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Maximisingthedevelopmentalimpactofthepeoplesmineralassets:

STATEINTERVENTIONINTHEMINERALSSECTOR

ReportpreparedfortheANCPolicyInstitute



ContentsSTATEINTERVENTIONINTHEMINERALSSECTOR ...........................................................................1

DRAFTTERMSOFREFERENCE: .....................................................................................................11

Introduction...............................................................................................................11

AbouttheProject .......................................................................................................11

KeyActivitiesoftheProject.........................................................................................11

ProjectTeam..............................................................................................................11

HistoryofMininginSouthAfrica .................................................................................................11

FROMFREEDOMCHARTERTOPOLOKWANEANDBEYOND: .........................................................11

ANCPOLICYDEVELOPMENTAND STATEPOLICIESIN MININGIN THEPOSTAPARTHEID ERA .........11

ANCMineralsPolicyDevelopment...............................................................................11

TheFreedomCharter(1955)....................................................................................11

ReadytoGovern(1992)...........................................................................................11

ReconstructionandDevelopmentProgramme(1993) ...............................................11

PolokwaneResolutionontheEconomy:December2007...........................................11

DebatewithintheANC............................................................................................11

GovernmentPolicyonMineralsDevelopmentpost1994..............................................11

DepartmentofMineralsandEnergy,GreenandWhitePapers,1998:AMineralsandMiningPolicyforSouthAfrica,1998.........................................................................11

ImportantLegislation..................................................................................................11

TheMineralandPetroleumResourcesDevelopmentAct,2002 .................................11

TheMineralandPetroleumResourcesRoyaltyAct,2008,..........................................11

TheMiningCharter.....................................................................................................11

DepartmentofMineralResources:AmendmentoftheBroadBasedSocioEconomicEmpowermentCharterfortheSouthAfricanMiningandMineralsIndustry,2010..........11

StateInterventionintheMineralsSectorBefore1994 .................................................................11



Historicalstateinterventioninthemineralssector.......................................................11

Background................................................................................................................11

GovernmentIntervention ...........................................................................................11

Taxation..................................................................................................................11

Interventioninthelabourmarket ............................................................................11

Controllingthesalesofminingoutput......................................................................11

PriceControl...........................................................................................................11

Interveningtopursuegovernmentpoliticalinterests.................................................11

Interventiontosupportminingoperations ...............................................................11

Otherformsofintervention.....................................................................................11

THEROLEOFSOEsIN MINERALSPRE94 ......................................................................................11

Introduction...............................................................................................................11

OriginsofAfrikanerCapital..........................................................................................11

2.1 PromotionofAfrikanerCapital........................................................................11

2.2 TheFocusonLargeScale ................................................................................11

3. InterestGroups ..................................................................................................11

4. GovernmentPolicyinMECIndustriesinRelationtoEnglishandAfrikanerCapital..11

4.1 FinancingofMEC andRelatedOperations........................................................11

StateCorporations ..................................................................................................11

BirthofSpecificSOEsinSA..........................................................................................11

ISCORandESKOM...................................................................................................11

Alexkor ...................................................................................................................11

CentralEnergyFund(CEF)........................................................................................11

TheCEFGroup............................................................................................................11

TransportationNetwork(Transnet) .............................................................................11

Conclusion .................................................................................................................11

SouthAfricasMineralResources.................................................................................................11



TheRoleofMiningandtheMineralsEnergyComplex(MEC)intheSouthAfricanEconomy..........11

TheMineralsEnergyComplex.....................................................................................11

Investment .............................................................................................................11

Trade......................................................................................................................11

Employment ...........................................................................................................11

TheMEC:Origins,RestructuringandTrends.................................................................................11

Goldanduranium.......................................................................................................11

Goldminingrestructuring19482010 .......................................................................11

Evolutionofconglomeratestructure ........................................................................11

AngloAmericanunbundlingandreversingoffshore...................................................11

Anglogold ...............................................................................................................11

Harmony.................................................................................................................11

GoldFieldsofSouthAfrica(GFSA) ............................................................................11

Gencor....................................................................................................................11

Anglovaalunbundlinganddemise............................................................................11

JCILimited ..............................................................................................................11

RandGoldandExplorationRandMines..................................................................11

Goldanduraniumconclusions...............................................................................11

Platinum....................................................................................................................11

Platinumproductionhistory.....................................................................................11

AngloAmericanPlatinum(Amplats).......................................................................11

ImpalaPlatinumGencor ........................................................................................11

FromLonrhotoLonmin ...........................................................................................11

NorthamPlatinum...................................................................................................11

RoyalBafokengHoldings..........................................................................................11

PlatinuminSouthAfricaanditsroleintheMEC........................................................11

Conclusionsandpeculiaritiesofplatinummineralrights............................................11



Platinumconclusions.............................................................................................11

Coal,ElectricityandtheMEC.......................................................................................11

Coal19501989 .....................................................................................................11

FromTransNatalCoaltoBHPBillitonIngwe ...........................................................11

AngloAmericanCoal ...............................................................................................11

AngloAmericanEyesizweCoal ..............................................................................11

AngloAmericanInyosiJV ......................................................................................11

Exxaro ....................................................................................................................11

OptimumCoal.........................................................................................................11

Glencore................................................................................................................11

Xstrata....................................................................................................................11

ARMCoal................................................................................................................11

Shanduka Coal ........................................................................................................11

Coalportsandexports.............................................................................................11

Coal,electricityandtheMECconclusions ...............................................................11

Ironoresteel............................................................................................................11

FromIscortoKumba ...............................................................................................11

Assmang.................................................................................................................11

ColumbusStainlesssteelMiddelburgSteelandAlloys.............................................11

HighveldSteelandVanadium...................................................................................11

Ironoresteelconclusions ......................................................................................11

Manganese ................................................................................................................11

SamancorManganese .............................................................................................11

AssoreAssmangARM ..........................................................................................11

NtisimbintleManganese..........................................................................................11

KalagadiResources..................................................................................................11

AfricanRainbowMinerals(ARM)..............................................................................11



Manganeseconclusions.........................................................................................11

ChromiteandFerrochrome.........................................................................................11

Xstrata....................................................................................................................11

MerafeResources ...................................................................................................11

SamancorChrome...................................................................................................11

AssmangChrome ....................................................................................................11

Otherproducers......................................................................................................11

Ferrochromeconclusions.......................................................................................11

Diamonds...................................................................................................................11

DeBeers.................................................................................................................11

TransHexandotherdiamondminers.......................................................................11

TheMECasasystemofaccumulation..........................................................................................11

OwnershipchangesinMECsectors..............................................................................11

Thedismemberingofcorporateconglomerates(MiningHouses)andthegrowthofblackdomesticcapitalistinterestsinthemineralssector ..............................................11

TheincreasedentryintheRSAeconomyoflargeandsmalltransnationalminingandmineralprocessingfirms.............................................................................................11

Mining....................................................................................................................11

Miningtechnology...................................................................................................11

Mineralprocessing..................................................................................................11

Futurelikelytrendsintheownership&controloftheMEC...........................................11

Mineralsupply/demandtheAsianboomand prospectsforoptimisingmineralassets.................11

AfricaMiningVision....................................................................................................................11

CorporateGovernance:...............................................................................................11

GlobalTrendsinMineralsOwnershipand Control .......................................................................11

Trends2011 ...............................................................................................................11

Introduction............................................................................................................11

Africa......................................................................................................................11



Asia&Oceania........................................................................................................11

ExecutiveSummary....................................................................................................11

Historictrends............................................................................................................11

Early2000s .............................................................................................................11

Methodology..............................................................................................................11

StateownedMiningEnterprisesAnalysis.....................................................................11

MiningIndustry.......................................................................................................11

Refining..................................................................................................................11

Metals....................................................................................................................11

Countries................................................................................................................11

Topicsforfurtherdiscussion........................................................................................11

Introduction............................................................................................................11

Whyaresomemetalsmorelikelytobeunderstatecontrol?.....................................11

Lessonsfrompreviousperiodsofstateownership ....................................................11

Whatcanbedonetoavoidfuturemistakes?............................................................11

Thefuture..................................................................................................................11

MineralResourceAssetManagement..........................................................................................11

MineralResourcesGovernance ...................................................................................11

Mineralconcessionsystem:FIFAv/sFairValue ............................................................11

Theallocationofmineralconcessions(rights) ..............................................................11

Maximisingthedevelopmentalimpactofmineralconcessions......................................11

Categorisationofmineralresourceterrains ..............................................................11

ForensicAuditofMineralRightConversions ................................................................11

BuildingthePeoplesGeologicalSurveyCapacity..........................................................11

StateMineralResourcesDevelopmentCompany..........................................................11

StateParticipationintheMineralsSector.....................................................................11

Formsofstateparticipation.....................................................................................11



Objectivesofstateparticipation...............................................................................11

Issuesarisingfromstateparticipation ......................................................................11

Somepositivepolicyresponses................................................................................11

StateParticipationintheNaturalResourcesSectorselectedcountryexamples........11

StateParticipation:Pitfalls:......................................................................................11

MiningHealthandSafety............................................................................................11

MineralEconomicLinkages .........................................................................................................11

Discussion..................................................................................................................11

FiscalLinkages............................................................................................................11

Introduction............................................................................................................11

BackwardLinkages......................................................................................................11

Internationalbestpractice.......................................................................................11

Economiesofscale:.................................................................................................11

StateinterventiontogrowtheUpstream(backward)linkages: ..................................11

ForwardLinkages........................................................................................................11

Introduction............................................................................................................11

MineralFeedstocks .................................................................................................11

StrategicMineralsdemandsectors...........................................................................11

MineralsforEnergy.................................................................................................11

MineralsforInfrastructure.......................................................................................11

MineralsforAgriculture(NPK)..................................................................................11

ResourcesDominance .............................................................................................11

JobCreatingBeneficiationHubs...............................................................................11

KnowledgeLinkages....................................................................................................11

Introduction............................................................................................................11

QualityofEducation................................................................................................11

MathsandScienceEducation...................................................................................11



Training..................................................................................................................11

FinancingEducationandSkillsDevelopmentinSouthAfrica ......................................11

TheNationalSkillsDevelopmentStrategy.................................................................11

Postschooleducation .............................................................................................11

Graduateholdingstrategies.....................................................................................11

Investing in the Devel opment ofTechni calSkills for the MEC...........................11

ResearchandDevelopment .....................................................................................11

InvestingintheDevelopmentofMineralsR&D.........................................................11

MineralSpatialLinkages..............................................................................................................11

Collateralinfrastructureimpact/optimisation...............................................................11

Transport(rail,road,ports,terminals,pipelines)..........................................................11

RailandRoadTransport...........................................................................................11

RegionalMineralActivitiesandInfrastructuralNeeds...................................................11

MineralBasedManufacturingandTransportInfrastructure..........................................11

Ports/Terminals..........................................................................................................11

Energy .......................................................................................................................11

Electricity................................................................................................................11

CoalsupplytoEskom...............................................................................................11

Recommendation....................................................................................................11

Water ........................................................................................................................11

AcidMineDrainage(AMD).......................................................................................11

LEDandCorporateSocialResponsibility/Investment(CSR/CSI)......................................11

Postminingeconomicactivity..................................................................................11

Review,Proposals&Conclusions.................................................................................................11

1) ReviewandDiscussion...............................................Error!Bookmarknot defined.

2) StateInterventionintheMineralsSector:Proposals....Error!Bookmarknot defined.

Appendices.................................................................................................................................11



DRAFTTERMSOFREFERENCE:

IntroductionThe2010NGCtookaresolutionontheroleofthestateintheeconomy.Thisresolutionismoreencompassingthanthematterofnationalisationofthemines.Itisthisprincipled

viewpointthatinformeddelegatestoinstructtheNECtocarryoutanindepthstudyonhowbesttoleverageourmineralwealth(andothernaturalresources)toachieveourkey

strategicgoalofplacingoureconomyontoanewjobcreatingandmoreequitablegrowthpath,inthecontextofthePolokwaneNationalCongressresolutiononcreatingademocraticdevelopmentalstatethatmustensurethatournationalresourceendowments,including

land,water,mineralsandmarineresourcesareexploitedtoeffectivelymaximisethegrowth,developmentandemploymentpotentialembeddedinsuchnationalassets,andnotpurely

forprofitmaximization.1ThisstudywouldenabletheANCtopresentascientificallyresearchedoverviewofourmineralssectorinparticular,aswellasinternationalcasestudies

sothatanydecisiontakenisbasedonanunderstandingoftherealissues.WhiletheresolutionfurtherdirectstheANCtolookatothersectors,includingtheenergyandfinancial

sectors,thepresentresearchprojectshouldfocusonthemineralssector.

The2012PolicyConferenceshouldbepresentedwithaclearframeworktoinformdecisionmakingattheNationalConferenceinDecember2010.Priortothis,theoutcomeofthe

researchshouldbepackagedfordiscussioninANCconstitutionalstructurestoallowforarationaldebateonthisimportantissue.

BelowaretheTermsofReferencefortheResearchProjectonstateinterventioninthemineralssectortoplaceoureconomyontoanewgrowthpath.

AbouttheProjectThisisa12monthprojectwhichwillcriticallyanalyseourexistingminingsector,including

potentialandactualupstreamanddownstreamsectors;mineralrelatedlogistics,energyandenvironmentalsustainabilitychallengesandopportunities;existingstateassetsinthe

sector;presentlegislationandregulationsincludingthelicensingregulationsandtheMiningCharter.

Theprojectshouldalsostudyavarietyofinternationalapproachestostateinterventionin

themineralssector,aswellasthehistoricalperspectiveontheevolutionofcurrentmineralregimes.

Thiswillbeachievedthroughevaluatingtheformsofstateinterventionsbydevelopmentalstates;includingthroughnationalisation,andevaluatingotherfactorsinfluencingsuch

interventionsinthecontextofmaximisingthegrowth,developmentandemploymentpotentialembeddedinmineralassets



Concurrently,thebenefitsandcostsofstateinterventions,politicalandeconomicfactorsthatinfluencethesebenefitsandcostsofinterventionwillbeassessed.

Thiswillbecomplementedbyanidentificationandcriticalevaluationofcurrentandpreviousexperiences(casestudies)andoptionsforthelikelyfuturedevelopmentof

instrumentsofstateinterventioninselectedcountriesin:

LatinAmerica(Brazil,ChileandVenezuela);

Africa(Botswana,NamibiaandZambia);Asia(China andMalaysia);

OECD(Norway;Finland,SwedenandAustralia)

Assessmentofoptionsforformsofstateinterventionwillparticularlyfocusontheiractualand/orpotentialsocioeconomicdevelopmentimpact,aswellastheirfeasibilityand

sustainabilitygiventheattitudesandpreferencesofkeysocialforcesinvolved.

Itisenvisagedthatthisresearchwilltakeintoaccounttheongoingworkondevelopingthe

newgrowthpathforSouthAfrica,aswellasanyworkthatwillhavebeendonebytheNationalPlanningCommission(NPC)andwherenecessarymakecommentsonsuchwork.In

termsofourAfricancontextthestudyshouldtakeintoconsiderationtheAfricanUnions(AU)AfricaMiningVision(AMV)adoptedattheAUSummitin2009(seeappendices)and

likewisecommentonit.

Finally,theprojectwilldeveloppoliciesandstrategyrecommendationsonvariousformsofstateinterventionthatwillmostappropriatelyaddresstheidentifiedissuesaffecting

apartheidpropertyrelations.

KeyActivitiesoftheProjectCurrentSituation:Adetailedoverviewoftheexistingcomponentsofthestructureoftheeconomy,includingtheMEC2,ownershippatterns,theformsofstateinterventionsandkey

issuesrelatingtothefactorsinfluencingstateintervention.

Casestudies(bestpractice):Evaluatingtheformsofstateinterventionsbydevelopmental

states;includingthroughnationalisation,andevaluatingotherfactorsinfluencingsuchinterventionsinthecontextofmaximisingthegrowth,developmentandemploymentpotentialembeddedinmineralassets.

MaximisingtheDevelopmentalImpactofMineralAssets:Anidentificationofmediumandlongtermpoliciesandstrategies,intermsoftheattainmentofthesocietytheANCseeksto

create,(alignmentwithANC&governmentpolicies)

Impactofstateinterventions:Anevaluationofthesocialandeconomicimpactofstate

interventionsandrelatedfactorsthatalsoinfluencetheimpactofsuchinterventions.

Documentingtheviewsofkeyactorsonthecomponentsofthestructureofproduction,

includingownershipandcontrol(linkedtoactivity1),andelicitingpreferencesaroundtheobjectivesoffuturestateinterventionsintheeconomy.2MEC:MineralEnergyComplex



Acriticalevaluationofthelikelyimpactofvariousoptionsforstateinterventionsandtheidentificationofthoseoptionsregardedasmostacceptabletokeyactorsandhencemost

likelytobesuccessfullyimplemented.Analysisofrisksassociatedwitheachintervention.

Thedevelopmentofpolicyandstrategyrecommendationsonformsofinterventionsthat

willmostappropriatelyaddresstheidentifiedkeyeconomicchallengesandputtheeconomyonnewdevelopmentalgrowthpath.

ProjectTeamTheprojectwillbecoordinatedbytheETCReferenceGroupandsupportedbythefollowing:

ProjectCoordinator,withadequateprojectmanagementbackgroundtorunthedaytodayactivitiesoftheproject.

Two(2)ormoreSeniorResearchers:withmineraleconomicsanddevelopmenteconomics/socialsciencebackground.

Two(2)Researchassistants:toprovidetechnicalsupporttotheproject

OneSecretarialSupportstaff,toprovideadministrativeandsecretarialsupporttotheproject.

ASteeringCommitteeconsistingofReferenceGroupappointedbytheETCasdirectedbyNEC.

Duration:Theprojectisexpectedtotakeatleast12months,butwithintermediaryoutputs,andisplannedtocommenceinJanuaryFebruarynextyear.



HistoryofMininginSouthAfricaSouthAfricaisoneoftheonlyareasonearth that containsa completehistoryofmining,

goingback topreHomo sapiens,and continuingwith the firsthumanworkingsthrough tothefirstundergroundmines,ontoironageminingandfinallycolonialcommercialmining.

Itcontainsevidenceofsomeoftheveryearliestuseofmineralsintheformofstonetoolsbyprehumans,Homohabilis,atforexampleSterkfonteinandKromdraai(1.72millionyears

BP)

Also,inTanzania wehaveOldowanchoppercoresandflaketoolsintheOlduvaiGorge

Thesearearguablyrepresenttheearliestrecordedquarryingbyhominids

ThefirstuseofmineralsbyHomoSapiensisprobablytherecentdiscoveryatPinnaclePoint(MosselBay)oftheheattreatmentofrock(silcrete)tohardenitforthemakingofmicrolith

(flake)tools(80150000yearsBP)constitutingthefirsthumanheattreatment.

Anengravedplaqueofochre(hematite)wasfoundatBlombosCave(nearGeorge),datedat

75000 years BP and is the firstevidence of human art or possibly writing, though themeaningofthestriationsisunknown.



The first knownundergroundmine isat LionCavern (Ngwenya)inSwaziland (20000 43000 yearsBP)wheretheancestorsof theSanpeoplemineironoxides forochre for rock

painting.ThisdepositwaslaterminedcommerciallybyAngloAmericaninthe60sand70s(NgwenyaMine)andtheironorewasexportedfromMaputoontheGobarailwayline.

Ironand copperminingandsmeltingappears from c.200ADandtherearethousandsofironsmeltingsitesacrosssouthernAfrica!

The photo depicts a Vendatype iron smelting furnace in1888. The manufacture oftraditionalironproducts(axeheads,hoes,arrowheads,assegais,etc)continueduptillthe

1950s. The numerous Hwedza hill iron furnaces in Zimbabwe were described by earlycolonistsastheSheffieldofAfrica.

GoldtradeviatheeasternseaboardtotheMiddleEastandAsiawellestablishedbyc.900ADandgoldwasanimportantcommodityintheMapungubwestate(c.12201270)where

numerousgoldartefactshavebeenfound.



TheMapungubwesitealsocontainsAsiantradegoodsanditisthoughtthatgoldandivory

wheretradedwiththeeastviatheDhowtradeuptheeastcoastofsouthernAfricatotheMiddleEastandbeyond.ItemsofMingDynastyceramicshavebeenfoundatMapungubwe.The Mapungubwe state was followed by the Zimbabwe (Munhumutapa) state with

extensivegoldmining.Thereareover4000ancientgoldminesandworkingsinsouthernAfrica.

CopperwasminedatPhalaborwaandMussina andtheearliestSouthAfricanexampleofashaft,gallery,oraditwas foundat LolweHill,Phalaborwa,whereancientminerssought

malachiteandazurite(thesiteisnowthelocationofalargeopenpitmine).Ashaft6metresindepthwitha10metreshorizontalgallerywasdatedatAD7703.

TheRooibergtinmines(LimpopoProvince)operatedfromthe15thtothe17thCenturyand

theMussina copperdepositswereprobablymined from the10thCentury,butunfortutelytheearlyworkingsweredestroyedbytheEuropeanminersatthestartofthe20thCentury4

TheinvasionoftheCapebytheDutchEastIndiaCompany(VOC)in1652heraldedthestartof the systematic dispossession of indigenous South Africans of their land,mineralsand

liberty.However,inthehinterland,...bythetimetheEuropeansettlercommunityarrivedin the regionalmosteverygoldbearingquartzoutcrophadalreadybeenworked,nearly

everyviableoutcropofcopperbearingrockhadbeenexploited,andhardlyatinlodeofanyimportancewasleftuntouchedbytheindigenousminers.5

3Hammel,A.etalPrecolonial mininginsouthern Africa,JournaloftheSAIMM,Jan/Feb2000,p524Herbert,E.W.,Redgold ofAfrica:copper inprecolonialhis toryandculture.UnivofWisconsin Press,2003,p275Hammel,etalPrecolonialmininginsouthernAfrica,JournaloftheSAIMM,Jan/Feb2000,p54



SelectAncientGoldWorkingsintheexTransvaal

Source:Friede,H.M.(1980)SAIMMJournal,May1980,p156

European colonization was the ultimate constraint on these indigenous operationsasimportedgoods rapidlyundermined the valueoftraditionallyproducedgoods6and localmining declined dramatically. Althoughmuch of theevidence of precolonialmining has

sincebeendestroyedbymodernminingoperations,recentresearchhasstartedtobalancethe colonialoriented version of history with information regarding the achievements of

indigenousminersandsmeltersfromwhom,itseems,thereisalottolearn7

TheEuropeandiscoveryofdiamondsinGriqualandinthe1860sledtothefirstdiamond

rushbyEuropeansfromallovertheglobe,butthelocalinhabitantsweredenieddiamondclaimsandrelegatedtotheroleoflabourersfortheinvaders.ThiswasrepeatedforgoldintheBarbertonMountainLandsandSabie (PilgrimsRest)in the1870sandlater,whenthe

worldslargestgold formation (thereefsofWitwatersrandSystem),wasexploitedbytheEuropeaninvaders.

From the turnof the19th centuryminingbecame thebackboneof theEuropean settlereconomyandwiththeformationoftheUnionofSouthAfricain1910theindigenouspeople

wereincreasinglystrippedoftheirrightsandcontrolledthroughthemigrantlaboursystem(Wenela, later Teba) and the Pass Laws (Domboek). AfterWorldWar II theapartheid

systemfurtherentrenchedthediscriminatorysystemincludingtheexclusionofblackSouthAfricansfromallskilledworkcategories(jobreservation).

6Miller,D.2000 yearsofindigenousminingandmetallurgyinsouthernAfricaareview.SouthAfricanJournalof Geology,vol.98,1995,pp.232238,cited inHamelA.Etal2000.7Hammel,etalPrecolonialmininginsouthernAfrica,JournaloftheSAIMM,Jan/Feb2000,p54



EarlyDiamonddiggings

The European discovery of theWitsmainreefgold conglomerateon Langlaagte Farm(near Johannesburg) in1886didnotprecipitatetheusualgoldrushofEuropeandiggers,likeSabieandBarberton,due to the requirement for substantialcapital todevelopdeep

undergroundgoldmines.

ThediscoveryofdiamondsatKimberley in1871hadalreadygenerated substantial capital

fromBritishandEuropeanbankstofinancethenewdiamondmininghousesstartedbyCecilRhodes,AlfredBeitandBarneyBarnatoandothers,whoeventuallycametogethertoform

DeBeers.DiamondcapitalwasconsequentlyavailabletominetheWitsgold.CecilRhodes,anunscrupulousBritishimperialist,foundedGoldFieldsofSouthAfrica(GFSA)in1887.RandMines, Johannesburg Consolidated Investments, General MiningandUnion

Corporationwerealsoestablished toexploit thebonanza,allbackedbydiamond capital.AngloAmericanwasestablishedin1917byErnestOppenheimerandAngloVaalwasfounded

in1933.ThesesevenmininghousesdominatedtheSouthAfricanmineralssectorandtheeconomy(seesectiononTheMEC:Origins,RestructuringandTrends)untilmostofthem

fled (movedtheir listingsoverseas)after theadventofdemocracy.Theirneed for cheapcoercedlabourcoincidedwiththeBoerneedtosubjugateandcontroltheblackpopulation

andacomplexsystemofmigrantlabour,passlawsandpolicingwasestablishedtothisend.



Themercuryamalgamprocesshadbeenthemethodforrecoveringgoldfromcrushedore,butitwasexpensiveandgoldrecoverywaslow,whichmadetheWitsgoldmarginal,despite

good in situ grades. However in 1887 the theMacArthurForrestcyanidationprocessbecame available, which had higher recoveries and underpinned the

viabilityoftheenormousWitsgoldresources.Nearly120twereproducedby1898,ontheeveoftheAngloBoerwar,whichwassubstantiallyovercontroloftheresourceandaccess

to cheap labour toexploit it.After theBoerWargoldproduction rose to280tby1913,shortlyaftertheformationoftheEuropeancolonistUnionofSouthAfricafromthetwoBoer

Colonial Mining History: Main events

1652 Dutch trading & sl aving company (VOC) expropriates l and from the Koi ar ound Cape Town, to set up a shipping suppl y s tati on. Later subj ugated the locals in several wars- Further expropriation of l and and cattle. 1685 Si mon Van der Stel (VOC Governor) is taken to copper wor kings near O'okiep and sinks a shaft which recovers copper. 1727 "Koi" communities living on the Cape of Good Hope reported to be wor king and smelti ng iron and copper by the Dutch. 1852 Mining of the copper deposits of Namaqual and starts at the Blue mine on the outskirts of Springbok. Welch geologist John H enr y Davis finds gol d on the farm Paardekraal (Krugersdorp) but the discover y was kept secret by Transvaal Government and Davis was deported from the Boer Republic. 1853 Pi eter Marais, a German born prospector, discovered alluvial gol d in the Jukskei Ri ver (Johannesburg). He was allowed to continue with his search by the Boer Government but threatened with death if he revealed the discover y. His discoveries soon ran dr y. 1859 First anecdotal reports of the discover y of a diamond on the Orange River, Griqualand West made by an American traveller. 1860 Discover y of coal deposits on C yphergat F arm (Molteno) i n the Eastern Cape. 1864 Si nking of Penshaw Colliery at Molteno in the Eastern Cape Provi nce. 1866 The discover y of the first major diamond, the "Eureka Diamond", in ri ver gravels from the Orange River near Hopetown 1869 The first systematic diggings for diamonds commences on the Vaal River close to Bar kl y West led by a Captain R olleston. 1870 The discover y of a large diamond on the Jagersfontein F arm in the Boer republic of the Orange Free State. T his started a European "diamond rush" which led to the sinki ng of Jagersfontein mine, on a kimberlite pipe. 1872 Alluvi al diamonds discovered at C hristiana in the south-eas t of the Transvaal R epublic. 1873 Alluvi al gold discovered near Sabie, and later that year at nearby Pilgrims Rest (areas of ancient wor kings). The Pilgrim's Rest Goldfiel d was proclaimed in September. The discovery of this goldfield initi ated the first European "gold rush". 1874 The Struben brothers started the first gold mine on the R and (Roodepoort), but the gold ran out i n a year. 1878 Coal discovered close to Vereeninging on the bank of the Vaal Ri ver. T he si nking of several collieries soon followed. 1882 Si egmund Hammerschl ag erected the first gold or e-crusher, a two-stamp batter y, on the Witwatersrand on his farm Tweefontein (Krugersdorp) to process the gold bearing rocks . However, it proved not to be payable. 1883 French Bob Auguste Roberts discovers gold in the Barberton area of ancient wor kings 1884 The Barber brothers find a gold reef in Barberton area. Starts of gold rush with two stock exchanges. 1885 Alluvi al gold discovered in Jubilee Creek at Millwood in the Eastern Cape sparking a "gold rush" into the ar ea. 1886 Discover y of the Witwatersrand main gold reef by prospector George Harrison on the farm, "Langlaagte", The immediate area proclaimed a public digging by Boer Presi dent Kruger, s tarting the Wits gold rush. Reef gold also discover ed i n the Millwood area of the Eastern Cape. 1887 Millwood diggings (Eastern Cape) procl aimed as an official Goldfield by the Cape Col onial Government. Coal discovered in the area of "The Springs" on the eastern fringes of the Witwatersrand in the Transvaal. 1891 Alluvi al diamonds discovered at Bloemhof i n the South-eastern Transvaal Republic. 1893 Si nking of the first collier y in the Springs district on the easter n fringes of the Witwatersrand, Transvaal. 1896 Sys tematic mining at Witbank commenced in 1896 when Samuel Stanford, together with the Neumann Group, established "Witbank Collier y Li mited", and sink the first shaft on the farm Witbank, Easter n Transvaal. 1902 The Premier (Transvaal) Diamond Mining Company Ltd. formed by Thomas Cullinan to prospec t and mine for diamonds eas t of Pretoria. Production at the company's Premi er Mine commenced the following year. 1904 In May of this year the first 10,000 imported Chi nese labourers arrived to wor k on-the Witwatersrand gold mines. 1906 Coal discovered at Delmas during the construction of a railway link between Apex and Witbank. 1907 White mi ners on parts of the R and go on stri ke against use of Chi nese mi ne l abourers which threatened their jobs and pay. 1908 Discover y of a di amond in a railway sidi ng near Lderitz mar ks the beginni ngs of a "diamond rush" i nto the immediate area and into a costal corridor extendi ng as far south as the Or ange Ri ver border with South Africa. The last group of indentured C hinese mine l abourers arri ve in South Africa. Total number reached almost 80,000 1909 The Del mas Estate & Collier y Company start mining for coal close to Del mas. 1910 The final group of contracted Chi nese mi ne wor kers leave South Africa as part of their mass repatriation back to China 1913 Penshaw Collier y, the last operating pit in the C yphergat/M olteno region of the Eastern Cape finally closes . 1919 The Cape C opper Company ceases its oper ations around O'okiep due to the economic slump at the end of WWI. 1921 The Rand R efinery, the largest in the world, starts operations to refine all of South Africa's gold and sil ver output. 1926 Diamonds discovered at Al exander Bay i n the furthest north- west area of the Cape Province just south of the Orange Ri ver The first "di amond rush" s tarts i n the Lichtenburg region (North-eas t Transvaal) 1941 Gold discovered on the Far West Rand. Deep-level mini ng begins in the Kler ksdorp area. 1946 An explorati on core - with a grade of more than 800 grams/ton - is extracted from 1.2 kilometres below surface near Odendaalsrus, heralds the start of the Free State goldfields . Source: Adapted from Mark Smith 2006, http://on-the-rand.co.uk/Index .htm



republicsandtwoBritishcolonies.GoldwastodominatetheSouthAfricanlandscapefortherestofthecentury.

In the following decadesmajor newextensions to theWits gold reefs were discovered,including the 'WestWits Line'byGoldFieldsin the1930s, theOrangeFreeState fieldby

AngloAmerican in1946andEvanderbyUnionCorporation from the late1950s.By1970productionpeakedatover1000t representingabout70%ofglobaloutput.Fromthe70s,

despitehighgrades(13g/t),theWitsgoldbecameincreasinglydifficulttoexploitduetothehighcostsofdevelopmentandlabour,whichwasbecomingorganiseddemandingadecent

wage.The costofdevelopinganewdeepshafthad reachedUSD2billionover710 yearswhilsttheopenpitminingheapleachingofgold resourceselsewhere (e.g.Australia)wascheaperandquickertodevelop,causingSouthAfricatosteadilylosemarketsharethrough

the80sand90s8.Productionhadfallento600ttonnesby1990,whentheapartheidregimefinallyunbannedtheANCandstartednegotiatingthetransitiontodemocracy.Butoverthe

previouscentury30,000tofgoldhadfinancedtheEuropeansettlergovernmentsrepressivemachineryandregionalmilitaryescapades.

SouthAfricanMiningHouseFamilyTree:1887to2000

Source:http://info.goldavenue.com/info_site/in_mine/in_min_familytree.htm

8Gold Avenue:http://info.goldavenue.com/



FROMFREEDOMCHARTERTOPOLOKWANEANDBEYOND:ANCPOLICYDEVELOPMENTANDSTATEPOLICIESINMININGINTHEPOSTAPARTHEIDERA

ThissectiondocumentsthedevelopmentsintheANCandingovernmentinmineralpolicydevelopmentinthepostapartheidera9.

ANCMineralsPolicyDevelopmentTheANCspolicies&strategiesonmineralresourceshasitsrootsinTheFreedomCharter(1955), the Ready to Govern (1992) document, the Reconstructionand Development

Programme(RDP,1994),andthePolokwane(2007)EconomicTransformationresolution.

TheFreedomCharter(1955)TheFreedomCharterstatesthefollowing:

Thenationalwealthofourcountry,theheritageofSouthAfricans,shallberestoredtothe

people. Themineral wealth beneath the soil, the banksandmonopoly industry shall betransferredtotheownershipofthepeopleasawhole.Allotherindustryandtradeshallbe

controlledtoassistthewellbeingofthepeople.Allpeopleshallhaveequalrightstotradewheretheychoose,tomanufactureandtoenteralltrades,craftsandprofessions.

ReadytoGovern(1992)Thepositiononownershipandutilisationofmineralsenunciated intheFreedomCharter

was amplifiedat the ANCs Ready to Govern Conference in 1992 which stated: ThemineralwealthbeneaththesoilisthenationalheritageofallSouthAfricans,includingfuturegenerations.Asadiminishingresourceitshouldbeusedwithdueregardtosocioeconomic

needs and environmental conservation. The ANC will, in consultation with unions andemployers,introduceaminingstrategywhichwillinvolvetheintroductionofanewsystemof

taxation,financing,mineralrightsandleasing.Thestrategywillrequirethenormalizationofminers livingand working conditions, with full trade union rights and an end to private

securityforcesonthemines.Inaddition,thestrategywill,whereappropriate,involvepublicownershipandjointventures.Policieswillbedevelopedtointegratetheminingindustrywith

other sectorsof theeconomybyencouragingmineralbeneficiationand the creationofaworldclassminingandmineralprocessingcapitalgoodsindustry.

ReconstructionandDevelopmentProgramme(1993)

9Thissectiondrawsfromthefollowingdocuments:1)AfricanNational Congress,1993:TheReconstructionandDevelopmentProgramme;2)DepartmentofMineralsand Energy:AMineralsandMiningPolicyforSouth Africa,GreenandWhitePapers,February1998;3) TheMinera landPetroleumResourcesDevelopmentAct,2002;4) MiningCharterImpactAssessmentReport,October2009;5)DepartmentofMineralResources:AmendmentoftheBroadBasedSocioEconomic EmpowermentCharterfortheSouthAfricanMiningandMineralsIndustry,September2010;6)ANCsPolokwaneResolution ontheEconomy;7)ANCYouthLeague(2010)Nationalisation oftheMines,Adiscussionpaper.Umrabulo,No.33,Jourdan,P.P.(2010)TheOptimisationof the DevelopmentalImpactofSouthAfricasMineralAssetsforBuildingaDemocratic DevelopmentalState,2010



Paragraph4.5.1.2oftheRDP(p.99)reaffirmsthatownershipofmineralswasvestedinthepeopleofSouthAfrica:

Theminerals in the ground belong toall South Africans, including future generations.Moreover,thecurrentsystemofmineralrightspreventstheoptimaldevelopmentofmining

andtheappropriateuseofurbanland.Wemustseekthereturnofprivatemineralrightstothedemocraticgovernment in linewith the restof theworld.Thismustbedone in full

consultationwithallstakeholders.

Paragraph4.5.1.3goesontosay:

Ourprincipalobjectiveistotransformminingandmineralprocessingindustriestoserveallof ourpeople.We canachieve this goal througha variety of government interventions,incentives and disincentives. Estimates suggest that the establishment of government

mineralsmarketingauditorsofficeandthenationalmarketingof certainmineralswouldenable South Africa to realise greater foreignexchangeearnings. Themanagementand

marketingofourmineralexportsmustbeexaminedtogetheremployers,unionsandthegovernmenttoensuremaximumbenefitsforourcountry.

Inaddition,paragraphs4.5.1.4and4.5.1.7 (pp.99100) refer totheeconomicpotentialoftheminingsector:

MineralsandmineralproductsareourmostimportantsourceofforeignexchangeandthesuccessofourRDPwillinpartdependontheabilityofthissectortoexpandexportstoavoidbalanceofpaymentsconstraintsintheshorttomediumterm.

Miningandminerals products contribute threequarters of ourexportsand the industryemploys threequarters of amillion workers, but this couldbemuch higher if our raw

materialswereprocessedinto intermediateand finishedproductsbeforeexport.OurRDPmustattempttoincreasethelevelofmineralbeneficiationthroughappropriateincentives

and disincentives in order to increaseemploymentandaddmore value to our naturalresourcesbeforeexport.Moreover,thispolicyshouldprovidemoreappropriate inputs formanufacturinginSouthAfrica.

TheRDP reinforces thepositions stated inboth theFreedomCharterand the Ready toGoverndocumentby stating that specific (RDP)policiesaim toexpand the competitive

advantage already enjoyed by the mining and capital and energyintensive mineralprocessingandchemicalindustriesthatlieatthecoreoftheeconomyandwhichprovidethe

bulkofthecountry'sforeignexchange(RDP4.4.2.4).InadditionRDPmuststrengthenandbroaden upstream and downstream linkages between the burgeoning mineralbased

industriesandothersubsectorsofindustry.Abroadrangeofinstrumentswillbedeployed,including closer scrutiny of pricingpolicies for intermediate inputs.Where conglomeratecontrolimpedes theobjectives,antitrustpolicieswillbe invoked (RDP4.4.2.6)and that

Policiesmust aim to reduce thegap between conglomerate control ofa wide rangeofactivitieswithinthefinancial,miningandmanufacturingsectorsandsubsectors,ontheone

hand,and thedifficulties facedby smallandmicroenterprises inentering those sectorsontheother.(RDP4.4.2.7).



In summary, the RDP sectiononminingandminerals (4.5.1) set outmoredetailedandcomprehensiveguidelinesfortheFirstDemocraticGovernmentthatseeminglycovermany

elementsofaDemocraticDevelopmentalStates(DDS)mineralsstrategy,including:

1. Nationalownershipofallmineralsintheground;2. Statemineralsmarketing;3. Anequitablestateshareofallmineralrents;4. Downstreammineral beneficiationand the competitive pricing ofmineral inputs

intomanufacturing;

5. Workplace(mines)democratisation;6. The proactive use of worker (pension schemes) and state holdings in mining

companiesfordevelopmentalgoals;

7. Antitrustlegislationtoensurecompetitivepricingalongthemineralssupplychains;8. Orderly downscaling of resourcelimited mines to minimise social dislocation,

includingreskillingofretrenchedworkers;9. Decentworkandworkeraccommodationaswellashealth&safetystandards to

amelioratethehazardousnatureofmining;10. A special financial facilitytoassistcountries in the region todevelop theirmineral

endowments;11. Strategies todevelopandmainstreamtheartisanalandsmallscaleminingsector,

includingaccesstomineralrights.

Itisapparentthatthisdocument(whichwasmeanttohavemandatedthenewdemocraticgovernment)containedmanyoftheinterventionsthatwouldcompriseamineralsstrategy

foraDemocraticDevelopmentalState,includingnationalownershipofallmineralassets,statemineralsmarketing,resourcerentsacquisition,downstreampricing,minerallinkages,

regionalmineralfunds,etc.,butmostwereneveractualised.

PolokwaneResolutionontheEconomy:December2007Sections1.5,1.6,2.3and2.7oftheresolutionarerelevanttoourstudy:

1.5Thedevelopmentalstateshouldmaintainitsstrategicroleinshapingthekeysectorsofthe economy, including themineral andenergy complex and the national transportand

logistics system. Whilst the forms of state interventions would differ, the overridingobjective would be to intervene strategically in these sectors to drive the growth,

developmentandtransformationofthestrctureofoureconomy.

1.6Adevelopmentalstatemustensure thatournatural resourceendowments, including

land, water,minerals and marine resources are exploited to effectively maximise thegrowth,development,andemploymentpotentialembeddedinsuchnationalassets,andnot

purelyforprofitmaximisation.

2.3Transformingthestructuresofproductionandownership:Manyofourmonopoliesarebasedon thenationsnatural resourcesandwemust findwaysandmeans tointervene,

includingthroughstatecustodyoftheseresourcesonbehalfofthepeopleandregulationtoensure competitive pricing of inputs for our downstream manufacturing sector.

Furthermore, thesmall sizeand relativeisolationofoureconomyleads tomonopolies in



certainsectorswhichcouldbeovercomebyincreasing regionaleconomicintegrationwithSouthernAfricaandthecontinentasawhole.

2.10Theuseofnaturalresourcesofwhichthestateisthecustodianonbehalfofthepeople,including our minerals, water, and marine resources in a manner that promotes the

sustainabilityanddevelopmentof local communitiesandalso realises theeconomicandsocial needs of the whole nation. In this regard, wemust continue to strengthen the

implementationoftheMineralandPetroleumResourcesDevelopmentAct(MPRDA),whichseekstorealisesomeofthesegoals.Ourprogrammemustalsodeepenthelinkagesofthe

mineral sector to the national economy through beneficiation of these resources andcreatingsupplierandserviceindustriesaroundthemineralssector.

ThePolokwaneCongressalsochangedthecontextwithinwhichamineralspolicyshouldbe

realised by introducing the concept of a Democratic Developmental State (DDS) whichbecameacriticalelementofANCseconomicstrategythroughtheEconomicTransformation

Resolution which states that ...our understanding of adevelopmental state is that it islocatedatthecentreofamixedeconomy.Itisastatewhichleadsandguidesthateconomy

andwhichintervenesintheinterestofthepeopleasawhole.ASouthAfricandevelopmentalstate,whilstlearningfromtheexperiencesofothers,mustbebuiltonthesolidfoundation

of South African realities.Whilst engagingprivate capital strategically, our governmentmustbe rootedamongst thepeopleandbuttressedbyamassbaseddemocraticliberationmovement.Whilstdeterminingaclearandconsistentpathforward,itmustalsoseektobuild

consensus on a democratic basis that builds national unity.Whilst acting effectively topromotegrowth,efficiencyandproductivity,itmustbeequallyeffectiveinaddressing the

socialconditionsofthemassesofourpeopleandrealisingeconomicprogressforthepoor.

The Polokwane resolution further resolved To build the strategic, organisational and

technical capacities of government with a view to a democratic developmental state,through,interalia, A strengthenedrole forthecentralorgansof state,including throughthe creation of an institutional centre for governmentwide economic planning with the

necessary resources and authority to prepare and implement long and medium termeconomicanddevelopmentplanningandthatThedevelopmentalstateshouldmaintainits

strategicroleinshapingthekeysectorsoftheeconomy,includingthemineralandenergycomplex and the national transport and logistics system. Whilst the forms of state

interventionswoulddiffer, theoverridingobjectivewouldbe to intervene strategically inthese sectors todrive thegrowth,developmentand transformationof the structureofour

economyas wellas ensure that our national resource endowments, including land,water,mineralsandmarine resourcesareexploited toeffectivelymaximise themineralsandmarineresourcesareexploitedtoeffectivelymaximisethegrowth,developmentand

employment potential embedded in such national assets, and not purely for profitmaximization.(authorsemphases).

DebatewithintheANCA recentANCYouth Leaguepaper (ANC,2010) stronglyadvocatesnationalisationofSouth

Africasmines.Itsuggeststhatnationalisation....canassumevariousforms:itcanbe100%



publicownership,or51%ormoreownedby thestate,orestablished throughpartnershiparrangementswiththeprivatesectorinwhichthestateassumesgreatercontrol.

Theleaguesetsdownthefollowingreasonsfornationalisationofthemines(pp.1621):

Toincreasethestatesfiscalcapacityandensurebetterworkingconditions; Toindustrialiseandcreatemorejobs; Tosafeguardsovereignty; TotransformtheaccumulationpathintheSAeconomy;and Totransformunequalspatialdevelopmentpatterns.

Thefollowingactionsaresuggested:

Establishmentofastateminingcompanyto:ownandcontrolSouthAfricasmineralresources;maximisethenationseconomicgainfromminerals;contributetosocialandeconomicdevelopment;developandmaintainstrongenvironmentalandsafety

standards;anddevelopmineralresourcesinacarefulanddeliberatemanner(p.21).

DevelopanappropriateExpropriationModel;and Amendmentof theMPRDA so thatallapplicants formining rightshave tobe in

partnershipwiththestateownedminingcompany.

GovernmentPolicyonMineralsDevelopmentpost1994

DepartmentofMineralsandEnergy,GreenandWhitePapers,1998:AMineralsandMiningPolicyfor SouthAfrica,1998Section1.3outlinestheevolutionofmineralrightsinSA.TheSectiononMineralRightsand

ProspectingInformationstatesthefollowing:

TheSouthAfricansystemofmineral rightshasdevelopedovermany years to itspresent

stateunderadualsysteminwhichsomemineralrightsareownedbythestateandsomebyprivateholders.TheStatecontrolstheexerciseofprospectingandminingrightsunderthe

administrativesystemofprospectingpermitsandminingauthorisations.(p.9)

Ownershipofmineralrights(pp.1011).

ThetwomaincategoriesofownersofmineralrightsaretheStateandprivateholders.

Statistics keptby theDepartmentofMineralsandEnergy since1993 indicatethat ....themineralrightsinrespectofwhichprospectingpermitsandminingauthorisationshavebeen

issued are divided in the proportion 1/3 stateowned and 2/3 privately owned. (This)illustratesthat theprivatesectorisa substantialholderofmineral rights.Adistinguishing

featureof theSouthAfricanmining industryatpresentisthatalmostallprivatelyownedmineralrightsareinwhitehands(pp.910).

SouthAfricaandtheUSAaretwoofthemajorminingcountrieswhichhaveadualsystemofpublicandprivateownershipofmineralrights.Inmostothercountriestherighttomineralsis vested in theState.However, insome countries,ofwhichChileandAustraliaaregood



examples,thestatesystemissuchastoallowaminingcompanydefactopermanenttitletosuchrights.

In jurisdictions,wheremineral rightsarepubliclyowned,a systemof licensing isusuallyappliedwhichprovidessecurityoftenuresufficienttoattractexplorationandmining.Many

countries, notably in South America, but increasinglyelsewhere, whichemploy licensingsystemsforpubliclyownedmineralrights,havesuccessfullyattractedlargeandcontinuing

investmentinexplorationandmining.

Theintentofgovernmentisenunciatedasfollows(p.11):

Governmentwill:

i)promoteexplorationandinvestmentleadingtoincreasedminingoutputandemployment;

ii)ensuresecurityoftenureofminingrights;

iii)preventhoardingorsterilisationofmineralrights;

iv)addresspastracialinequitiesbyassistingthosepreviouslyexcludedfromparticipatingin

theminingindustrytogainaccesstomineralrights;and

v)takereasonablelegislativeandothermeasures,tofosterconditionsconducivetomining

whichwillenableentrepreneurstogainaccesstomineralrightsonanequitablebasis.

TheGreenandWhitePapersalsopresenttheviewsforandagainstthesystemthatexisted

inthemid1990s:

Manydifferingviewshavebeenexpressedinsupportoforagainstthecurrentarrangementsinrespectofmineralrightsandprospectinginformation.

1.3.3.1Privateownership

i.Proponentsofprivateownershipmaintainthat:

a)IthasbeenandremainsideallysuitedtoeffectiveutilizationofSouthAfricasdistinctiveore bodies, forexample,by providing theabsolute security of tenure necessary in the

development of verydeep goldminingalong theWestWits line. The capacity to retainmineral rights securely for thedevelopmentofnewmining ventureswhen thesebecomepossibleisapositivefeatureofprivateownership.

b)Holdingofmineralrightsisacriticalparameterinthevaluationofaminingcompanybyinternational investors. The company is valued according to its future potential which

dependsonanongoingflowofnewprojectsderivedfromsuchmineralholdings.

c)Privateownershipofmineral rightsbasedinthe lawofproperty ispreferabletoapure

licensingsystemofrightsbasedinadministrativelawandinvolvingadministrativediscretion.Privateownershipaffordstheabsolutelongtermsecurityoftenurethatattractsinvestment

inexploration,miningandmarketing.



d) South Africa has the ability to produceat a level farexceeding the worlds ability toconsumeseveralcommoditiessuchasmanganese,chrome,platinumandvanadium.Mineral

rightsinsuchcommoditiesareheldaspartoflongtermminingplans.Ownershavearecordof having expanded production in line with growth in demandand have also invested

substantial funds in new product developmentand other forms of promotion to fostermarketgrowth.

e)Privateownership isconsistentwithamarketeconomyandwithaninternational trendtowardsreducingthedirectroleofGovernmentintheminingindustry.

f)Privateownershipencouragestradeinandutilisationofmineralrights.

ii.Criticsofprivateownershipofmineralrightsarguethat:

a)MineralsarepartofthenationsendowmentsothattheStateistherightfulcustodianof

thisendowment.

b)SouthAfricaisoutofstepwithothermajorminingcountries,wherepublicownershipof

mineralrightshasledtosuccessfulexplorationandminingindustries.

c) Private ownership of mineral rights suppresses exploration activity as well as the

opportunityforalternativeviewstobetakenoftheeconomicsofmininganunexploitedarebody.

d) Itallows hoarding ofmineral rights. As such, the system isa barrier to entryagainstpotentialinvestors.

e)Complexand fragmentedmineralrightholdingsand themultiplicityofownersinSouth

Africamilitateagainstnewinvestmentbyprospectivenewentrantswhoencounterdifficultyandcostinidentifyingholdersofmineralrightsandobtainingmineralrights.

f)Thesystemisinaccessibletosmallscaleminers,andinhibitsthedevelopmentofavibrantjuniorminingsector.

g)Privateownershipofmineralrightslimitsequalandequitableaccesstomineralrightsandresources.

1.3.3.2Stateownership

i)ThoseinsupportofthetransferofprivatelyheldmineralrightstotheStatecontendthat:

a.TransferofmineralrightstotheStatewillreleasemineralterrainsfornewentrants,which

willstimulateprivatesectoractivity.

b. State control ofmineral rights will removedifficulties in costand delays surrounding

fragmentedmineralrightholdings.

c.AsystemofstateownedmineralrightswouldenabletheStatetoenforcethesubmission

and release of exploration information, thereby avoiding duplication of explorationactivities.



d. State ownership of mineral rights is more prevalent in the world than is privateownership.

e.Stateownershipwillpreventthehoardingofmineralrightsandallowequalandequitableaccesstopotentialinvestors,inparticularsmallscaleminers.

ii)ContentionsraisedagainstatransferofmineralrightstotheStatearethat:

a.Transferofmineralrights to theStatewillrequirethepaymentof compensation,which

wouldbeaninappropriateuseoftheStateslimitedfinancialresources.

b.Theblanket transferofmineral rights to theState couldeasily lead toadministrative

difficultiesinasystemnotgearedtothemanagementofmineralrights,extensivedelaysandhencea lossofinvestor confidence that couldseriouslydamagetheSouthAfricanminingindustry.

c.There isno indication thatthetransferofmineral rights totheStatewillautomaticallyresult inmoresuccessfulexplorationandmining. It isarguedthat inSouthAfricathereis

evidence to the contraryin thatstateownershipofmineral rightshasmade these rightssubject to policies that have impeded rather than promoted mineral development.

Managementofdeposits thatwillbebroughtaccount in the future requiresa long termperspectiveattunedtochangesintechnologyandmarketsthatismorelikelytobefoundin

theprivatesector.

d.Stateownershipbasedinasystemofadministrativelawofferslesssecuritythanasystemofprivateownershipbased in the lawofproperty,and issusceptible to inefficiencyand

corruption.

e.AbiastowardsstateownershipwouldruncountertotheGovernmentsphilosophyand

policyoncompetitionandprivatisation.

f.Prospectinginformationandmineralrightsareseparateformsofproperty.Ownershipof

thelatterdoesnotautomaticallyconfertitletotheformer.

Thefollowingpolicyproposalswereputforward(pp.1415):

1.3.6.1Ownershipofmineralrights

i)Government recognises the inherent constitutional constraintsof changing the currentmineralrightssystem,butitdoesnotacceptSouthAfricassystemofdualstateandprivate

ownershipofmineralrights.

ii)GovernmentslongtermobjectiveisforallmineralrightstovestintheState.

iii)Stateownedmineralrightswillnotbealienated.

iv) Government will promoteminerals development byapplying the use it or lose it

principle.



v)Governmentwilltaketransferofmineralrightsincaseswhereaholderofmineralrightscannotreadilybetracedorwheremineralrightshavenotbeentakencessionofandarestill

registeredinthenameofadeceased.

1.3.6.2Anewsystemforgrantingaccesstomineralrights

Asatransitionalarrangementinpursuanceoftheobjectivestatedinsection1.3.6.1above,thefollowingnewsystemforgrantingaccesstomineralrightswillapply:

i)TherighttoprospectandtomineformineralswillvestintheState.

ii)Governmentwilldevelopdetailedlegislativeproposals fortheintroductionof thenew

systemofaccess toallmineral rights. Indevelopingsuchproposalsprovisionwillbemadefor:

a.prospectingandminingrightstobemadetothefirstqualifyingapplicantandincasesof

competingapplicationssuchrightswillbegrantedonmerit;

b.securityoftenurebygrantingprospectingandmining rights forspecifiedperiodswhich

are capable of cancellation or revocation only for material breach of the terms andconditionsoftheright;

c.registerableprospectingandminingrightswhichwillbetransferablewiththeconsentoftheState;

d. the holder of a prospecting right to be entitled to progress to a mining right oncompliancewithprescribedcriteriaandworkcommitments;

e. annualminimum workand investment requirement to discourage the unproductive

holdingofprospectingandminingrights;

f.a retention licencewhichmay,uponwrittenapplication,begrantedto theholderofa

prospecting right in caseswhere theholder,havingexplored theareaandestablishedtheexistence of an ore reserve which is, at the time of completion of the exploration

programme, considered tobeuneconomicaldue toprevailing commodityprices (marketconditions)orwhere theexploitation thereofmight lead tomarketdisruptionnot in thenational interest.Such licencewillenabletheholder thereof to retain thereservewithout

the commitment to minimum work and investment requirements. The licence will begrantedforalimitedperiodinrespectofthepropertyconcerned.

g.precluding the issueofaprospectingormining rightoveranareainrespectofwhichacurrentlyvalidprospectingorminingrightisheldforthesamemineral;

h.predeterminedstandardtermsandconditions,forallprospectingandminingrights;

i. the reduction as far as possible, of discretionary powers by applying standard

requirementsorobjectivecriteria;

j.paymentof compensationby theholderof themining rightto the registeredholderofmineralrights.Suchcompensationwillbepayableintheformofroyaltiesasdeterminedby



theState.Nodistinctionwillbemadebetween royaltiespayable to theStateand thosepayabletoprivateholdersofmineralrights.Thequantumofroyaltieswillbeinternationally

competitiveandwillnotinhibittheinitiationofnewprojects;

k.paymentofasurfacerental,determinedbytheState,bytheholderofaprospectingor

miningrighttotheregisteredlandowner;and

l. the approval of an Environmental Management Programme prior to the issue of a

prospectingorminingright.

iii)Persons,includingtheirsuccessorsintitle.Orassignsornominees,whocouldlayclaim,

undersection43oftheMineralsAct,1991,totheexclusiverighttoprospectforamineraltowhichtherightwasreservedtotheState,shallafterthelapsingoftheperiodthatendedon31December1996,or theapproved longerperiod,nolongerbedeemed tobe the sole

holderofsuchrights.

In summary,SouthAfricaisoneof the fewcountries thathasasystemofdual stateand

private ownership of mineral rights. The DME is the primary government institutionresponsibleforformulatingandimplementingpolicy.ItreportstoandadvisestheMinister

ofMinerals,who,inconsultationwiththeCabinet,takesfinalresponsibilityforpolicy.

TheWhitePaperonMineralsandMiningPolicywas releasedinOctober1998.Thepolicy

enablestheeffectiveandsustainabledevelopmentofmineralresourcestothebenefitofallSouthAfricans,at the same time containing theimpactofprospectingandminingontheenvironment.Thepolicyaddressespastinequities,opensupnewopportunitiesforlocaland

foreign investors, and promotes South Africas global competitiveness. Although theGovernment intends to prevent the hoarding ofmineral rights and the sterilisation of

mineralresources,securityoftenurewillbeguaranteed.

TheGovernmentslongtermobjectiveisforallmineralrightstovestintheState,but,asa

transitionalmeasure,anewsystemforgrantingaccesstomineralrightswillapply.Theuseand keep itprinciplewillbeintroducedtodiscourageunproductiveholdingof rightsandensure tenure retention where exploitationmight not be economical ormight disrupt

markets.

ImportantLegislation

TheMineralandPetroleumResourcesDevelopmentAct,2002The systematic marginalisation of the majority of South Africans, facilitated by the

exclusionarypoliciesof theapartheid regime,preventedhistoricallydisadvantagedSouthAfricans fromowning themeansofproductionand frommeaningfulparticipation in the

mainstreameconomy.Toredressthesehistoricinequalities,andthusgiveeffecttosection9(equality clause) of the Constitution of the Republic of South Africa Act 108 of 1996

(Constitution), the democratic government has enacted, inter alia, the Mineral andPetroleumResourcesDevelopmentAct28of2002(MPRDA).

TheobjectiveoftheMPRDAistofacilitatemeaningfulparticipationofHDSAsintheminingandminerals industry. In particular, section100 (2) (a) of theMPRDA provides for the



developmentoftheMiningCharterasaninstrumenttoeffecttransformationwithspecifictargets.EmbeddedintheMiningCharterof2002istheprovisiontoreviewtheprogressand

determinewhatfurthersteps,ifany,needtobemadetoachieveitsobjectives.

The MPRDA legislates the official policy concerning the exploitation of the countrys

minerals.TheActaddressesmanyissuesincludingthefollowing:

Transformationofthemineralsandminingindustry; PromotionofequitableaccesstoSouthAfricasmineralresources; Promotionofinvestmentinexploration,miningandmineralbeneficiation; SocioeconomicdevelopmentofSouthAfrica;and Environmentalsustainabilityoftheminingindustry.

PreviouslySouthAfricanmineralrightswereownedeitherbythestateortheprivatesector.

Thedualownershipsystem representedanentrybarrier topotentialnew investors.Thecurrentgovernmentsobjectiveis forallmineral rights tobe vested in theState,withdue

regardtoconstitutionalownershiprightsandsecurityoftenure.

ObjectsoftheAct

2.TheobjectsofthisActareto:

(a)recognisetheinternationallyacceptedrightoftheStatetoexercisesovereigntyoverallthemineralandpetroleumresourceswithintheRepublic;

(b)giveeffect totheprincipleof the States custodianshipof thenationsmineralandpetroleumresources;

(c)promoteequitableaccesstothenationsmineralandpetroleumresourcestoallthepeopleofSouthAfrica;

(d) substantially andmeaningfully expand opportunities for historically disadvantagedpersons, including women, toenter themineraland petroleum industriesand to

benefitfromtheexploitationofthenationsmineralandpetroleumresources;(e)promoteeconomicgrowthandmineralandpetroleumresourcesdevelopmentinthe

Republic;

(f) promote employment and advance the socialand economic welfare of all SouthAfricans;

(g) provide for security of tenure in respect of prospecting,exploration,mining andproductionoperations;

(h)giveeffecttosection24oftheConstitutionbyensuringthatthenationsmineralandpetroleumresourcesaredevelopedinanorderlyandecologicallysustainablemanner

whilepromotingjustifiablesocialandeconomicdevelopment;and(i)ensure thatholdersofminingandproduction rights contribute towards the socio

economicdevelopmentoftheareasinwhichtheyareoperating.

Custodianshipofnationsmineraland petroleumresources3(1)MineralandpetroleumresourcesarethecommonheritageofallthepeopleofSouth

AfricaandtheStateisthecustodianthereofforthebenefitofallSouthAfricans.



(2) As the custodian of the nationsmineraland petroleum resources, the State,actingthroughtheMinister,may

(a) grant, issue, refuse, control,administerandmanageany reconnaissance permission,prospecting right,permission to remove,mining right,mining permit, retention permit,

technicalcooperationpermit,reconnaissancepermit,explorationrightandproductionright;and

(b)inconsultationwiththeMinisterofFinance,determineandlevy,anyfeeorconsiderationpayableintermsofanyrelevantActofParliament.

(3)TheMinistermustensure the sustainabledevelopmentofSouthAfricasmineralandpetroleum resources within a framework of national development policy, norms andstandardswhilepromotingeconomicandsocialdevelopment.

TheMineralandPetroleumResourcesRoyaltyAct,2008,ThissetsouttheroyaltypaymentsbylicenseholderstotheStateforexploitingthemineral

resources.

TheMiningCharterUpon the adoption of the Mining Charter (in October 2002), stakeholders made thefollowingundertaking:TheindustryagreedtoassistHDSAcompaniesinsecuringfinanceto

fundparticipationinanamountofR100billionwithinthefirstfiveyears.ParticipantsagreedthatbeyondR100billionindustrycommitmentinpursuanceofthe26percenttarget,ona

willingsellerwillingbuyerbasis,atfairmarketvalue,wheretheminingcompaniesarenotatrisk,HDSAparticipationwillbeincreased.

ObjectivesoftheCharterThe Broad Based Socio Economic Empowerment Charter for the South African industry,

hereafterreferredtoastheMiningCharter,isagovernmentinstrumentdesignedtoeffectsustainablegrowthandmeaningfultransformationoftheminingindustry.TheMCseeksto

achievethefollowingobjectives:

(a)topromoteequitableaccesstothenationsmineralresourcestoallthepeopleofSouth

Africa;(b)tosubstantiallyandmeaningfullyexpandopportunitiesforHDSAtoentertheminingandmineralsindustryandtobenefitfromtheexploitationofthenationsmineralresources;

(c)toutiliseandexpandtheexistingskillsbasefortheempowermentofHDSAandtoservethecommunity;

(d) to promote employment and advance the social and economic welfare of minecommunitiesandmajorlaboursendingareas;

(e)topromotebeneficiationofSouthAfricasmineralcommodities;and(f)promotesustainabledevelopmentandgrowthoftheminingindustry.

Elements oftheMiningCharter

Ownership



EffectiveownershipisarequisiteinstrumenttoeffectmeaningfulintegrationofHDSAintothemainstreameconomy. In order toachieve a substantial change in racialand gender

disparitiesprevalent inownershipofminingassets,and thuspave theway formeaningfulparticipation of HDSA for attainment of sustainable growth of the mining industry,

stakeholderscommitto:

Achieve aminimum target of 26% ownership to enablemeaningful economicparticipationofHDSAby2014;

Theonlyoffsettingpermissibleundertheownershipelementisagainstthevalueofbeneficiation,asprovided forbySection26of theMPRDAandelaborated inthemineralbeneficiationframework.

The continuingconsequencesofallpreviousdealsconcludedprior to thepromulgationoftheMPRDAwouldbeincludedincalculatingsuchcredits/offsetsintermsofmarketshareasmeasuredbyattributableunitsofproduction.

Procurementand EnterpriseDevelopmentTheChartermakesthefollowingprovisionstoensurethattheminingindustrymustprocurefrom BEE entities in accordance with the following criteria, subject to the provisions of

clause2.9:

Procureaminimumof40%ofcapitalgoodsfromBEEentitiesby2014; Ensurethatmultinationalsuppliersofcapitalgoodsannuallycontributeaminimum

of0.5%ofannual incomegenerated from localmining companies towardssocio

economicdevelopmentof local communities intoasocialdevelopment fund from2010;

Procure70%ofservicesand50%ofconsumergoodsfromBEEentitiesby2014.

Thetargetsaboveareexclusiveofnondiscretionaryprocurementexpenditure.

BeneficiationWithregardtobeneficiation,miningcompaniesmustfacilitatelocalbeneficiationofmineralcommoditiesbyadhering to theprovisionof Section26of theMPRDAand themineral

beneficiationstrategy:

Miningcompaniesmayoffsetthevalueofthelevelofbeneficiationachievedbythecompanyagainstaportionof itsHDSAownership requirementsnotexceeding11

percent.

MiningCharter ImpactAssessment Report,2009Keyquestion:HastheminingcompanyachievedHDSAparticipationintermsofownershipforequityorattributableunitsofproductionof15percentinHDSAhandswithin5yearsand

26percentin10years.

The assessment revealed that the current netasset value of the South Africanmining

industryaverages R2 trillion, indicating that the 15 percent HDSA ownership thresholdrequires no less than R300billion toaccomplish (in 2009 terms). The industrys statedcommitmentofR100billiontofacilitateHDSAownershiprepresents5percentofthecurrent



netasset value of themining industry, which falls far short of the agreed 15 percentempowermenttargetenvisagedwithin5years.However,theassessmentfurtherrecognises

the limitationsof theabsolute valueof commitmentaswellas the compoundedannualgrowthoftheindustrysnetvalue,whichoughttohavebeenfactoredinatthetimeofthe

commitment.

Analysisof theavailabledatashowstheaggregatedBEEownershipof theminingindustry

has,atbestreached9percent.ThereareseveralempowermentvehiclesthatconstituteBEEownership, namely, Women in Mining, Employee Share Ownership Schemes (ESOPs),

CommunityTrusts,AnchorPartnersandSpecialPurposesVehicles (SPVs).Regrettable,thereportedlevelofBEEownershipisconcentratedinthehandsofanchorpartnersandSPVs,representingahandfulofblackbeneficiaries,contrarytothespiritandaspirationofboththe

FreedomCharterandtheMiningCharter.

Despitethenobleintentionoftheempowermentvehicles(ESOPsandCommunityTrust)to

effect the broad ownership transformation envisaged in the Mining Charter, a closerexaminationofthesevehicleshighlightsthepervasiveconstraintspresentedintheformof

nonequitabledistributionofbenefits inherent in their implementationand suchbenefitsbeingextendedtononHDSA,whichremainsproverbiallyproblematic.

Theunderlyingempowermentmodelhasresultedintheactualownershipofminingassetsintended for transformationpurposesbeing tiedinloanagreements.Accordingly, thenetvalueofalargeproportionofempowermentdealsisnegative,duetohighinterestrateson

the loanandmoderatedividend flows,compoundedby therecentimplosionof theglobalfinancial markets. The rapacious tendencies of the capital markets have consistently

thwartedtheintendedprogresstowardsattainingthegoalsoftransformation,asembeddedintheCharter.

Theassessmentshowsthatthestructureofmostempowermentdealsisinsidiouslyeffectedat operational (mining rights) levels, whichallows for ringfencing of transformation atholding company level. Such undesirable practices perpetuate a culture and focus on

regulatorycomplianceattheexpenseoffundamentaltransformationoftheminingindustry,includingalbeitnotlimitedtoderacialisingthecorporateprofilesandownershipofmining

companies.

TheassessmentalsopointstoastructuralmalaiseinBEEdealsfocusedsolelyoneconomic

interests,which isnot representativeof the trueownership transferofminingassets toHDSAs.Asaresultofthesestructuralweaknesses,theBEEcompaniesendupinaninvidious

financial position, as evidenced by the swift mass exodus of these companies, whichcoincidedwiththeglobalfinancialcrisis.

TherealisationofthebenefitsofBEEdealflowstoHDSAbeneficiariesisdelayedbyelusive

structuringof thesedeals.ThenatureofmostBEEdealsissuchthattherepaymenttermsfortheHDSAcontinuebeyondtheLifeofMine(LOM).Thereareoftenonerousconditions

attached toagreements to discourage HDSA participation. Amajorityof empowermentdealsare structuredwitha lifespanending2014, contrary to theobjectof thiselement,

whichsought toachieve these targetsasabaselineof transformation.Some companies



haveusedwhat they cal the pooland sharemethod,which is theirown creationandfeaturenowhereintheCharter.Throughthismethod,establishedminingcompaniesenter

intojoint ventureswithblackowned companiesandeachpartybringsresourcesintothedealbasedonthecloseproximityoftheiroperationsgeographically.

Theprofitsaresharedonthebasisofwhohaswhatpercentageofthereservesbroughtintothedeal.Effectively, theBBEEEownership in suchanarrangement isbasedonhowmuch

reserveseachpartybringsintotodeal.Inessencesuchcompaniesarenotempoweredandshouldnotclaim crediton thebasisofattributableunitsofproduction sincetheydidnot

giveupanyoftheirreservesforthebenefitofblackownedcompanyandtheirracialprofileremainsunaltered.

LackofHDSArepresentationatempoweringcompaniesboardslimitstheirdecisionmaking

authorityandleaves themat themercyofempowering companies.Consequently,HDSAcompaniesaregenerallyexcluded frommajordecisions relating to investment/divestment

andkeypoliciesthatdeterminethefuturedirectionofthecompany.

Theprevalenceoffrontingisbothaninsultandanindictmenttothebroaderobjectivesof

theMiningCharter.Thisunscrupulouspracticesetsback the transformationagendaandmustbe condemned inthestrongest termspossible.Thesurreptitiousnatureof fronting

remainsascourgetoSouthAfricastransformationagenda.

Recommendation:While theelementcaptures the recognitionbygovernmentandindustry thatoneof themeansofeffectingentryofHDSAsintotheminingindustryandofallowingHDSAstobenefit

fromtheexploitationofminingandmineralresourcesisbyencouraginggreaterownershipofminingassetsbyHDSAs,itonlyprovidesthedefinitionofparticipationintermsofactive

andpassiveinvolvement,thetermsofwhicharenotclearlydefined.Thisprovidesroomforambiguityanddifferentinterpretations.Forexample,theDMRinterpretationofownershipincludes voting rights, economic interest and net value, while the industry obfuscates

interpretation of ownership as HDSAs economic interest, and views net value as anadditional ownership criterion. In addition, the absence of criteria for offsetting

beneficiationagainstownership,aswellaslackofclarityonthecontinuingconsequencesofpreviousBEE transactionsand theuseofattributableunitsofproduction require specific

attention.

DepartmentofMineralResources:AmendmentoftheBroadBasedSocioEconomicEmpowermentCharterfortheSouthAfricanMiningandMineralsIndustry,2010Thefindingsoftheassessment(above)identifiedanumberofshortcomingsinthemannerinwhichtheminingindustryhasimplementedthevariouselementsoftheCharter,namely

ownership,procurement,employmentequity,beneficiation,humanresourcesdevelopment,mine community development, housing and living conditions, all of which have notembraced the spirit of the Charter to the latter. To overcome these inadequacies,

amendmentsweremadetotheMiningCharterof2002inordertostreamlineandexpediteattainmentofitsobjectives.ThisstudyproposesthatthedestructivepracticeofBEEfronting



forforeignsuppliersbeeliminatedbymakingtheBEEcreditbasedonthelocalcontentofthegoodsorservicesprovided:i.e.theBEEratingofthesuppliertimesthelocalvalueadded

of the product to give the BEE proportion of the product supplied.



StateInterventionintheMineralsSectorBefore1994

HistoricalstateinterventioninthemineralssectorThe interventionsof theapartheid state in themineralssectorarewelldocumented10andspannedaperiod of four decades from 1948. The key policy objectives pursued can be

distilledintothefollowing:

AdvancingAfrikanerlargescalecapitalistinterestsacrossalleconomicsectors,includingmining

FullemploymentforwhiteSouthAfricans Development of new industries, particularly those which increased national self

sufficiency

Thepolicyinstrumentswi

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