B Sonjica: Mining Summit

12 September 2006

The Director-General of the Department of Minerals and Energy, Adv. Sandile
Nogxina, a representative of the Bafokeng nation, Mr Phiri, the representative
of organised labour, President of National Union of Mineworkers (NUM), Mr
Zokwana, the representative of big mining business, the Vice President of the
Chamber of Mines Mr Swanepoel, the President of South African Mining
Development Association (SAMDA), Ms Radeba, representing junior mining
companies, honoured guest and ladies and gentlemen,

I take great pleasure in presenting to you the government's perspective on
transformation in South Africa's mineral industry at this prestigious occasion
which includes esteemed representatives of the South African and international
mining industry and the global investment community. May I begin by saying
that, by coincidence, I happened to view some of the photos of the first
meeting of this forum in 2002 and it was interesting to note that none of the
principals of that time are here today, they all have different postings. This
was gratifying to me because it says that there is good leadership in our
country, there are people who can take on the baton from their predecessors and
run with it for the betterment of this nation. Let us all continue in that
fashion and make this industry a success and strive to make it better than what
our predecessors aspired to.

I would also like to take this opportunity to thank the organisers of this
biannual Electra Mining Africa Show for continuing to host this event
particularly in Johannesburg, the city of gold. I am also particularly grateful
to them for going out of their way especially to accommodate our Department of
Minerals and Energy by inviting small-scale miners and emerging jewellery
manufacturers to this forum.

Some of you may be aware of the historical exclusion and disregard accorded
these smaller players from mainstream mining foray, but we believe that their
incorporation in the future is the key to building an inclusive industry for
the benefit of all South Africans.

Legislation

South African official economic policy has always supported 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. Unfortunately, a serious
market distortion was created in the past due to the previous unjust apartheid
policies practised by past South African governments which traditionally
excluded the black majority from participating in the mining industry. Hence,
when the new democratic government came into power in 1994, it became necessary
to conduct a thorough review of the country's minerals and mining policies and
associated legislation.

This review commenced in April 1995 and involved representatives from the
executive and legislative branches of Government, as well as organised
business, the smaller-scale mining sector, labour, communities and
environmental groupings. It represented the most comprehensive consultative
process that was ever conducted for a mineral policy review in South Africa,
and culminated in the release of a White Paper, a minerals and mining policy
for South Africa in October 1998. The policies formulated in the White Paper
have now been enshrined in the Minerals and Petroleum Resources Mineral
Development Act (MPRDA), which was passed by the South African Parliament in
October 2002 and promulgated on 1 May 2004.

A major reform introduced by the MPRDA was that mineral rights should be
vested in the State. Other rulings endorse security of tenure for existing
rights, the orderly regulation of prospecting and mining rights and that equal
opportunity should be granted to all South Africans wishing to participate in
mining and the "use it or lose it" principle in place with regard to
prospecting and mining applications.

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 Mining Charter
received its cue from Section 100 of the MPRDA and involved intensive
negotiations among all stakeholders in the mining sector, namely: government,
labour, business and representatives of communities where mining takes
place.

The Mining Charter consists of seven pillars or strategies aimed at
benefiting historically disadvantaged South Africans (HDSAs) namely: minimum
requirements of ownership in the mining industry, developing human resources,
furthering employment equity, improving housing and living conditions of the
communities affected by mining and ensuring preferred HDSA supplier status for
procurement by mining companies. One of the pillars also advances the cause of
further beneficiation of South African mineral products. The overarching goal
of the Mining Charter is to create an industry that proudly reflects a
non-racial South Africa.

Since the Act was implemented in 2004, we have already begun to see the
manifestation of desired outcomes. To date we have received a record number of
applications for different rights. In total more than 9 000 applications have
been received out which more than 4 000 are new prospecting rights. Nowhere in
the history of this Department have so many applications been received. This
illustrates clearly that the industry has responded positively to the
"use-it-or-lose principle" introduced by the MPRDA.

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 tile 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.

Most of the complaints reported are usually about how long it is taking to
process prospecting applications, which I accept 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 eliminate these
problems but the public can also assist in this regard by ensuring that
applications are filled in correctly. There are also too many instances where
the rights applied for do not contain sufficient information especially on
empowerment and social plan commitments as required in the Mining Charter.

In order to meet the abovementioned challenges, the original Mineral
Development Branch of the Department of Minerals and Energy has been
restructured into two separate branches, namely, the Mineral Regulation Branch
and the Mineral Policy and Promotion Branch. Mineral Regulation focuses on
licensing, while the Mineral Policy and Promotion Branch reviews mineral policy
and legislation as well as the promotion of minerals on an ongoing basis. Two
Deputy Directors-General are currently managing these branches.

Within three years of the implementation of the MPRDA, many new entrants,
particularly Black Economic Empowerment (BEE) companies such as Mvelaphanda
Resources African Rainbow Minerals, Eyesizwe Coal, to mention but a few, I have
made notable changes to the profiles of leadership and mineral production in
our mining industry. Billions of Rand have been invested by these BEE
companies, and as a result a significant number of new jobs have been created
in some of the ventures undertaken. Moreover, junior mining companies have and
are continually being attracted to our shores and many of them have invested in
mining ventures, more often than not in partnership with BEE companies,
particularly in the fields of platinum-group metals and diamonds. Various
global players of large size are also beginning to show interest in South
African mineral resources by setting up shop in the country and using South
Africa as a base to oversee joint ventures with smaller entrepreneurial
companies both in South Africa and elsewhere in sub-Saharan Africa.

Other major changes have also taken place to illustrate the all-inclusive
face that is beginning to make its presence felt in our new millennial
industry. In this respect, let us not forget those courageous women
entrepreneurs, who against all odds, have also ventured into this male
dominated industry. As proof of this we have witnessed such organisations and
associations as South African Women in Mining (SAWIMA), the South African
Mining Development Association (SAMDA) and South African Small Scale Mining
Chamber, which are all part of the overriding endeavour to transform this
mining industry of ours into one that will be acceptable to all the people of
this is country. These organisations will ensure that women, junior miners and
small-scale miners will also form part of the transformation in the industry
from one that was overly dominated by large conglomerates in the past to the
one that is more representative of the demographics and gender distribution in
our country.

Although BEE appears to be up and running and making inroads into the South
African mining industry, we have noted with concern the level of non-compliance
associated with some of the rights that were granted to BEE companies. Fronting
as well as shady dealings or trading with these rights has been observed and I
must caution individuals involved in these transactions that our Department
will not hesitate to take appropriate action against such individuals where
such is called for. Although we are seriously committed to transformation and
certainly need dedicated businessmen and women to engage in this industry, we
will not tolerate individuals and companies seeking to undermine our
transformation programme in the interests of personal gain.

Despite the fact that the Mining Charter comprises seven pillars, only one
pillar has so far dominated most of the BEE deals that have taken place, and
that is ownership. We have not yet observed any meaningful flow of meaningful
benefits to the workers and mine communities. More still needs to be done in
this regard.

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 one or in a
semi­processed 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 c f 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 are needed before exports occur: first of
all to primary minerals and secondly to processed minerals. It is imperative
that we diversify our economy to meet the challenges of globalisation in world
markets. If we can develop a stronger and more diversified economy than we have
tat 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 layers worldwide.

New legislation

Towards the end of last year we enacted two new pieces of legislation to
accelerate the beneficiation of diamonds and precious metals. These are The
Second Diamond Amendment Act and The Precious Metals Act.

The Second Diamond Amendment Act amends the previous Diamonds Act of 1986.
Our dissatisfaction with the Diamonds Act resided with the fact that it
restricted access to rough diamonds for cutting and polishing purposes, limited
possession and trading and inhibited opportunities for moving further down the
value chain. Amendments to the Diamonds Act via a new Bill therefore aim to
create the framework for further downstream value addition and investment in
the diamond-manufacturing sector. We strongly believe that the new legislation
will ensure the sufficient supply of rough diamonds to our local jewellery
industry which will enable deeper levels of value addition.

The Precious Metal Act seeks to repeal the remaining provisions of the
Mining Rights Act of 1967 and to provide for acquisition smelting, refining,
use and disposal of precious metals also with emphasis on deepening value
addition.

Both these legislations are expected to be implemented next year and for the
first time in South Africa the trading of both diamonds and precious metals
will be regulated by a single authority - the Diamond and Precious Metal
Regulator. This Regulator will replace the currently existing South African
Diamond Board.

A State Diamond Trader will also be introduced, whose responsibility will be
to acquire and supply rough diamonds to the domestic industry as well as
promoting research and development.

A Diamond Export Centre will be established for controlling diamond exports.
Local downstream processors and foreign buyers will also be allowed to purchase
diamonds from this centre. However, we have proposed that an export duty should
be levied on all diamonds leaving the country and in this regard we are waiting
for a response from the National Treasury.

In the meantime, our Department has been identifying students who will be
sent abroad in groups to receive training in jewellery manufacturing. The first
group of students have already returned from China and will be absorbed in the
industry cost/ benefits across stakeholders and enabling profitable
complementary economic activities. I am hopeful that the results of this study
that the Monitor Group is to present to us later in the programme are to shed
fight in going forward, not only in the gold mining industry but could be
emulated in the other commodities earlier before we rushing of the
resources.

With the current prevailing higher price of gold, we hope that this sector
will be sustained for at least another 20 years. We should be proud that our
economy has performed well despite the rising level of political crises around
the world. Nevertheless, with continuing rand strength, not many new jobs have
been created despite the recent resurgence in gold mining interest.

Mining has been the mainstay of our economy for over 100 years, yet it has
also left a legacy of derelict and ownerless mines which will cost millions of
rands to rehabilitate. This has led to environmental management plans becoming
absolutely essential in all phases of mining projects. Furthermore, while
addressing the negative impacts caused by mining on the environment, the mining
industry must at the same time also ensure that minerals are utilised for
economic and social development amongst the communities affected by their
operations. In addition to the environmental management plans, therefore, the
current legislation requires mine operators to have social and labour plans,
which will address socio-economic impacts of downscaling and retrenchment
problems. Ghost towns must be avoided at all costs and retrenched mine
employees must be empowered with portable skills to offer their services in
other industries.

Finally, during the coming years we ought to pay particular attention to the
issues of human resource development. We are compelled to make sure that our
people are better educated and better trained in ways that would help them to
get employment even after mining activities have ceased in the al areas of
operation.

Conclusion

In conclusion, ladies and gentlemen, legislation and policies of government
alone will not transform this industry unless all stakeholders collaborate and
co-operate with one another. We must take advantage of the Government
programmes to ensure that our people remain unified and resolute in
reconstructing and developing our country. Indeed, without participation of all
stakeholders, i.e. business organisations, organised labour, communities and
government, transformation will not be possible.

I wish you all an enjoyable Mining Week. I thank you for your attention.

Issued by: Department of Minerals and Energy
12 September 2006