MINING INDABA KEYNOTE ADDRESS - Norman Mbazima, Deputy Chairman of Anglo American SA 5 February 2018
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CHECK AGAINST DELIVERY MINING INDABA KEYNOTE ADDRESS Norman Mbazima, Deputy Chairman of Anglo American SA 5 February 2018
REVIVING MINING’S HOLY GRAIL
How we can encourage investment back into South Africa’s mining
industry
o Minister of Mineral Resources, Mosebenzi Zwane, representatives of African and
other governments present here today, financiers of our industry, industry
colleagues, ladies and gentlemen. Good morning to you all.
o This year, the Mining Indaba happens in an ever-changing world, filled with
continued uncertainty and opportunities. Today, I would like to focus on what is
required to encourage investment back into South Africa’s mining industry. This is a
subject that needs an honest airing.
o The numbers are telling:
ü Last year, South Africa’s GDP grew by a mere 0.7%, well below our
population growth of 1.61% and below most of our neighbours.
ü By the third quarter last year, unemployment came in at 27.7%—the highest
rate in 13 years.
ü In his Medium Term Budget Speech, the Finance Minister indicated that there
would be a revenue shortfall of some R50.8 billion, and that our budget deficit
would be 4.3% of GDP.
o These are alarming statistics. They indicate that South Africa desperately needs to
grow its economy at a significantly faster rate.
o Such growth would help increase government revenue, fund government
expenditure, especially the social welfare that some 17 million of our citizens
depend on, and provide employment opportunities especially for the youth whose
unemployment rate is closer to 40%.
Mining Indaba Address 2018
2 of 9o The mining industry, and indeed every other industry, has to contribute—as much
as it possibly can—to the required growth. But, the sector’s current performance
cannot be described as satisfactory.
o In December last year, the South African Chamber of Mines published a report1 on
mining investment in South Africa, which shows that:
ü Gross fixed investment in mining has been stagnant since 2009, and has
declined by 5% over the course of the last three years;
ü While net investment has declined by 57% since 2008;
ü And despite commodity prices improving by about 11% on average since 2006,
our output as an industry has been stagnant;
o I want to argue—and I hope I am preaching to the converted here—that we urgently
need to get investment back on the agenda for South Africa.
o While we may have one of the world’s most endowed mining jurisdictions, we have
not been able to bring this endowment to account. We need to attract capital for
South Africa’s mining industry, whether foreign or domestic, and we must accept
that such capital needs to get a competitive return.
o I think it is very important for us all to remember that such money comes from the
savings, pensions, and insurance policies of ordinary people like you and me.
There may be intermediaries like fund managers, banks, and other financial
institutions but these serve to aggregate the money and to channel it.
1
Report: Mining investment in SA in an improved policy and regulatory environment, December 2017.
Mining Indaba Address 2018
3 of 9o The question today is “what do we have to do to attract these funds into our mining
industry?” Today, I’d like to talk about the five main areas that can help bring
investment back into our sector, and these are:
1. The political environment;
2. The regulatory environment;
3. Rail and port infrastructure;
4. Financial returns and fund flows;
5. And, investment promotion
o Firstly, I would like to argue that although it may unsettle us at times, the changing
dynamics in our politics is a shaping force that we must reckon with positively.
o In this regard, it was encouraging to see how the internal rules and processes of the
African National Congress, South Africa’s governing party, were observed even
during a hotly contested elective conference last December. This resulted in a
credible outcome, which we think is a significant ‘first step’ towards stabilising the
political dynamics in our country.
o As the country prepares for its 5th democratic election, which will be held next year,
we look forward to an exciting period of debate and democratic contestation.
o Our view is that if the right choices are made, South Africa will regain its momentum
and this will bring together all social partners—government, business, labour, and
civil society—and provide a renewed sense of hope.
o At Anglo American we are clear on our position: we are in the business of mining,
not politics. The people of each country in which we operate choose their leaders
according to their processes. We will work with those leaders and are interested in
the policies that are adopted and how those policies are applied.
o Secondly, we cannot underestimate the negative effects of poor and inconsistent
regulation.
Mining Indaba Address 2018
4 of 9o Very large amounts of capital are needed to start a mine. Your capital is deployed
over a very long period of time before it can be recouped. It is for this reason that
investors require a clear, concise and consistent regulatory environment to justify
investing.
o At present, we have anything but a conducive regulatory environment. Consider the
following:
ü The industry is awaiting a court judgement on the ‘once empowered,
always empowered’ principle;
ü The industry is in court with the government on disputes concerning the
third mining charter;
ü Every time that the charter is reviewed, targets are changed;
ü The amendment of the principal legislation, the MPRDA, commenced in
2012 and has still not been completed, six years later. It is probably time
to start the next amendment;
ü The relationship between the Department of Mineral Resources and
Industry is at an all-time low;
o As in all matters brought before courts, the current legal disputes are well defined
and narrow.
o However, the issues that need to be resolved are comprehensive and can only be
resolved by dialogue and engagement to arrive at a regulatory regime that works for
everyone. One that is clear, concise, and consistent.
o This is a pre-requisite to attracting the Rands, Dollars, Pounds, Euros, and
Renminbi needed in our industry.
Mining Indaba Address 2018
5 of 9o We are very encouraged by Deputy’s President Cyril Ramaphosa’s comments at
the recent World Economic Forum in Davos that urgent action is needed to resolve
the current Mining Charter impasse.
o I am very hopeful that with the improvement in the political environment that we
have seen since December, we can now find the “reset” button and get back around
the table. I cannot wait to participate in this.
o Thirdly, bringing back investment into our sector is also dependent on our ability to
revitalise crucial infrastructure, especially rail and port networks.
o A large portion of our production by value is bulk commodities like iron ore, coal,
and manganese.
o These are produced in inland mines and need to be transported to the coast,
loaded onto ships, and taken to overseas markets like China, India, and Europe
where they are required.
o In the 15 years that I have been associated with this industry, I have not seen any
significant expansion of the rail capacity for transporting these products to our ports.
For the mining industry to grow, we need to urgently expand our rail and port
networks.
o Most of the large infrastructure projects around the world have happened when
government has taken the risk to invest in infrastructure to encourage investment,
or when government has put in regulations allowing the private sector to do so.
Increasingly, there is a move towards Public Private Partnerships as an enabler for
infrastructure development.
o Many of our competitors, in countries like Australia and elsewhere in the world,
have mines that are closer to the sea and are geographically located closer to the
customers. This makes them more competitive than us.
Mining Indaba Address 2018
6 of 9o I would, therefore, urge immediate dialogue to work out how best to ensure that we
adequately invest in our rail and port infrastructure, so as to facilitate the growth and
competitiveness of our mining industry.
o In order to get approval for funds to build new mines or expand existing ones,
management teams have to go to their investment committees and boards to justify
why such an investment is appropriate, including compared to alternative
investment options elsewhere.
o This, of course, means being able to demonstrate that the project will be able to
meet all the costs that are legitimately required to be borne before a profit can be
returned—including taxes, labour, procurement, community and regulatory costs.
o Given the large dollar amounts involved and the lengthy investment periods, we
also have to consider the likelihood of the various costs forecasted being very
different when they are actually incurred. This is most difficult to predict in the
regulatory space where rules can be changed by promulgation by government.
o Equally important is the certainty of a consistent and clear mining policy, stable and
functioning government institutions and efficient processes
o The motivation also needs to put forward how commodity prices are likely to be
over the life of the mine and what effect changes from that forecast will have on the
investment. Commodity prices have been particularly volatile in recent times and
thus it became difficult to justify major new investments.
o Thankfully, these have picked up recently, but we’re not quite there yet. The global
economic outlook is improving. One can feel the sentiment improving just by
walking the corridors of this conference and talking to the various stakeholders
represented here. So, there is hope on this front.
o Put yourself in the shoes of the boards taking these multi-decade investment
decisions. It’s tough and we have to compete for limited capital. Unless investors
can see that all of us have confidence in our economy, our democracy, and our
institutions, they will take their money elsewhere.
Mining Indaba Address 2018
7 of 9o We have to go out there and talk about our investment climate—how and why it is a
welcoming one for investors. An important part of this is hearing one aligned voice
from government, business and labour, just as was the case a few weeks ago in
Davos.
o I am frequently asked about Anglo American’s commitment to investing in South
Africa. There is no better place than South Africa to see the contribution we have
made, both past and present.
o Take our USD 2 billion investment in the Venetia Underground extension through
De Beers, which represents the single largest investment in diamond mining in
many years in South Africa.
o If you look at the mining space, our transformation story is remarkable. I can quote,
Seriti Resources, Exxaro, JCI, African Rainbow Minerals, Royal Bafokeng Platinum,
Shanduka, Harmony, AngloGold, and a whole host of others who have come out of
the Anglo American stable.
o In closing, I would like to reiterate that:
o a stabilising political environment;
o coupled with a regulatory environment that encourages investment;
o along with ramping up investment in rail and port infrastructure;
o and understanding the importance of financial returns, fund flows and
investment promotion.
...are the “five fundamentals” that can encourage investment back into South Africa’s
mining industry.
o We are constantly reminded of the triple scourge of poverty, unemployment, and
inequality in South Africa. The performance of our economy in 2017 does nothing to
alleviate this, instead, it exacerbates it.
Mining Indaba Address 2018
8 of 9o We desperately need the economy to grow much faster than the 0.7% we recorded
so that we can generate employment and increase government revenue.
o The mining industry can be a significant contributor to this growth, but only if we
make conditions right for investment.
o This is a pivotal moment for South Africa, one of the world’s great and naturally
blessed mining nations. Let’s seize that moment. Together. Now. I thank you.
o-O-o
Mining Indaba Address 2018
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