid being diverted down blind alleys through pursuing new policy initiatives that would cause serious damage to our industry.

Having commented on the path I believe the government should follow, I want to make clear the commitments that I believe Anglo and the mining industry as a whole should make.

I will be inviting the chief executives of the other major mining companies in South Africa to join me to reflect on the outcome of this Lekgotla and to discuss the path forward. I will be proposing that together we should make 10 key commitments, in a pledge for South Africa.

First, a commitment to re-double our efforts to achieve zero harm in the mining industry. Safety is, above all, a moral imperative.

Second, a commitment to promote health in the workplace and in the broader community. At Anglo we have extended our world-leading HIV/Aids testing and treatment programme to target the additional scourge of tuberculosis.

Also, we are very active in supporting community health-care initiatives. Good health care transforms lives. Together with the rest of the mining industry, we believe that we can be a key partner in the government’s efforts to ensure good health care for all South Africans.

Third, a clear commitment to making mining a positive force in the environment.

Building on projects like the eMalahleni water purification initiative, which provides 30 million litres of clean drinking water a day, mining can make a positive contribution to solving the problem of water scarcity in South Africa.

Fourth, a renewed commitment to employment equity in our industry.

At Anglo in South Africa, 55 percent of our managers are from historically disadvantaged South African backgrounds. Across the industry, mining companies have been working to achieve the Mining Charter targets.

It is time for us all to deliver on what we have promised and to move beyond compliance to true transformation.

Fifth, a commitment to support education and skills development in the broader community. Twenty years after the dawn of democracy, South Africa is still battling to overcome the legacy of the prior decades of conscious underinvestment in education for the majority population.

The mining industry has a crucial role to play in helping to accelerate the development of the skills society needs, for example through support for Further Education and Training colleges.

Sixth, a commitment to use the power of mining to create jobs.

Unemployment is a tragedy that must be tackled. The youth of South Africa deserve a better future.

And mining companies have a critical role to play in creating jobs beyond the mining sector.

Anglo American Zimele has already created almost 20 000 jobs and our 31 business hubs are constantly driving that number higher. Working together, the mining industry can do even more.

Seventh, a commitment to complete the transformation of the ownership of our industry. At Anglo, we have already met the 2014 Mining Charter targets for black economic empowerment (BEE) ownership. Since 1994, we have completed BEE transactions worth more than R600 billion.

Eighth, a commitment to improve housing for our employees. The mining industry of the past has left us with a housing legacy of which we cannot be proud.

Across the Anglo businesses in South Africa, we have committed to build more than 23 000 houses and to convert our remaining hostel accommodation to single-person occupancy by 2014.

Ninth, a commitment to use local procurement to support South African businesses. In 2011, Anglo spent more than R23bn in procurement from BEE suppliers in South Africa.

Tenth, and finally, a commitment to be transparent and to hold each other to account. The standards of the best mining companies are standards of which the mining industry and South Africa as a nation can justifiably be proud.

Driving progress is not just the role of the government. It is time for mining companies to hold each other to account.

It is time for the mining industry to stand up and to be counted. South Africa has everything it takes to lead the world in mining, beginning with its people.

Cynthia Carroll is the chief executive of Anglo American. This is an adapted version of her speech at the inaugural Mining Lekgotla on Wednesday.