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Department of Mineral Resources

Department of Mineral Resources. Mining Charter Assessment Report 05 August 2015 Presentation to Parliamentary Portfolio Committee on Mineral Resources. Content. Background Project Assessment Methodology Process Reporting Framework Results Concluding remarks. Background

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Department of Mineral Resources

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  1. Department of Mineral Resources Mining Charter Assessment Report 05 August 2015 Presentation to Parliamentary Portfolio Committee on Mineral Resources

  2. Content Background Project Assessment Methodology Process Reporting Framework Results Concluding remarks Background Reporting system Process Reporting Framework Results Concluding remarks Recommendation CONFIDENTIAL

  3. Background • The Mining Charter was implemented in 2004. • The Mining Charter was amended in 2010 to facilitate sustainable Growth, Development and Transformation of the South African Mining Industry. • The 2010 amendments introduced: • Effective HDSA ownership through Meaningful Economic Participation and full shareholder rights (broad based) • It also introduced the concepts of ring fenced elements (i.e. Reporting, Ownership and Housing and Living Conditions) and weighted elements CONFIDENTIAL

  4. Background cont.… • The year 2014 marked the 10th year anniversary of the Mining Charter and the period at which all targets set should have been met. • The Department developed a reporting templates through a consultative process with the MIGDETT task team. • The department developed a Web-based system to collect the data from mining right holders. • The reporting template is aligned with the Mining Charter score card. CONFIDENTIAL

  5. PROJECT ASSESMENT METHODOLOGY CONFIDENTIAL

  6. Reporting system The templates EXCEL based Challenges Original solution • Inability of EXCEL to collate large volume of data in a short period of time. Revised solution WEB based Outcome • Database of information where different analysis can be drawn. CONFIDENTIAL

  7. Data • The data was assessed with the assistance of an Actuarial Scientist • For this assessment, the mining industry and the DMR agreed on the various data fields to be populated and submitted by the industry to the DMR; • The DMR augmented the industry data with the following: • Data for assessment of Housing and Mining Community Development ; and • Employment numbers against each mining right; CONFIDENTIAL

  8. Data Weighting • For each element, the presentation of the results include a brief outline of the method applied to assess achievement of the Mining Charter targets • The aggregate industry results are presented on the following basis: • Not-weighted This approach aggregates the industry on a basis that mines of different sizes have equal significance in the output i.e. whether the industry has achieved the targets. • Weighted by Size of Mine Weighing the output by the size of the mine provides a better assessment of the significance of the results as larger mines carry more weight than smaller mines in the aggregation of the industry performance. Employment figures have been used as a measure of size of mine. This measure was selected as it is viewed to better capture the social impacts of mining operations, which significantly cuts across all elements of the Mining Charter CONFIDENTIAL

  9. Size Categorisation • The different mining right holders were categorised by size • The size was determined by the number of employees per mining right • Categories were therefore: • Large employers – mining right holders employing more than 5000 people • Medium sized employers - mining right holders employing from 101 to 5000 people • Small employers - mining right holders employing equal or less than 100 people CONFIDENTIAL

  10. Process: - Reasonableness check was conducted on the data. Mining companies that were due for assessment were identified. Further consultations were conducted with stakeholders to clarify issues. Feedback was given to stakeholders through MIGDETT. CONFIDENTIAL

  11. Reporting framework • The framework used to assess the current transformation status is the reporting template of the mining charter scorecard. • The scores for: Reporting, Ownership, Housing & Living Conditions are ring-fenced and targets of 100% must be achieved. • The following scores are weighted and aggregated : • Procurement & Enterprise Development • Employment Equity • Human Resource Development • Mining Community Development • Sustainable Development & Growth CONFIDENTIAL

  12. Reporting framework Element Scoring principle Determination of percentage of companies that have reported. Scoring is Yes if the company has reported and No if the company has not reported. Measured through Meaningful Economic Participation and Full Shareholder Rights. The data was categorized as follows: Category 1: Equal or greater than 26% HDSA ownership credits, but does not have all three identifiable beneficiaries i.e. Entrepreneurs, ESOPS & Communities. Category 2: Equal or greater than 26% HDSA ownership credits and broad-based, but no trickle cash flow to HDSA. Category 2+: Equal or greater than 26% HDSA ownership, broad-based, with reported trickle cash flow to HDSA. Category 3: HDSA ownership below 26% • Reporting • Ownership CONFIDENTIAL

  13. Reporting framework Element Scoring principle • Housing and living • conditions • The Mining Charter has clearly set a target of 100% conversion of hostels using the following measures: • Reduction in occupancy to one person per room; and • Conversion of hostels into family units • If progress achieved is 100% then the score is Yes. • If progress achieved is less than 100% then score is No. CONFIDENTIAL

  14. Reporting framework Element Scoring principle Procurement and Enterprise Development • Calculation of percentage expenditure from BEE entities on capital goods, services and consumables, respectively. 2014 targets are • Capital goods = 40%, • Services = 70%, • Consumables = 50% and ; • 0.5% of annual spend on procurement from multinational suppliers CONFIDENTIAL

  15. Reporting framework Element Scoring principle Calculation of percentage HDSA representation to represent country’s demographics at levels specified by the Charter. 2014 targets for Top Management = 40%, Senior Management = 40%, Middle Management = 40%, Junior Management = 40% and Core Skills = 40% Calculation of percentage payroll expenditure on training as per target. 2014 target is 5% of total annual payroll (excluding mandatory skills development levies) to be spent on HRD Employment Equity Human Resources Development CONFIDENTIAL

  16. Reporting framework Element Scoring principle The element measures progress against implementation of mine community project commitments by December 2014 Calculation of percentage implementation of the tripartite plan on mine health and safety, approved EMPs and utilisation of SA facilities for analysis of samples. 2014 targets are EMPs = 100%, Tripartite Action Plan = 100% and Percentage of samples in South African facilities = 100% Mine Community Development Sustainable development and Growth CONFIDENTIAL

  17. Spread of Employment across Mining Rights • Section 28(2)(c) of the MPRDA, 2002, requires every mining company to report its level of compliance with the Charter annually • In total data from 375 mining rights was assessed • In terms of employment these mining rights account for 95% of total employment by rights that were due for assessment • 68% of the employees are amongst 15 operations • The below chart provides an indication of how the employees of the sector are spread across mining right holders used in the analysis. CONFIDENTIAL

  18. Ownership • The analysis is based on 442 mining right holders, being the information extracted as at 31 March 2015; • Of these, 7 claimed HDSA ownership of more than 100% and 60 mining rights were linked to other mining rights and therefore 375 operations were analysed • This analysis on ownership is estimated tocover approximately 95% of employment of those rights that were due for assessment • Total employment of 407 812 out of 427 797 for companies subject to the Mining Charter CONFIDENTIAL

  19. Ownership 79% (not-weighted ) and 90% (weighted) of mining right holders reported meeting the 26% HDSA ownership target with simple total industry average HDSA owners hip of 30.6% (not-weighted ) and 32.5% (weighted) respectively. However when this report is analysed for meaningful economic participation as required by the Charter: Only 6.3% (not-weighted) and 20% (weighted) of the right holders met this criteria Analysis also took into account the continuing consequences of previous deals claimed by mining right holders where it was reported in the system CONFIDENTIAL

  20. Ownership • Reported data shows that most of the right holders had deals that had one or two of the three identifiable beneficiaries as per the charter requirement • For not-weighted data, mine workers are the most excluded category of identifiable beneficiaries followed by communities CONFIDENTIAL

  21. Ownership • For weighted data, BEE entrepreneurs were the most excluded category of identifiable beneficiaries followed by communities CONFIDENTIAL

  22. Ownership • 15% of companies have accrued Economic Benefit to HDSA in excess of 26% • 64% of the deals have not accrued any value to HDSA • These results are not weighted by the size of mine CONFIDENTIAL

  23. Ownership • Company Value estimated from current value of BEE shareholding • 36% of industry has accrued Economic Benefit to HDSA in excess of 26% • 37% (i.e. just under 4 out of 10) of the industry deals have not accrued any value to HDSA CONFIDENTIAL

  24. Ownership • Level of Indebtedness is Value of BEE Shareholding less Current Value of loan • Company Value estimated from current value of BEE shareholding • 222 operations had NAV to HDSA of zero • These results are not weighted by the size of mine CONFIDENTIAL

  25. Housing • Decent housing and living conditions are the core to a healthy workforce and enhanced productivity • 45% of the affected mining operation have FAILED to either convert the hostels to family units OR to reduce the occupancy as required CONFIDENTIAL

  26. Weighted Elements Combined • Procurement & Enterprise Development • Employment Equity • Human Resource Development • Mining Community Development • Sustainable Development & Growth CONFIDENTIAL

  27. Weighted elements combined • The Mining Charter has clear score targets under each of the FIVE elements and its sub-categories. • The various elements are combined through weightings (points out of 100) applied to the elements and their sub-categories. CONFIDENTIAL

  28. Weighted elements combined • Only 1 Company met all targets (Exarro: Leeuwpan) • 16.4% of companies are within 10% of targets. • 42.2% of companies are within 25% of targets. • 57.5% are more than 25% away from the targets. CONFIDENTIAL

  29. Weighted elements combined • Only 1 Company met all targets (Exarro: Leeuwpan) • 47.7% of companies are within 10% of targets. • 77.1% of companies are within 25% of targets. • 22.5% are more than 25% away from the targets. CONFIDENTIAL

  30. Procurement & Enterprise Development • 39.1% of the right holders meet the 2014 target of 40% of their procurement spend on Capital Goods with BEE entities • 60.4% of the companies have failed to meet the target CONFIDENTIAL

  31. Procurement & Enterprise Development • 81.6% of the right holders meet the 2014 target of 40% of their procurement spend on Capital Goods with BEE entities • 17.9% of the companies have failed to meet the target CONFIDENTIAL

  32. Procurement & Enterprise Development • 32.0% of right holders met the 2014 target of 70% of their procurement spend on Services comes with BEE entities • 66.8% of the companies have not met the target CONFIDENTIAL

  33. Procurement & Enterprise Development • 64.8% of the right holders met the 2014 target of 70% of their procurement spend on Services comes with BEE entities • 35.1% of right holders has not met the target CONFIDENTIAL

  34. Procurement & Enterprise Development • 57.8% of right holders meet the 2014 target of 50% of their procurement of consumable goods with BEE entities • 39.9% of right holders have failed to meet the target CONFIDENTIAL

  35. Procurement & Enterprise Development • 82.7% of right holders meets the 2014 target of 50% of their procurement of consumable goods with BEE entities • 14.8% of right holders have failed to meet the target CONFIDENTIAL

  36. Procurement & Enterprise Development • 96.7% of right holders have failed to make contributions to a Social Fund that meets the target of 0.50% of their multinational procurement spend CONFIDENTIAL

  37. Procurement & Enterprise Development • 85.0% of right holders has failed to make contributions to the Social Fund that meets the target of 0.50% of their multinational procurement spend CONFIDENTIAL

  38. Employment Equity • For each employment category, the right holders had a target of having 40% of the category belonging to HDIs. • % of right holders meeting target for each category are: • Board – 60.4% • Exco – 42.5% • Mid Management – 52.7% • Jnr Management – 67.0% • Core Skills – 76.5% CONFIDENTIAL

  39. Employment Equity • % of right holders meeting target for each category are: • Board – 72.1% • Exco – 53.7% • Mid Management – 57.2% • Jnr Management – 84.6% • Core Skills – 88.4% • For each employment category, the right holders had a target of having 40% of the category belonging to HDIs. CONFIDENTIAL

  40. Employment Equity Whilst the majority of mining right holders still meet the 40% EE target, further analysis shows that: Females are still underrepresented at 10.5%, especially African and Coloured White males still dominate most of the subject categories of employment CONFIDENTIAL

  41. Human Resource Development • 35.3% of right holders have HRD spend that is equal or more than the targeted 5% of total annual payroll. CONFIDENTIAL

  42. Human Resource Development • 56.8% of right holders have HRD spend that is more than the targeted 5% of total annual payroll. CONFIDENTIAL

  43. Mine Community Development • Only 35.6% of right holders have met their Mine Community Development targets. CONFIDENTIAL

  44. Sustainable Development & Growth • 44.5% of right holders have met the target for 100% implementation of approved EMPs CONFIDENTIAL

  45. Sustainable Development & Growth • 48.6% of right holders have met the target for 100% implementation of approved EMPs CONFIDENTIAL

  46. Sustainable Development & Growth • 2.6% of right holders have met the target for 100% implementation of approved Tripartite Action Plan CONFIDENTIAL

  47. Sustainable Development & Growth • 1.4% of right holders has met the target for 100% implementation of approved Tripartite Action Plan CONFIDENTIAL

  48. Sustainable Development & Growth • 65.5% of right holders have met the target of 100% of their research conducted within South African facilities CONFIDENTIAL

  49. Sustainable Development & Growth • 84.2% of right holders have met the target of 100% of their research conducted within South African facilities CONFIDENTIAL

  50. Concluding Remarks • A number of mining companies have not met the required 2014 target of implementation of the Mining Charter • Mineworkers and communities remain the least beneficiaries from empowerment transactions • The majority of empowerment transactions are not broad-based and there is limited economic benefit towards HDSA beneficiaries • The Charter does not prescribe in detail the mechanisms of funding empowerment transactions – thereby creating loopholes for unsustainable deals CONFIDENTIAL

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