Transcript Document

The New Minerals Legislative Framework in South Africa:
Opportunity or Threat ?
Dr Con Fauconnier
Chief Executive
Kumba Resources Limited
Sasfin Frankel Pollack Securities’ Asset Management Forum
Sandton Sun
20 August 2003
Opportunities in the Resource Industry
Slide 1
CONTENTS
• Opening remarks
• The legislative environment
• Specific requirements of the Mining Charter
• How does/will Kumba achieve the objectives of the Charter?
• Is the market overreacting?
• Conclusion
Opportunities in the Resource Industry
Slide 2
Introduction / Opening Remarks
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The mining legislative environment has changed significantly
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Corporate governance and sustainable development pressures are
increasing
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Management’s responsibility towards the company : recognise the
legitimate interests of all stakeholders.
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Redressing imbalances of the past in South Africa is a business
imperative for long term sustainable value
•
The Sustainable Development imperative created the framework for the
current legislation.
•
Kumba is fully supportive of the MPRDA – our business philosophy and
culture fully aligned with the fundamental principles of the Act and its
associated Charter.
Opportunities in the Resource Industry
Slide 3
Mineral And Petroleum Resources
Development Act
Objects of the Act:
•
Equitable access to mineral resources
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Expand opportunities for HDSA’s to enter and benefit from minerals industry
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Promote employment and economic welfare
•
Socio-economic development of mining areas
Opportunities in the Resource Industry
Slide 4
Mining Charter / Scorecard / Royalty Bill
Charter, required in terms of Sect. 100 of the Act, deals with:
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Human resource development
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Employment equity
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Migrant labour
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Mine community and rural development
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Housing and living conditions
•
Procurement
•
Ownership and joint ventures
•
Beneficiation
Scorecard
•
Administrative tool to give effect to Mining Charter
Mineral and Petroleum Royalty Bill
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Will regulate royalty payments
Opportunities in the Resource Industry
Slide 5
How Do We Achieve The Objectives?
Human Resource Development
Charter / Scorecard :
• Every employee be given the opportunity to be functionally literate by 2005
• Career paths for HDSA employees, including skills development plans
• Mentoring systems for empowerment groups
• Scholarships and more learnerships for HDSA’s
Kumba Philosophy:
People development is a sine qua non for long term success
Kumba in Practice:
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•
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•
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Company sponsored, voluntary ABET programs at all mines – since 1992
Bridging school : 25 learners per year to prepare for tertiary education
Since 1995 – 202 learners (Maths = 101 A’s, 45 B’s ; Science = 125 A’s, 56 B’s)
Currently : 125 bursaries - 62% HDSA
Kumba trains 24% of all apprentices in the SA mining industry
Investment in HRD is 6.2% of payroll, well above industry and national norms
Opportunities in the Resource Industry
Slide 6
How Do We Achieve The Objectives?
Employment Equity
Charter / Scorecard :
• HDSA’s in management: 40% within 5 years
• Identify and fast-track talent pool
• Women in mining: 10% within 5 years
Kumba Philosophy:
Not only do we have a responsibility to correct the legacies of the past, unlocking
this vast untapped resource pool is also a long-term strategic imperative
Kumba in Practice:
• Measured and evaluated quarterly up to Board level
• HDSA’s specifically catered for in succession planning and development
processes
• Current HDSA’s:
All management categories – 20%
General Managers – 33%
Board – 27%, including Chairman
Women – 10%
Opportunities in the Resource Industry
Slide 7
How Do We Achieve The Objectives?
Migrant Labour
Charter / Scorecard :
• Non-discrimination against foreign migrant labour
Kumba Philosophy:
• Equal opportunity for all employees in Kumba
Kumba in Practice:
• No discrimination against any foreign migrant worker
• Very few foreign migrant workers employed (6 in workforce of 9800)
• Emphasis on recruitment of local people
Opportunities in the Resource Industry
Slide 8
How Do We Achieve The Objectives?
Mine Community and Rural Development
Charter / Scorecard :
• Integrated development plans co-ordinated with government for mining
communities and major labour sending areas
Kumba Philosophy:
• Social stability and welfare where we operate have tangible long-term business benefits
• Sustainability of communities after cessation of mining operations
Kumba in Practice:
• Integrated development plans for Thabazimbi, Mutale, and Vhembe Councils and
Kgalagadi Development Node (4 municipalities)
• Kumba projects: Deben Hostel, Tshona Leather Craft & Tannery, Kgalagadi
charcoal project, Tshipi and Ditirileng skills training centers, SMME business centers,
• Focus areas: HIV/AIDS, Environment, and Education, especially maths, science, etc.
• Skills training and ABET provided for unemployed
• Skills training for government institutions.
Opportunities in the Resource Industry
Slide 9
How Do We Achieve The Objectives?
Housing and Living Conditions
Charter / Scorecard :
Improving the standard of housing, upgrading of hostels, conversion of hostels to
family units and home ownership options for mine employees
Kumba Philosophy:
Home ownership a key element in the upliftment of our own employees and the
surrounding communities
Kumba in Practice:
• Company housing policy focusing on home ownership
• 2 802 employees (35%) still live in hostels
• 1 256 employees assisted to become owners of company housing
• Further 1 602 housing units available for home ownership over 4 years
• Sishen developing more than 500 new low cost family units
• All hostels converted to family-type units by 2008
Opportunities in the Resource Industry
Slide 10
How Do We Achieve The Objectives?
Preferential Procurement
Charter / Scorecard :
• Has the company given HDSA’s preferred supplier status?
• Has the company identified current level of procurement from HDSA companies
and shown commitment to a progression of procurement from HDSA companies
over a 3 – 5 year time frame?
Kumba Philosophy:
• Kumba has had policies in place since 2001 and believe this to be one of the
most effective areas for broad-based empowerment.
Kumba in Practice:
• Co-founder of SA National Preferential Procurement Forum
• FY 2002: R40 m
• FY 2003: R125 m
• FY 2004: R600m (est.) – 15% of discretionary spend
Opportunities in the Resource Industry
Slide 11
How Do We Achieve The Objectives?
Ownership and Joint Ventures
Charter / Scorecard :
HDSA ownership for equity or attributable units of production of 15% in HDSA
hands within 5 years and 26% in 10 years

Most visible
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Seemingly glamorous
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Has some merit….
BUT
Has inherent difficulties if it is only an exercise to
slice the existing pie in different ways, particularly if
acquisition of a slice for HDSAs is funded with debt
Opportunities in the Resource Industry
Slide 12
How Do We Achieve The Objectives?
Kumba Philosophy:
Sustainable empowerment transactions need to be based on valuegrowth propositions:
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Investment in the underlying assets
Grow the size of the pie
 New projects in underlying assets – value through growth curve
 Synergies – share synergy benefits disproportionately
 Value add by HDSAs eg. new markets
 New reserves – source of participation by HDSAs
Farm-in arrangements
 Employee ownership schemes
 Subcontracting arrangements
Facilitation required by companies
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Joint approach to banks
Guaranteed by companies’ balance sheet
Returns on sustainable empowerment transactions will take time
Opportunities in the Resource Industry
Slide 13
Empowerment Progress At Kumba
Kumba in Practice:
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4.8% equity stake by Tiso-Kgalagadi Consortium (R 400m)
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Tiso Capital
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Northern Cape Mining Partnership
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Nozala Investments
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J&J Group
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Other
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50/50 development of Kalbasfontein Coal Mine with Eyesizwe Coal – MOU
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Sishen South – Tiso-Kgalagadi + Others
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Heavy Minerals – 20% stake : Tiso + Others (KZN)
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Zinc – Rosh Pinah Mine: X % Namibian Interest
Opportunities in the Resource Industry
Slide 14
How Do We Achieve The Objectives?
Beneficiation
Charter / Scorecard:
Has the mining company established its base line level of beneficiation and
indicated the extent that this will have to be grown in order to qualify for an offset?
Clarity on the definition and qualifying criteria is still outstanding.
Kumba Philosophy:
Kumba beneficiates only where it can add value.
Kumba in Practice:
• Cost-plus supply agreements with Iscor aligned with this principle
• ZnERGY zinc-air fuel cells
• Atomised ferro-silicon
Opportunities in the Resource Industry
Slide 15
ROYALTIES
The Royalties Bill
• Based on Revenue
• Different rates for different mineral resources
The Risk
• Although the State’s right to impose royalties is recognised, this is an added
fixed cost to existing mining operations and new projects, threatening the
objectives of the MPRDA : - employment and new jobs
- sterilisation of ore bodies
- competitiveness and investments
The Opportunity
. Based on profits
• Offset the royalties against investments in broad–based socio-economic
transformation projects and other requirements of the charter
Opportunities in the Resource Industry
Slide 16
Is The Market Overreacting?
Kumba Share Price Performance
SA cents
6000
5500
Intensive
buying by
Anglo
Control
premium
disappeared
5000
Mining
Charter
leaked
4500
4000
3500
3000
2500
Dec-01
Strengthening
of Rand
Weakening
of
Rand
Mar-02
Opportunities in the Resource Industry
Royalty
Bill
Jun-02
Sep-02
Dec-02
Mar-03
Slide 17
Opportunity Or Threat?
Conclusion:
What is required, is:
• A long-term view of the company’s future
• A broad view of the company’s role in broader society
Against this background:
There are costs but, if handled correctly, there are more opportunities than threats in the current transformation legislation
But:
We all need to work together with hearts, hands and minds
Opportunities in the Resource Industry
Slide 18
www.kumbaresources.com
Opportunities in the Resource Industry
Slide 19