Post on 18-Nov-2014
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On Restructuring South Africa’s Mining Industry YGHCC TEAM #16
Various Issues About Mining Industry
Human Rights Economy Environment
Business Health
Restructuring Plan
Environment Human Rights Economy
Business Health
Cost for Cleanup
Table Estimates of Abandoned Mine Cleanup Costs Note: The estimates are for 32 western states. The Mineral Policy Center estimates total cleanup costs at $33 to $72 billion; whereas, the now defunct Bureau of Mines estimated cleanup costs at $4 to $35.3 billion. Sources: James S . Lyon, T homa s J. Hilliard, and Thom as N. Beth ell, BURDEN OF GILT , Mineral Policy Center
Category No. of Sites % of Total Sites Characteristics Average Cleanup Cost Benign 194,500 34.88 No safety hazards or
water quality threats $0
Landscape Disturbance 231,900 41.59 Waste piles, poor vegetation, severe erosion
$4.4K
Safety Hazard 116,300 20.86 Shafts, adits, collapsed or unstable ground
$19.5K
Surface Water Contamination
14,400 2.58 Acid discharge, heavy metal contamination
$1M - $3M
Groundwater Contamination
500 0.09 Acid discharge, heavy metal contamination
$7.5M - $12.5M
Superfund 52 0.01 Extreme nastiness $250M - $350M
Excessive Waste-Removal Costs Total number of abandoned sites - 6000
Cost could range from anywhere between $51B to $93B
Some of the mines still have ore that is economical to extract, but the front cost far outweighs potential benefit
Furthermore, it is often difficult to establish who is to be held accountable for cleanup. ◦ The current owner may not have caused the damage
Large number of sites and large cost to cleanup
Still, we will plan to target a portion of these sites for clean-up, which will be discussed later.
Sulfuric Acid Arsenic
Mercury Acid Mine
Drainage
Preventing future damage Emissions trading: ◦ A cap is set on the amount of pollutant that may be
emitted ◦ Sold in the form of emission permits to discharge volume ◦ Total number of permits cannot exceed the cap therefore
limiting emissions to that level. ◦ Firms can buy permits from another firm that requires less
permits (produces less of the pollutant).
Execution Costs: ◦ Establish regulatory agency and hire 100 new workers to
make annual emission reports. $50,000 per worker annually amounts to $5M yearly.
◦ Administrative, equipment and legal costs may add up to another $10M.
◦ Offer a $4B cash infusion for life-time funding; additional cash flow can be generated from penalties
Distribution of $20B Funds
Trade Union
Capital Expansion
Regulatory Agency
Equity Distribution
Silica Respirators
Trainers and Educators
Case Manager
Environment Human Rights Economy
Business Health
Ineffective Trade Union Marikana’s 2012 Wildcat Strikes not only produced dozens of deaths, but also proved the trade union’s inefficiency
Left largely unregulated – Marikana Massacre began from NUM’s leadership
Internal conflicts threaten relationships
Workers are not receiving proper treatment
Symptoms of Current HR Situation
Lack of government enforcement and regulation
Misaligned incentives between business owners and employees
Disregard towards employees as “replace-able” units
Recommendations
Mandated Participation in NUM • All new and existing workers must take part
in new trade union
Enforcement Agency • Increase policing workforce to regulate
against trade union violations.
Cost-Benefit Analysis Ratio of 1:1000 enforcement individuals to workers ◦ Roughly 1,000 enforcers
Annual salary of $30,000 equates to $30M annually
Administrative/Legal costs add another $30M
Penalties may subtract $10M per year
Total 10-Year Cost: $500M
Distribution of $20B Funds
Trade Union
Capital Expansion
Regulatory Agency
Equity Distribution
Silica Respirators
Trainers and Educators
Case Manager
Environment Human Rights Economy
Business Health
Current SA Economic Situation South Africa is considered as an upper-middle income country, and is the wealthiest in sub-Africa
Current gross national income per capita is $10,000
Yet, roughly 25% unemployment exists, and one in four South Africans live on less than $1.25 per day
Largest rates of income inequality in the world economy dominated by mining sector 0
500
1000
1500
2000
2500
3000
3500
FY '12 FY '13 FY '14 FY '15 FY '16 FY '17 FY '18 FY '19 FY '20 FY '21
GDP per capita growth comparison
South Africa Mining-export countries
Re-brand Mining Industry Execution
With ~1500 mines and 500,000 workers, this equates to roughly 300 workers per mine.
Expand in South Africa’s abandoned mining deposits by increasing capital expenditures for large mining companies (De Beers, Exxaro, Harmony Gold, Lonmin, etc.) and covering cost with $3B cash infusion from Ministry. Hire 100,000 more workers with the new payment plan.
Consequence
This will result in reduced unemployment rates, increased mining productivity in South Africa, and higher GDP over the next 10 years.
Sample Financing Calculation for De Beers Financial Highlights: $7B in Net Sales, $1.7B EBITDA, $700M FCF, $1.2B Long-term Debt
Acquire $150M cash from Ministry to be amortized over 10 years towards increased expansion in equipment, land, and mines (PP&E)
Hire 5,000 workers at standard pay.
Increase future sales in South Africa by at least 20% (~10,000 current employees, with diminishing marginal product)
Distribution of $20B Funds
Trade Union
Capital Expansion
Regulatory Agency
Equity Distribution
Silica Respirators
Trainers and Educators
Case Manager
Environment Human Rights Economy
Business Health
Equity Sharing Overview Equity sharing plan in which miners become part owners of the companies they work for
Every mining company would have to give a 10% equity stake with voting rights adequate to secure at least one member on the Board of Directors
Permutations ◦ Funding; the cost can be borne by the government or shared with the companies ◦ Vesting; to maintain incentive alignment could mandate miners hold stock until retirement and/or must
sell at that time.
Total Cost and Cost Per Person Based on our equity calculations a 10% equity stake would cost $20-30K/person for a total cost of $12.5B ◦ (498,141 employees)*($25K/person) = $12.5B ◦ make the plan cost-neutral for the companies.
If we add 100,000 jobs, the cost of a 10% stake would be $20.8K/person ◦ $12.5B/600,000people = $20,833/person
Company Number of Employees
Type of Co. Market Cap, Current Price, Number of Shares
New Stock, New Price, Dilution Loss
AngloGold Ashanti
63,364 ($20,540)
Public, HQ SA $3.989B, $33.87, 384M
42.7M, $30.48, $1.3B
Lonmin 27,800 ($334,301)
Public, HQ London
$3.341B, $457, 203M
22.6 M, $411.22, $9.3 B
Anglo American Platinum
100,240 ($12,174)
Public, HQ SA, Anglo American is majority SR
$12.2B, $4,459, 2.75M
305,556, $3993.73, $1.3B
De Beers SA 10,573 ($42,977)
Non-public, but 15% held by Botswana and 85% held by Anglo American
SR Equity $4.089 B
11.11% New Equity, or $454 M
Potential Cost Sharing Legal Costs ◦ South Africa is a signatory to many bilateral expropriation treaties (many have regulation exemptions*) ◦ Constitution §25(1) Market Compensation
Deterred Investment Costs ◦ Counter intuitively, takings are positively correlated with Foreign Investment in the mining sector over
time, Hajzler, Review of World Econ (2012) p. 138
Sample Equity Calculation For Anglo American Platinum Total existing shares are 2.75M ◦ $12.2 Billion Market Cap/(JSE~$4,459/share)
A 10% stake requires issuing 305,556 new shares ◦ X/(2.75M+X), X=305,556
Current equity owners lose $1.3B ◦ $12.2B/(2.75M+306K)=$3993.73/share ◦ Loss of $466.27/share*2.75M shares = $1.3B
Miners gain $12,173.90/person ◦ 305,556 shares/100,240 is 3.05 shares/person times
$3993.73/share = $12,173.90/person
Distribution of $20B Funds
Trade Union
Capital Expansion
Regulatory Agency
Equity Distribution
Silica Respirators
Trainers and Educators
Case Manager
Environment Human Rights Economy
Business Health
Work Environment
Silica Dust
TB Silicosis Lung Disease
Injuries
Death Disabilities
Migration
HIV
TB Spread to
home communities
Health
Because of the high concentrations of silica dust in gold mines, studies done in some mines in South Africa have shown that up to 36% if the miners have Silicosis
It is well documented that silicosis is a risk factor for TB
A cohort study showed that miners with silicosis were up to 2.8 times more likely to develop TB1
Silica dust exposure in the work place has been shown to increase the likelihood of TB regardless of whether or not employee has developed silicosis 2
Significance
Silica Dust
We recommend the mass distribution of half-mask air purifying respirators to all miners to protect against the effect of silica dust • While a cost effective analysis of different
methods to prevent silicosis showed that engineering methods (including wet sprays, and ventilation systems) are more cost effective in reducing silicosis 3 This does not take into account the environmental costs such as increase in water usage. As well as the increase in energy demand to keep ventilation systems running
Silica Dust Recommendation
Item Quantity Cost/item/year Total Cost
Half-mask respirator cost per year (includes training, and replacement)
500,000 $413.60 3 $206M
Silica Dust Cost
Miners have high rates of HIV (22-30%).
A study in the year 2000 showed that miners have high rates of HIV because they are migrant workers and this causes them to seek commercial sex. In addition, they spread the disease to their home communities5
HIV and silicosis have a multiplicative effect on the likelihood that someone will develop TB6
HIV Significance
We recommend an approach similar to AIDSCAP. An intervention among miners by the NGO AIDS Control and Prevention in South Africa, showed that sexual risk behaviors were diminished through5:
• Peer education to encourage mine workers to have fewer sexual partners. • Social marketing of condoms to increase access and usage • Training local nurses about syndromic management of STIs to encourage
prompt treatment This can be done through collaboration with NGOs doing HIV/AIDS work in South Africa
HIV Recommendation
Item Cost/item/year Quantity Total cost
Trainers: for nurses and peers educators
$2,100 500 $10.5M
Peer Educators $1,500 3300 $49.5M
Cost
HIV
The prevalence of TB among miners in South Africa in 2004 was 3821 per 100,000 miners7
Co-infection with HIV and TB has been shown to increase death rates among miners in South Africa seventeen times. This is greater than death rates due to mining accidents.8
Tuberculosis Significance
Annual Screening for TB using the Xpert MTB/RIF test in order to diagnose the disease in the earlier stages:
• This test catches MDR -TB as well as TB in patients with HIV
Allowing several weeks of TB treatment before miner is allowed to return to work. A study shows that at least 50% of TB cases occur because of ongoing transmission in the mining community.9
Assigning case managers to miners with TB to ensure medication adherence.
Tuberculosis Recommendation
Item Cost/item Quantity Total Cost
Xpert TB test $10 500,000 $5M
Trainers for Case Managers
2100 500 $10.5M
Case Managers 120/case 19,105 $22.3M
Tuberculosis Cost
Total Health-Related Costs Distribution of $20B Funds
Trade Union
Capital Expansion
Regulatory Agency
Equity Distribution
Silica Respirators
Trainers and Educators
Case Manager
Summary Distribution of $20B Funds
Trade Union
Capital Expansion
Regulatory Agency
Equity Distribution
Silica Respirators
Trainers and Educators
Case Manager
We plan to implement a multi-faceted solution aimed at not only targeting the symptoms of our issues, but also the root causes: • Trade union mandate and regulation for improved
human rights ($500M) • Aggressive subsidized capital expansion into
abandoned mines ($3B) • Regulatory agency to limit amount of pollutants ($4B) • Equity package for shareholders ($12B) • Health educators and equipment ($300M)
Thank you for your time
We welcome any and all questions you have!
Supplemental Slides
De Beers Income Statement
De Beers Balance Sheet
De Beers Cash Flow
Data for number of mines was obtained from the department of mineral resources Republic of South Africa: http://www.dmr.gov.za/publications/viewcategory/121-directories.html
Cost of Silica Respirators
1Cowie R L. The epidemiology of tuberculosis in gold miners with silicosis. Am J Respir Crit Care Med 1994; 150: 1460–62. 2 teWaterNaude J M, Ehrlich R I, Churchyard G J, et al. Tuberculosis and silica exposure in South African gold miners. Occup Environ Med 2006; 63: 187–192 3 Lahiri S., Levenstein C., Nelson D.I., Rosenberg B.J. The Cost Effectiveness of Occupational Health Interventions: Prevention of Silicosis. American Journal of Industrial medicine.2005;48:503–14 4 Gottesfeld P, Nicas M, Kephart J, Balakrishnan K, Rinehart R. Reduction of respirable silica following the introduction of water spray applications in Indian stone crusher mills. Int J Occup Environ Health 2008; 14: 94–103 5 Meekers D.Going underground and going after women:trends in sexual risk behaviour among gold miners in South Africa. International Journal of STD & AIDS 2000; 11: 21-6 6 Corbett E.L. HIV infection and silicosis: The impact of two potent risk factors on the incidence of mycobacterial disease in South African miners. AIDS 2000; 14 (17):2759–68.
7 Murray J., Davies T., Rees D. Occupational lung disease in the South African mining industry: Research and policy implementation. Journal of Public Health Policy 2011; 32:S65–S79. 8 Murray, J., Sonnenberg, P., Nelson, G., Bester, A., Shearer, S. and Glynn, J.R. Cause of death and presence of respiratory disease at autopsy in an HIV-1 seroconversion cohort of southern African gold miners. AIDS 2007;6: S97–S104. 9 Godfrey-Faussett P., Sonnenberg P., Bruce M.C., Mee C., Morris L., Murray J. Tuberculosis control and molecular epidemiology in a South African gold-mining community. The Lancet 2000;356 (9235):1066-71.
Health-Related Sources
Legal Sources Luke Eric Peterson, South Africa’s Bilateral Investment Treaties: Implications for Development and Human Rights. Geneva Dialogue on Globalization N° 26 /November 2006.
Constitution of South Africa, §25(1) “Property may be expropriated only in terms of law of general application - for a public purpose or in the public interest; and subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.” Retrieved from http://www.info.gov.za/documents/constitution/1996/96cons2.htm#25
Sources – Equity Analysis We used self-reported numbers from the companies’ annual financial reports
Available online at: ◦ http://www.aga-reports.com/11/financial-statements, ◦ https://www.lonmin.com/Lonmin_Annual_Report_2011/Root/financial_statements/consolidated_state
ment_of_changes_in_equity.html, ◦ http://www.angloplatinum.com/, ◦ http://www.angloamerican.co.za/, ◦ www.debeersgroup.com/ImageVaultFiles/id_1703/cf_5/_De_Beers_Operating_and_Financial_Review_
2011.PDF
Company Number of Employees Equity Dilution
AngloGold Ashanti
63,364 (at 42.7M shares, this is 673.8 shares/person, at $30.48/share is $20,540/person)
$3.989 Billion (NYSE $33.87, 384M) 42.7 M new shares, ($33.87*384M)/(42.7M+384M) = $30.48/share, lose $3.39/share, which is $1.3 B total
Lonmin 27,800 (at 22.6M shares, this is 812.95 shares/person, at $411.22/share is $334,301/person)
$3.341 Billion ($457, 203M) 22.6 M new shares, ($457*203M)/(203M+22.5M)=$411.22/share, lose $45.8/share, which is $9.3 B total
Anglo American Platinum
100,240 (at 305,556 this is 3.05 shares/person, at $3993.73/share is $12,173.90/person)
$12.2 Billion (JSE~$4,459, ??, 2.75M*computed)
305,556 new shares, ($12.2B/(2.75M+306K)=$3993.73/share, lose $466.27/share, which is $1.3B total
De Beers SA 86.9% in Africa of 12167 = 10,573 ($42,977.4/person)
SR Equity $4.089 B “Each shareholder group is entitled to nominate two persons for appointment to the board.” Debswana started as joint venture
11.11% New Equity, or $454 M