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DRAFT SPEECH FOR DR CON FAUCONNIER AT THE AFRICAN MINING INDABA

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DRAFT SPEECH FOR DR CON FAUCONNIER AT THE AFRICAN MINING INDABA Powered By Docstoc
					THE ROLE THAT THE MINING INDUSTRY CAN PLAY IN
REALISING THE VISION OF THE AFRICAN RENAISSANCE



INTRODUCTION


Mister Chairman, your Excellencies, Ministers and Deputy Ministers, foreign
visitors, ladies and gentlemen, thank you for affording me the privilege of
addressing this august gathering.


The continued outstanding success of the African Mining Indaba reflects the
great interest shown in mining in Africa from governments, international
institutions and global and local mining companies. I hope that in my
presentation to you, I will be able to demonstrate that this interest is not
misplaced; on the contrary, that the mining potential of Africa is one of its
most powerful attributes.


Slide 1


When we look at this first slide, which is a composite satellite image of the
earth at night, the afro-pessimists will undoubtedly be quick to seize upon it
as further evidence of Africa as the Dark Continent. Admittedly, it does
indicate a degree of underdevelopment. But we at Kumba Resources see
something else. We see a continent with an abundance of both natural and
human resources, yearning for the involvement of committed, responsible
developers to assist in realising its potential to the benefit of all.


Known world-class mineral resources of the continent, outside of South
Africa, that immediately spring to mind include the base metals of the
Copperbelt, the iron ore of West Africa, the mineral sands of East (and

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West) Africa and the diamonds and gold of Central Africa. Sadly, the
exploitation of these resources has all too often been interrupted by wars,
political instability and discouraging legal and financial environments.


The potential of the continent, despite its lack of development, is also
illustrated by a glimpse at the role that African countries already play in terms
of world supply of selected mineral commodities.


Slide 2


In addition, the continent hosts vast resources of oil and gas along its
western (and south-eastern) coasts, as well as huge hydroelectric potential
in the Congo basin.


The fact that a significant part of this contribution comes from South Africa,
brings me to the point that I aim to make and which is the subject of this
presentation, namely “The role that the mining industry can play in realising
the vision of the African renaissance”, by using South Africa as an example.




THE ROLE OF THE MINING INDUSTRY IN THE DEVELOPMENT
OF SOUTH AFRICA


The mining industry in South Africa, which started with copper mining in
Namaqualand in the Northern Cape in the mid-1800s, experienced rapid
growth after the discovery of diamonds in 1867 and gold on the
Witwatersrand in 1886. Until that time South Africa was largely an agrarian
society with very little international trade.




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Expansion was accelerated by the opening up of the coalfields in the
northern and eastern parts of the country, followed by the discovery of
deposits of other minerals such as those of chromium, platinum, manganese,
iron ore, and many others. The development of these led to South Africa
becoming not only a major force in world mineral supply, but also a highly
industrialised economy that includes advanced secondary and tertiary
sectors in the minerals industry.


Today, this industry is a well-established and resourceful sector of the
economy, and has a high degree of technical expertise and the ability to
mobilise capital for new development. Worldwide, the industry is recognised
as a leading and reliable supplier of a large variety of minerals and mineral
products of consistently high quality. In 2001, according to the Department of
Minerals and Energy, some 55 different minerals were produced from 749
mines and quarries. Mineral commodities were exported to 92 countries
worldwide.


Some of the factors that allowed the industry to flourish were an exceptional
resource base, a free-market economy with minimal intervention by the
state, a good economic and physical infrastructure, and high levels of
expertise, both in the private sector and in government and developmental
institutions. Of course, had past policies allowed for the participation and
development of the full potential of all the citizens of the country, the industry
would have been able to make an even greater contribution to the welfare of
the South Africa and also Africa.


The availability of extensive resources of relatively inexpensive coal was
particularly significant in the economic history of South Africa, as it afforded
the country a competitive supply of energy, which was a prerequisite for the
exploitation and beneficiation of its mineral resources, as well as for the

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further industrialisation of the economy. This more than offset the country’s
lack of hydro- or oil and gas energy resources. The mineral industry was also
instrumental in the development of an extensive physical infrastructure, a
variety of secondary and tertiary industries and training facilities.


Although the discovery of gold and diamonds was very important to South
Africa, as it has been elsewhere in Africa, it was the discovery and
exploitation of bulk commodities such as coal, iron ore and base metals that
have been principally responsible for the transformation of our economy from
an agrarian to an industrial one, and for the development in the subcontinent
of the sophisticated infrastructure that we are inclined nowadays to take for
granted.
Slide 3


The extent to which South Africa has been able to develop secondary and
tertiary industries, particularly since the 1980s, mostly with the mineral
industry as their base, is illustrated in this graph, which gives an indication of
the country’s GDP growth, as well as the contribution of the mining industry
to that growth.


It is clear that, despite the fact that the value of the real mining contribution to
GDP remained relatively constant during this period, the proportional
contribution kept on declining, which is an indication of the expansion that
took place in the manufacturing and services sectors.


From this, I think it is safe to say that South Africa can be viewed as an
African success story in terms of the utilisation of its mineral wealth as a
basis for industrialisation. This is confirmed by the fact that the latest
available statistics show that South Africa contributes some 23 per cent of
Africa’s GDP, 26 per cent of its exports and has an average per capita

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electricity utilisation rate that is seven times that of the continent as a whole.
In this, the mineral industry played, and will continue to play, an
indispensable part.


Having said all this, South Africa still has a way to go in terms of resource
management, mineral beneficiation, environmental and social responsibility
and exploitation of the human potential of the country. The new Mineral and
Petroleum Resources Development Act has, by and large, set the scene for
this next phase in the development of our minerals industry.




AFRICA TODAY


Slide 4


This graph shows that relative to the other continents, Africa lags far behind
in terms of attracting foreign direct investment (FDI), especially if one bears
in mind that in 2001 some 39 per cent of this investment went to South Africa
alone.


So what can African countries do to turn this situation around?
Peter van der Veen of the World Bank, at a mining workshop in the DRC
held in April 2002, succinctly outlined what governments could do in terms of
mining sector reforms in order to attract investment and promote the
development of their respective industries. Some of these issues are
summarised in this next slide.


Slide 5




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Firstly are the factors that are important to create an attractive investment
environment generally, and secondly specific mining sector reforms. It
stands to reason that conditions like these will only be established in
countries with a high degree of political and social stability.


It should also be remembered that the development of mining projects is a
highly risky business, with long lead times and generally very high capital
requirements. The fiscal regime in a country should, therefore, take this into
account, allowing for returns commensurate with the risks involved.


The role and importance of efficient public mining institutions cannot be
overemphasised. In the World Bank presentation quoted previously, the
Department of Mines, Mining Cadaster (titles) Office, Geological Survey and
Mining Environment Offices are mentioned prominently.


AFRICA – THE FUTURE


Keeping these requirements in mind, it is instructive to look at the vision of
the leaders of the African Union, specifically those goals expounded as part
of the vision of the New Partnership for African Development (NEPAD).


Slide 6


From this summary it is clear that these objectives encapsulate all those
listed previously as prerequisites for establishing an attractive investment
environment.


These African Union and NEPAD initiatives are starting to create a climate
wherein governments strive for democracy, political and economic stability,
the rule of law, good governance and the combating of corruption.

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NEPAD has also established sectoral development priorities and I wish to
mention only a few that could be of utmost importance to the development of
the mining industry in Africa. In terms of infrastructure the rehabilitation and
upgrading of ports like Nacala in Mozambique and Lobito in Angola, as well
as that of the Benguela railway corridor system will undoubtedly add impetus
to the rehabilitation and development of mines in central and southern Africa.


The utilisation of the hydro-electric potential of the Congo river by means of
the proposed Inga project and the interconnection of African power grid
systems will go a long way towards putting many African countries in a
position similar to that which enabled South Africa to industrialise from its
mineral base. NEPAD will also have to look at means of using the oil and
gas resources of the continent to add value to local products rather than
almost exclusively exporting these resources in raw form.


Naturally, infrastructure and energy very often constitute trans-frontier issues
and thorough planning and co-ordination between African countries will not
only allow for the quicker development of these, but also facilitate their
optimal utilisation.


To show that this is not all pie in the sky, I wish to illustrate my thesis with an
example of an outstanding success story in Africa, namely that of the
establishment of the Mozal aluminium smelter in Mozambique. This in a
country that had just emerged from several decades of civil war, which had
devastated the infrastructure and economy. However, a combination of
sound and courageous investment policies, competitively priced energy,
committed and resourceful development institutions and mining and finance
companies prevailed in establishing these world-class mineral beneficiation



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facilities and in forming a strong foundation for the industrialisation of
southern Mozambique.


This also leads me to an appreciation of the role that can be played by
international and domestic development institutions, like the World Bank, IFC
and South Africa’s Industrial Development Corporation and the Development
Bank of Southern Africa. The historical successes of the last mentioned two
organisations in South Africa and the subcontinent is proof of the valuable
role that exists for well-run and dedicated national development institutions.
In fact, these South African institutions, as well as others, like the Council for
Geoscience, Mintek, the CSIR, Comazar and Eskom can play an equally
important role in mining development in the rest of Africa


The world-wide trend towards the lowering and removal of trade barriers will
also work to the benefit of resource-rich countries that wish to add value to
these resources before export. The work of the World Trade Organisation in
this respect needs to be applauded. However, the non-tariff barriers of,
especially, developed countries and subsidies to local producers continue to
have a major negative impact on the efforts of developing countries to
improve their terms of trade and the well-being of their citizens.
Governments of developed countries need to exercise some introspection
with regard to the destructive role of such subsidies and trade barriers.


We in Kumba believe that Africa is at the dawn of a new era. Many of the
factors necessary for the development of the human and economic potential
of African countries, based on responsible and sustainable natural resource
development, are starting to fall in place, and we are fully supportive of the
initiatives of African governments in this regard.




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MINING COMPANIES


Governments and private companies sometimes have different objectives,
which could lead to strains in relationships. However, we believe that there
are major areas of mutual benefit in the interaction between mining
companies and host governments. I have already alluded to the rewards that
should accrue to companies for making high-risk investments, but what do
governments get from this?


Again quoting the World Bank, reputable and responsible mining companies
will deliver to governments taxes and economic growth through the multiplier
effect. To communities they will provide employment, income, improved
social   services   (especially   health   and   education),    food,   security,
infrastructure and spin-off businesses.


Furthermore, the technological resource base of countries will be enhanced,
and skills transfer should take place. With respect to the latter, Kumba is of
the opinion that employment equity programmes should be actively pursued,
even in countries where it is not required by law.


Going forward, companies, including mining companies, around the world
will have to adopt a more socially responsible business ethic. They will no
longer be able to pursue the singular goal of making as much money as
possible for their shareholders, with little or no regard for the impact of their
operations on the environment and societies in which they operate. Social
and environmental programmes, however exemplary, can no longer be
treated as “add-on” packages designed to appease critics and build
corporate reputations. They are fundamental to the core of our business
operations and have become the prerequisites for securing a licence to
operate in modern society.

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Kumba Resources subscribes to the compelling argument of conducting our
operations in a sustainable manner, based on the definition of sustainable
development contained in the Bruntland Report, following the 1992 Earth
Summit in Rio de Janeiro, namely:


“ development which meets the needs of the present, without compromising
the ability of future generations to meet their own needs.”


In other words, paraphrasing a statement by Peter van der Veen of the
World Bank, it means identifying, minimising and managing environmental
and social risks and adding value so that a project leaves a positive legacy
for the community once the finite mineral resources have been depleted.
This will require wise management of all the resources in our areas of
operation. In my company, we like to refer to the issue of sustainability as
the fourth element in our philosophy of quadruple bottom line reporting.


Mining, by its very nature, cannot of itself be sustaining – after all, each mine
exploits a resource that has a finite life, after the end of which, that mine
must close. But what mining can deliver, is the rationale for investing in
infrastructure development and the basis for a sustainable, industrialised
economy. And in this context, I must echo the sentiments expressed in our
new minerals legislation: that the export of raw, unbeneficiated minerals,
while underwriting the infrastructure of a country, certainly does not optimise
sustainable development of its economy. Although domestic beneficiation of
raw materials does not always make economic sense, it will be critical for the
governments of Africa and resource developers to work closely together to
explore ways in which to increase the level of domestic beneficiation, to add
value to the products ultimately exported and to stimulate the development of
supportive industries.

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CONCLUSION


I wish to conclude by referring to my last slide.


Slide 7


This lists the value of non-petroleum mineral production per square kilometre
of 25 countries having the highest value of mineral production, based on
1996 statistics, a compilation of Natural Resources Canada.


The striking thing about this graph is that the top seven countries listed have
few remaining mineral resources. They, therefore, derive their revenue from
importing raw materials and adding value to them. From Africa,
notwithstanding its vast mineral resource base, only South Africa appears on
the list. It is my conviction that given the successful implementation of the
measures mentioned previously, and the commitment of governments,
development institutions and mining companies, we will see many more
African countries ranked in this list 20 years hence.




I thank you for your attention.




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