Honourable Chairperson and Members of Parliament
The Director-General and management of the Department of Mineral Resources
Chairpersons and CEOs of mining companies
The leadership of trade unions
Chairpersons and CEOs of State-Owned Entities
Representatives of other stakeholders
Comrades and friends
Ladies and gentlemen
It gives me great pleasure to introduce to this House the debate on the Budget Vote of the Department of Mineral Resources for the 2010/11 financial year.
As you will recall, President Jacob Zuma announced on 10 May last year the re-organisation of cabinet and national government departments. Amongst others, the Department of Minerals and Energy (DME) was split into two, namely the Departments of Mineral Resources (DMR) and Energy respectively, to ensure a realigned organisational structure reflective of the new functions as informed by the new mandates. I am happy to report that the transitional arrangements in terms of which DMR provided support services to the Department of Energy has now come to an end. The DMR is now fully established and employees have been matched and placed into the two newly created Departments. In view of the global recession and the State’s limited financial resources, the DMR will be implementing the approved organisational structure in phases.
The process of splitting the DME budget was successfully finalised in January 2010. This process culminated in the final allocation of R1,030-billion for the DMR.
In response to shrinking financial resources, the department introduced a number of cost-containment measures and stringent controls to achieve more with less. These included scaling down the number of delegates on overseas trips, suspension of international conferences and seminars, hosting of meetings in close proximity to the department or in free venues, using public service circular or free advertising for positions below director etc. We will continue on this path.
The revenue collected for 2009/10 was R149,118 million against the projection of R165,357 million. The implementation of the Royalty Bills will result in a further reduction of our revenue collection as this function has since been moved to SARS effective 1 March 2010.
My department remains committed to sound financial management and discipline. We will continue the legacy of obtaining an unqualified audit opinion as we did in the last five years. The DMR will continue to implement our fraud prevention and anti-corruption strategy and plan. In addition, the department will continue to educate our employees on the Code of Conduct.
We have also finalised our Disaster Recovery Plan (DRP) which will be implemented this year. We are also reviewing all our information systems with the aim of ensuring integration.
With regard to procurement, my department has managed to channel 45.4% of its procurement spend towards historically disadvantaged South Africans (HDSAs) in 2009/10. Going forward we are planning to develop a supplier development strategy in consultation with the Department of Trade and Industry. This strategy will assist in ensuring the participation of HDSAs in the procurement of specialised goods and services.
In line with our spending priorities for 2010/11, an amount of R67 million has been allocated for Mineral Policy and Promotion activities. I recently convened a mining summit with all stakeholders under the auspices of the Mining Industry Growth and Development Task Team (MIGDETT) with the aim of developing a “strategy for sustainable growth and meaningful transformation”, seeking to position the country’s mining industry along a growth path whilst simultaneously transforming it.
I must at this point emphasise the mutually reinforcing nature of both growth and transformation, i.e. the one cannot be successful without the other. The development of a ‘2030 Vision’ for growth and transformation is consistent with the second mandate of MIGDETT of recommending interventions sought to position South Africa’s mining industry for optimal growth when the global economic climate improves Our deliberations took place in a constructive spirit of tripartite collaboration and we are positive that we have agreed on a significant number of issues which will enhance growth, the sector’s global competitiveness, create decent jobs and transform the industry in a manner that meets the expectations of the industry’s stakeholders, investors and our country’s citizens. Equally, it’s encouraging that all parties are committed to conclude work on the remaining consensus-seeking issues by the end of June 2010. As of February this year, mining production grew at 6%, while mining revenue correspondingly increased by 8%, confirming that the recession is quickly becoming a thing of the past.
We have completed the first phase of the mining transformation policy journey, which has provided us with the benefit of hindsight. As we review progress in terms of performance of the mining industry and the extent to which the transformation objectives have been attained, we find that we have seemingly made great strides towards replacement of the original mistrust among key stakeholders with a growing spirit of collaboration. However, we also find that the cumulative performance of the mining industry in South Africa features unfavourably relative to other mining jurisdictions, coincident with the longest synchronised commodity boom ever experienced, suggestive of the structural challenges inhibitive of the attainment of the desired outcomes. This is corroborated by the regression analysis of cumulative annual volumes of production that have contracted during this time, with mining’s contribution to gross domestic product (GDP) in real terms correspondingly declining by one (1) percent. Accordingly, South Africa’s share of the global exploration budget has systematically declined, from 8% in 2001 to less than 4% last year in real terms, although there has been a steady growth of this expenditure in nominal terms. Nevertheless, more than 80% of this budget is typically expensed toward exploration activities in existing mines, while an insignificant remainder of below 20% is dedicated towards green-fields exploration. The mining industry cannot be sustainable unless it begins to invest in replenishing the finite nature of the current reserves and prolongs its future growth.
I am also aware of the recently published Fraser Institute Survey of Mining Companies, which indicates that South Africa has lost its global ranking from 27/47 in the 2002/03 survey to 61/72 in the 2009/10 survey on the Institute's policy potential index. Whilst some may dismiss the survey as the product of conservative analysis, it does, however, have a profound influence on investment decisions. To the extent that this state of affairs can be attributed to the policy and regulatory environment which is within the authority and control of my department, I have specifically tasked MIGDETT to integrate policy considerations in their input towards the development of the aforementioned strategy, which will not only restore but further enhance the country’s ranking and render it a more attractive mining investment destination.
Despite considerable diversification of the country’s economy in the recent past, the mining sector remains a key variable in our economic growth equation. For instance, in 2009, the industry contributed 9.5% to gross value added, 9% to total fixed capital formation, more than 30% to the country’s total export revenue and employed 2.9% of the country’s economically active population, currently at just below half a million direct jobs and a further half a million indirect jobs. In addition, the sector contributes 18% to the country’s corporate tax receipts. The listed mining companies represent over 30% of the market capitalisation of the Johannesburg Stock Exchange. While mining activities consume 15% of national electricity, the mining industry directly contributes more than 95% towards the country’s electricity generation. South Africa is host to significant known reserves and resources of mineral commodities, with almost 60 minerals being actively mined and prospects for exploitation of additional two new minerals in the short to medium term. A large number of these known reserves were discovered using conventional exploration methodologies. For this reason, there still lies considerable residual potential for discovery of world-class deposits using modern exploration technology. This is further supported by existing mining infrastructure, which enables investors to leverage maximum value from their investment in South Africa, while at the same time contributing to socio-political improvement.
On the transformation of the mining industry, there’s consensus among stakeholders on the limited progress attained to date. The rising tensions between mining companies and host communities, typically in rural areas, are symptomatic of serious challenges that face our intent to grow this industry in a sustainable manner. The impact assessment of the Mining Charter further illuminates lack of meaningful ownership vesting in the hands of its intended beneficiaries, due to, inter alia, the complexity of funding models underpinning transformation transactions. These models are typically designed to benefit principal partners, financiers, legal advisors and other management firms at the disadvantage of the intended beneficiaries, who remain not only indebted but also in the absolute minority. This practice is contrary to the objectives of the transformation agenda, undermines the aspirations of the populace.
This has also created an environment for fronting, at which targeted beneficiaries are not actively involved in mining project development, but more focused on making quick money. Fronting is a disgrace and a scourge towards the realisation of effective transformation of the mining sector in South Africa. The levels of investment in human resources development for HDSAs falls significantly short of the target, which has also contributed immensely to the paucity of requisite skills reported at the height of the commodities boom. The living conditions of the workforce in the mining industry have improved marginally from the apartheid era, which is inconsistent with transformation objectives. I have referred a detailed report of these findings to stakeholders as part of the broader consultative process and will be tabling it to Cabinet after June this year.
Skills development is the cornerstone of competitiveness of the industry. Earlier this week I spoke at a ceremony at which Gold Fields handed over R28-million worth of sponsorships to the University of Johannesburg and the University of the Witwatersrand in support of their engineering faculties, specifically aimed at supporting mining engineering. I want to applaud Gold Fields for this important initiative and challenge other companies to follow �" and indeed better �" this example.
I am introducing a more frequent monitoring and evaluation mechanism, which will constantly gauge the extent of compliance and transformation to the regulatory regime. In this regard, my department is enhancing its scope with continuous Regulatory Impact Assessment (RIA) on legislation and policies developed and implemented in the mining industry. This will ensure constant evaluation of the impact of the policy and will enable the department to assess the socio-economic impact of the legislation governed by the department. I will release quarterly reports to this effect.
Chairperson, Cabinet has directed my department to undertake a detailed audit of the State’s exposure to mining and to propose modalities of consolidating such interests in a single entity. To this extent, I am finalising the creation of the State-Owned Mining Company to be considered by Cabinet during May. I am particularly encouraged by the overwhelming support of stakeholders during the Mining Summit for the finalisation of the State mining company, and I assure you that the work is being assiduously finalised.
I am delighted to announce that the Council for Geosciences has completed and published the 1- in 2-million scale geological map for the entire Southern African Development Community (SADC) region. This map is a benchmark product because it is the first integrated geological map for the region that will provide a common understanding of the geology between all the SADC countries. The map is already proving useful in the search for groundwater and minerals in the region. As Africa unravels her geological complexity, additional potential for further mineral development is increased, which has the potential to address the socio-economic plight of the host countries.
Honourable members, beneficiation of our minerals is a priority for my department and, to this end, I have completed the necessary consultations and am ready to table the strategy before Cabinet within the next two months.
The importance of research and development aimed at supporting and expediting the country’s expanded mineral beneficiation program cannot be over emphasised. To this end, R165 million has been allocated to Mintek for 2010/11. Although the results seemingly take long, they are generally worth the patience and the continued support of our science councils.
Chairperson, the Geoscience Amendment Bill was endorsed by Cabinet in December last year and gazetted earlier this year. I intend to introduce this Bill to Parliament shortly. The main focus of the Bill is to effectively manage infrastructure development in dolomitic terrains as well as to empower the Council for Geoscience (CGS) to be an advisory authority in respect of geohazards and also to enable the CGS to become the custodian of all geotechnical data and technical information relating to exploration and mining. The department has allocated R136 million in support of the activities of the Council for Geoscience during 2010/11.
Honourable members, the diamond industry was the hardest hit by the global economic and financial crisis, resulting in prices contracting by more than 40% during the year of recession as well as job losses in the same magnitude. Accordingly, the industry has not responded adequately to a number of initiatives being put in place, all of which suggest abundant vulnerabilities within the sector. For instance, the business model of the State Diamond Trader (SDT), including the financing model, structure, operational model and the inhibitive legislative provisions are the basis of the low performance of the SDT. Consequently, I have instituted an urgent development of a comprehensive strategy for the diamond industry, which seeks to identify structural weaknesses in the structure of the diamond industry and recommend remedial action.
South Africa boasts a mining heritage in excess of a century, the bulk of which preceded application of optimal mineral recovery technologies as well as implementation of a regulatory framework that is emphatic on sustainable development of the mining industry. The sole focus on economic benefit for an extended period resulted in a legacy of derelict and ownerless mines, as well as un-rehabilitated mines, the cumulative environmental impact of which is beginning to exhibit clear signs of impact on the surrounding environment, including acid mine drainage, which pollutes ground and river water systems, among others.
I have established a Rehabilitation Oversight Committee within my department to drive the implementation of a rehabilitation programme for all mines which were licensed prior to the Minerals Act of 1991 and the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. I have also signed off the rehabilitation strategy for these mines and I am now finalising the implementation plan and costs for the rehabilitation program. An amount of R52 million has been set aside for the implementation of this programme for 2010/11.
My department, through the Council for Geoscience, has been confirmed to host the 2016 International Geological Congress, which will attract a few thousand leading earth-scientists from all over the world. This is just as historic as the 2010 World Cup as it is the first time in the African history that this conference is hosted in the continent. It is my intent to attract as many young people as possible to not only participate in the lead up to 2016, but also in the actual conference itself so that they can begin to appreciate that “science is truly cool” and to get them excited about building careers in such fields, which are much needed in the industry. The Council for Geoscience, in partnership with a few geo-institutions, has earnestly begun the preparatory process for the conference and is seeking to attain a long-lasting legacy in the geosciences for the country and the continent.
The department embarked on an initiative to review administrative processes and the current timeframes as prescribed in the MPRDA with a view to reduce turnaround times and to be more transparent. During this review process, proper engagement and consultation will take place with other government stakeholders such as the Department of Water Affairs.
The turnaround times for processing applications for mining rights will be reduced from twelve to six months, whilst the turnaround time of applications for prospecting rights will be reduced from six to three months.
With regard to the conversion of old order mining rights into new order mining rights, a number of such applications have been submitted and we are currently processing these. The deadline for such applications expired on 30 April 2009 and those who missed the deadline have forfeited their rights. As we process these applications, it is becoming clear that most applicants are not meeting the requirements. The most prominent non-compliance issue is the reluctance and even refusal by companies to embrace transformation. Most applications have not addressed the BEE requirements and this is of great concern to my department. The other area of concern is the quality of the Social and Labour Plans (SLPs) which are not in line with the needs of the communities. The failure of companies to address these critical issues, inevitably results in delays in the finalisation of their conversion applications.
In the last budget vote, we committed ourselves to ensure that companies deliver on their Social and Labour Plan commitments. Some companies have come on board and contributed significantly to uplifting both their host communities and labour sending areas through their Local Economic Development Projects and providing Scholarships and Bursaries. I commend companies that have implemented infrastructural development and local economic development projects successfully and for particularly bringing their host communities on board.
While I applaud the contributions of those companies, I implore those who have not done so to come on board in the implementation of their Social and Labour Plans.
My department will focus on conducting more rigorous compliance inspections. In cases where companies fail to comply or default, we will enforce the law. R174 million has been allocated for the implementation and enforcement of the MPRDA.
Honourable members, our health and safety track record in the mining industry continues to be a matter of great concern. The industry has in the last year managed to record a year on year slight reduction in fatalities due to mine accidents. A total of 165 mine employees died in 2009 when compared to 171 in 2008. I am still very much concerned about the high number of fatalities in the mining sector - one death is one too many. Consequently, many families lose their sole breadwinners. Fall-of-ground accidents still remain the largest accident category and the predominant cause of fatalities followed by transportation and machinery category.
Occupational health impacts are not immediate and hence difficult to quantify. Silicosis remains a major cause of premature retirement and death at South African mines due to excessive dust exposure. On the other hand, Tuberculosis continues to be a serious challenge for the mining industry and this is exacerbated by HIV and AIDS. Lastly, Noise Induced Hearing Loss is also a significant health hazards due to exposures to high levels of noise in working places.
Honourable members, to deal with these pressing occupational health and safety challenges facing the industry, my department has recently embarked on a number of interventions which include:
* Implementation of the amendments to the Mine Health and Safety Act to improve enforcement and prosecutions
* Work is being done to improve seismic network coverage and seismic systems integration to assess actions taken by mines in dealing with high risk areas which are prone to seismic events
* The health capacity of the Inspectorate has been improved by establishing a new Chief Directorate for occupational health and the appointment of additional health inspectors in our regional offices.
An amount of R145 million has been allocated toward these Health and Safety Programmes.
We are currently experiencing problems between mines and surrounding communities due to blasting operations that causes damage to houses, nuisance dust and noise. In addressing these challenges, we are developing a comprehensive strategy with an emphasis on blasting, vibration, noise and dust control, and where necessary we will regulate.
The current legislation on compensation matters in the mining industry needs an urgent overhaul that will address issues relating to access to services and information, turn-around time on payments and compensation amounts. There are collaborative efforts between my department and the Departments of Labour and Health to review the compensation legislation and develop an integrated compensation system.
Although illegal gold mining is still a matter of concern, there has been significant progress in ensuring that appropriate measures are taken to eliminate illicit mining operations. My department has elevated this issue to the Inter-Ministerial Security Cluster (IMSC) as this is a criminal matter. Subsequently, the Cluster has established a Task Team made up of my department and other relevant departments to ensure that there is national coordination in the fight against illegal mining.
The Mine Health and Safety Council has budgeted R29.5 million to support the achievement of zero harm to mine workers through a comprehensive research programme. The Council continues to drive the implementation of outcomes of the Tripartite Leadership Summit and the recommendations of the Presidential Audit.
The Mining Qualifications Authority (MQA) has allocated almost R280 million to support the Mining and Minerals Industry with Skills Development. There is great need to partner with FET colleges in areas where there is significant growth in mining.
Work experience is important for graduates in area Mining Engineering, Geology, and Metallurgy. The MQA is supporting this initiative through allocation of bursaries to about 500 learners who are studying mining-related qualifications at the different Universities.
I must emphasise that we will be revisiting our strategy to address challenges whereby internship and learnership programmes are sometimes abused by replacing experienced mine workers with interns. This is an unacceptable practice on the part of mining companies and we will be dealing with this issue decisively.
In conclusion Honourable members, there seems to be consensus amongst economists that we have passed the stormy seas and the global economy is on the mend. I would therefore like to emphasise that for my department to realise its vision and goal of a transformed minerals sector, our collective efforts, commitment and partnership will be paramount. The mammoth task that lies ahead of us cannot be achieved by any one individual or organisation, but through our meaningful yet distinctive contribution, collaboration and partnerships we will create value for our fellow South Africans and investors through sustainable exploitation of our mineral resources. It is therefore critical for us, as stakeholders and partners, to continue with robust debates, engagements and action, with the aim of growing and transforming the minerals sector.
I thank you.
Issued by: Department of Mineral Resources
22 April 2010
