AngloGold Ashanti has teamed up with Motjoli Resources, a black-owned mining company, and Mining for Change, the producers of a documentary of the same title on the history of mining in SA, to convene a series of six seminars designed to increase understanding and levels on consensus on matters related to the “nationalisation” debate of recent months. Here is Mark Cutifani’s keynote address at the first in the series.

“WHAT DOES SOUTH AFRICA’S MINING INDUSTRY NEED IN ORDER TO GROW AND PROSPER”

OPENING REMARKS

Mr Chairman, Ladies and Gentlemen

I think a good place to start is to explain why AngloGold Ashanti has decided to sponsor a series of discussions around the issue of Nationalisation and why we would give ideological protagonists a stage to voice a different view to our own.

At AngloGold Ashanti we believe in the Constitution, we believe in our democracy and we believe in the need to debate the key issues of our time in an open and constructive way. If we can provide a platform that serves that end, where we give you an opportunity to compare the arguments that define respective positions, we have served an important purpose. If we can make you think about what we have to say, where you can reflect on points and counter points, then all the better.

If we can influence you on the merits of our case – even in the face of those counter points – we have achieved an even higher goal. In our view we will have taken you a step towards creating a better South Africa.

To further demonstrate the philosophy we have at AngloGold Ashanti, we were one of the first companies to publicly declare our position on political donations. We support the top five political parties, where the top four opposition parties receive donations on average 100% greater than their proportional vote. And we support the sitting party with around 50% of our political donations budget (which is less than their proportional representation). We support the democratic process.

In terms of our case in relation to the mining industry and nationalisation, I only hope I can do it the justice it deserves. That is, I hope I can demonstrate the industry’s importance to South Africa, that we have a Vision for the future and we can be trusted to be true to that Vision.

SETTING SOME CONTEXT

The mining industry, in the context of South Africa, has a bitter and difficult history. At the same time it has been a key foundation in the building a modern South Africa. You only have to look at our surroundings in Summer Place today, the City of Johannesburg and the status of South Africa, in terms of its economic development compared to the rest of Africa, to get a sense of what the mining industry has helped create.

But at what cost?

We have seen the tragedies articulated in the film “Mining for Change”. The degradation of people, of cultures and of a broader society is a sad reflection on this difficult history. While we cannot change the past, we must make sure every day we go forward we are informed by its lessons in creating a new South Africa.

I am not born of this land and so I cannot profess to fully understand the pain that people feel in relation to this history. All I can offer is an ear to listen, a hand in friendship and the courage to be part of the building of a new future.

As a representative of the mining industry, I believe we can be part of the creation of a new future. The tough part of our job is there are no models, there are no handbooks and there are no teachers that can guide our way. With you, we are the future and we will chart this future together.

In my conversation today, please forgive the defensiveness of some of my remarks, or what some of you may consider a naïve belief that we can work together to create a new South Africa.

I am simply a person that has been inspired by the concept of a “Rainbow Nation” – and I’ll do my best to make a contribution that matters. And in that context I also understand that a contribution that matters can only be judged by our community, or in its broadest sense, the society we serve.

THE PROPOSITION

To frame my conversation I would like to outline my proposition in 3 parts:

• First, it is important to deal with the facts – to outline how important the Mining Industry is to South Africa, both in terms of today and tomorrow.
• Second, understanding why the industry has struggled to grow in the middle of the most significant commodities boom in the last 30 years provides an important case study as to what the industry needs to realise its potential – that is, to grow and continue to support the creation of jobs, and the creation of the new South Africa.
• Finally, to bring these pieces together – to propose a set of pre-requisites that we believe need to be satisfied before we can set the industry on the path that supports South Africa achieve its growth objectives, that supports the industry play its part in creating five million jobs.

And while on the matter of jobs, I think it is also important to make a point. In our view you don’t create jobs by focusing on jobs as a primary policy setting. We need to focus on creating the conditions that encourage investment in new businesses and other development opportunities. Sustainable jobs growth will only come when we create the policy frameworks and conditions that support investment in new ventures and opportunities. In this context, the mining industry is no different to other industries in South Africa, that is, we need sound public policy and the creation of real community and business partnerships to create our new future.

BUILDING THE CASE

So what does the mining industry mean to South Africa?

By the numbers, the mining industry:

• Represents 8% of GDP, or 18% when we take service and support industries into account.
• Delivered total revenues of R424b, with total expenditures in excess of R441b. In other words, we were net investors in South Africa.
• Spends 93% of its outgoings in South Africa.
• Brings in 34% of the country’s foreign exchange in raw materials alone, and more than 50% when beneficiated products are included.
• Employs 520,000 people, and -- by South African standards -- in relatively high paying jobs, and more than 1 million including service and support industries, or around 10% of South Africa’s total employed.
• Supports 20% of our population, on the basis that every employee supports 10 dependents.

The mining industry is arguably South Africa’s most important industry. Or if it isn’t our most important industry, it is certainly one of South Africa’s industries that enjoys a natural global competitive position, due to our mineral resource endowment, our state of relative development and the skills and experience of our people.

It is for these reasons and others, that Minister Patel and his team identified mining as one of the five strategic foundations to deliver on our five million jobs growth target.

So, as we say, don’t ask me, just let the facts and let the politicians do the talking. And if we are really lucky they might just have the same thing to say. I think in this case there is no doubt they do.

My sense is that South Africans get the numbers. They understand the mining industry is important. What we haven’t done a good job of is making the mining industry human to most of the public. We haven’t helped people relate to those 520,000 individuals that come to work every day, doing their best to make a life with their families. We need to make our industry more personal, which also means more caring.

So, given the facts and our position as one of the world’s most significant estimated mineral resource nation, one has to ask what happened to South Africa and its mining industry over the last seven years. How did we let the world pass us by? Why did we miss the commodities boom? And are we at risk of missing it again?

In the last five years, South Africa’s JSE has outperformed the NYSE across an average of all industry sectors, yet it’s mining index has underperformed by some 30%. These statistics reflect relative compounding growth across the global mining industry of around 6% per year, versus South Africa’s average 1% annual contraction over the same period. On a simple basis, one could argue we have lost 100,000 to 150,000 direct jobs, or up to 300,000 jobs across the country when we take service and other support industries into account.

There is no doubt we have some structural business challenges in gold – depleting resources and deeper, more difficult orebodies. The platinum sector has been hit by the global financial crisis and our bulk deposits, in particular coal and iron ore, have some quality and location disadvantages when we compare to our major competitors. hese issues demand that we must become smarter and quicker to compete and grow our business in aggressive, competitive markets. However, like the French soccer team that got to the World Cup and then forgot that soccer is a team game, we scored some own goals.

• We diverted an average 5% to 10% of capital value to the creation of BEE entities. While this was entirely appropriate use of funds given our history, it had the unintended consequence of reducing capital committed to new developments and growth. It is an unfortunate fact in global financial markets that a good cause does not change the investment perspective of most investors.
• We constrained growth as a consequence of not investing in critical infrastructure, with power and transport being the most visible manifestations of our weaknesses in this area. And we have compounded this weakness with accelerating costs.
• We continue to struggle under restrictive labour practices, with the current 40% available face time in the gold sector a classic example of the need to restructure the way we work. Now, to be fair to our union colleagues, we are dealing with long travelling times to work places. And so we need to think differently about the way we are structured, which will obviously throw up some challenges that will require collaborative intervention. The good news is the union listened and understood the problem and has extended a hand to look at how we might design solutions that work for all of us. This has to be seen as a very positive step.
• In the same context of rebuilding work practices, we must rebuild our management practices. Leadership starts with us and so we must demonstrate we are up to the challenge and lead by example. Transformation is simply one example of where we must continue to reform.
• Due to historic cheap mining labour legacy South African mining industry has been slow to develop and implement new technology to extract deeper ore bodies.
• While our national financial frameworks have been sound and have cushioned us thus far from the adverse impact of the global financial crisis, we need to relook at both the overall non-financial and financial regulatory, legal and compliance framework to ensure optimum effective regulation, in a manner that provides opportunities to and adds value for South Africa. This will be a catalyst South Africa needs to move up in the rankings for foreign direct investment.

While each of these issues in of themselves is not a deal breaker, cumulatively they make shareholders and investors very nervous.

…and then we started to publicly debate industry nationalisation.

Before I deal with the problems of lumping debates under the banner of the word, let me make an important point. Mining is about real estate. Without access to the right ground we have no business. The minute someone threatens our ground position, or our economic interest in that position, we lose everything. To further explain and reinforce the nature and complexity of our business, it takes us somewhere between five and 10 years to find an economic mineral deposit. Once found it takes on average 10 years to then develop that deposit, with another five to 10 years to recover and deliver a return on our capital. If we lose a mineral deposit to the whims of individuals or vacillating political debates we have a real challenge. It is an unfortunate fact of life – a five5 year political term does not generally match with a 25-year industry investment perspective.

While the issue of tenure is clearly central to our concerns – the broader policy frameworks are also critical for investors with a 25 year time horizon. In this context, the ruling party must understand that a single five-year policy window that is formed prior to an election is not conducive to long term investor confidence. Investors must be comfortable that the ruling party will maintain its ideological positioning beyond a single election cycle. That is, it is unlikely to see significant policy shifts over the longer term. While the Constitution provides some protection in this regard, it does not provide a guarantee of sensible policy formulation and implementation. So, my messaging on this point is specific. We cannot significantly change the rules on black empowerment, or consider major shifts in critical policy areas without suffering significant and long term investment damage. The market is sending us a very clear message on this point in the mining industry.

In our industry – threaten tenure and you threaten everything we have. The mining industry can simply not function and will not invest without security of tenure, or in the context of a political environment where we perceive the rules could materially change.

The Mining Charter was a major construct that facilitated ownership transfer on a broad scale. We assumed this would be a one off initiative as part of the development of the Rainbow Nation. If this is not the long term construct, what can we believe in the future? When one understands this point, the investor hysteria around the Nationalisation discussion starts to make sense.

In an industry that operates with a 25-year investment horizon, uncertainty is poison.

Even bad rules with certainty are better than uncertainty.

And so, for the industry to grow we need to do certain things to rebuild trust and confidence that we will be a good partner for the long term. In return we ask for consistency, transparency and policy certainty.

Before we go into what the industry needs to ensure long term investment commitment I believe it is appropriate to outline what we are thinking within AngloGold Ashanti in terms of the future of sustainable mining.

We are building this model around six key platforms:

• Reduce our social and environment footprint – to improve safety, environment and our community performance outcomes. We call this approach going beyond zero harm.
• Planning for closure – starts from day one and is developed in conjunction with our local communities and regulators.
• Respecting human rights – this is about social rights and includes respecting the economic rights of our partners and other stakeholders.
• Partner in building a new social development model – we must become partners in building our communities and building sustainable social outcomes.
• Develop working models to connect with key interest groups – to focus on those groups that are disadvantaged or need more targeted social engagements.
• Managing our brand – is about helping people put a human face to our industry.

My point about what we have to do is a recognition that for our industry to grow and prosper we must first take full accountability for where we are and for where we have to go.

In terms of what we need as an industry – to fulfil our potential we see the key issues in 5 parts:

• Security of tenure and transparency in licensing processes.
• Clear mining policy framework and consistent application of that framework in terms of economic and other portfolio positions.
• Integrated infrastructure development that allows for private/public partnerships to ensure we are ready and can facilitate industry growth.
• Financial flexibility to facilitate competitive corporate structures to support growth.
• Trusting relations, which must be built on a common understanding of what we are trying to build…together.

The good news is we already have a solid start. The new Mining Charter has provided a framework to focus on both the commitments companies must make to answer those challenges put by the community and, on the reverse side, we have the commitment of the Government to deliver on its corresponding obligations. The Migdett (Mining Industry Growth, Development and Employment Task Team)taskforce, a tripartite structure that includes government, business and the unions is working on a development model that should put South Africa back in the forefront of mining jurisdictions in the world.

The Minister is leading with energy and passion. She deserves our full support as she overhauls both our bureaucratic and industry relationship frameworks. And like the course of true love, the road will be rocky. I have no doubt we have the potential to create an industrial and social development model that will become the model for the Global mining industry.

Finally, a few words dealing with that terrible word…Nationalisation.

Let me make a simple observation, I absolutely and totally agree with those in the Youth League that talk about the mining industry…we will see Nationalisation of the Mining Industry. However, there is a subtle difference in our observations - in my world it has already occurred. In fact, it occurred back in 2004 with the promulgation of the Mining and Petroleum Resources Development Act (MPRDA), when mineral resources reverted back to the State and were subsequently leased to companies, conditional on their commitment to the Mining Charter’s broad set of social and commercial objectives. The mineral resources of South Africa do in fact already belong to all South Africans. However, if we are now talking about the State taking over the means of production – this is an ideological debate that goes beyond mining, goes beyond the banking sector and arguably beyond the intention of the Constitution, and it is a step whose negative consequences will be so far reaching for the South African economy that I cannot believe that the government has this intention.

So let’s stop using the wrong word to describe the wrong conversation.

The real discussion we are in is: What is the role of Government in the development of industries in the new South Africa? The economic and social discussions that accompany that debate are raging all over the world. We are no different to any of the developed and developing countries in this debate.

Our tragedy is we have allowed the debate to revolve around a word. This is a word that has no relevance to our national circumstance. How can we let anyone use a word that threatens investment, threatens the creation of new jobs and threatens our ability to deal with our social problems that are the real challenge we have as a community?

The key to unlocking our real potential is to engage in a real dialogue around a new future that properly addresses the issues that are central to this debate. These issues include:

• Ownership and the role of the State,
• Resource rents and how the State allocates these rents,
• Social dispensation and how we engage with local communities.

We must also ensure key stakeholders are included in these debates. Given the issue of youth unemployment across South Africa we must also recognise special cases and make sure our policies connect with those that are own special social stakeholders.

SUMMARY

Ladies and gentlemen, in summary I would like to make three key points:

• The mining industry has a tough and indefensible history and we believe we must openly acknowledge and correct those wrongs.
• We have made significant progress and we are now developing a new phase of engagement that seeks to build a new social development model with our communities. We are engaged with the Government, unions and we are building engagement with our communities to create that new model that deals with the challenges of our current reality.
• Let us engage in a debate around the design and implementation of this new model that helps us play our part in delivering on our five million jobs growth objective.

Ladies and gentlemen, the future of South Africa, the future of South Africans is far too important to be reduced to a word that has no meaning or relevance to the development of the new and inclusive South Africa.

Mark Cutifani
October 2011

ENDS