cture: 2011 African Arguments

MINING FOR GROWTH

AUSTIN JASPERS, ERINMA KALU, JESSICA BONTHIUS, KEVIN GANDHI, MICHAEL PALISANO, RAVI GUPTA

Overview

Current Climate of Mining Sector Planned Course of Action Execution Conclusion

Current Climate

Stakeholders

GOVERNMENT

COMPANIES MINERS

Government

Natural Resources – $2.5 trillion Mining – 20% of GDP Mining & Other Industries Mine Workers – 1 Million High Inequality & Unemployment Increased Role & Political Will

Mine Workers

Poor Working Conditions Low Wages High Incidence of Disease Migrant Lives Lack of Community

"It's difficult. I don't make a lot of money here," Mthembu, miner.

Mining Companies

Human Rights Violations Environmental Negative Externalities Loss of Production - $1.2 Billion Opportunity in South Africa

Planned Course of Action: Four-Prong Approach

Labor Health Housing/Community Environment

Work Environment

Work Environment

Internal Organization

Pay Structure

Non-Monetary Benefits

Skills Development

Key Components of the Work Environment

Emph

asiz

e Sm

all T

eam

s Ensure multiple levels of responsibility, allowing growth within the company and opportunities to be awarded by advancement

Enab

le F

eedb

ack Solicit the

feedback of all workers on their superiors and reportees, to promote accountability throughout

Initi

ate

Lead

ersh

ip

Mee

tings

Conduct routine meetings among all team leaders and management, to encourage transparency and trust

Addressing Internal Organization Dialogue throughout the workforce

Pay Structure Providing attainable incentives

Quantitative

Attendance

Output Efficiency

Qualitative

Initiative

Attitude Confidence

Non-Monetary Benefits Incentives, requiring minimal financial input, serving to increase employee satisfaction

Identify Common Values of Workforce

Change Values into Feasible Benefits

Award Benefits Based on Merit

Skills Development Building more skilled, productive individuals and teams

• Communication Trainings • Cross – Training between

employees • Leadership Training • Life skills training • First aid training • Incorporate ICT (Innovation

Slide).

The Bogawantalawa Plantation Success

Situation

Rigid hierarchical management system

Low work motivation Poor communication skills of

supervisors Lack of ownership sense among

workers Out-migration for more attractive

employment Frequent strikes over wages and

poor conditions Worker absenteeism as high as 50%

Intervention Strategies

Formation of Self-Managed Groups (5-7 employees) with elected SMG Leaders

Assessment of leadership capabilities of employees through secret ballots

Introduction of a wage system tied to output

Distribution of additional work-safety equipment

Life skills trainings

Creativity and ownership exercises

Results – Increase in Labor Productivity

The Bottom Line…

A positive work environment empowering individuals has been shown to increase productivity and worker satisfaction

Though, in an environment that has a history of discrimination, transparency and consistency are crucial for trust building

Health Care

Increase Health Care Access and Availability

Government intervention Government funding of medical infrastructure Company bears cost of worker’s health care Emphasis on primary care; TB treatment; HIV ARVs

Oversight: Department of Health Yearly inspections Continued monitoring and feedback for infection rates

and work-related injuries

Increase Health Care Access and Availability

Government provides incentives Tax break for successful health programs Worker retention Lowers TB infection rates.

Eliminate loopholes Cannot fire a miner because of illness Miner termination comes with a 6 month pay package

and health costs are covered by company for 18 months.

Detection/prevention of TB and HIV

Enforce mining company responsibility TB and HIV screening as prerequisite for renewing mining license Improved infrastructure of work conditions

Mine ventilation, gas masks

Government Funding and Oversight Government funding of HIV and TB awareness campaigns Private-public partnership of funding housing Oversee company responsibility setting five-year benchmark and ten year

benchmark

Research promotion Transparency of disease incidence of miners Cross-border migration analysis – urban sprawl led to commuting and long-

distance commute from home->work (apartheid laws)

Short-term cost over two years

$900 million medical infrastructure $15 million tax breaks $17.6 million for oversight, awareness, research TOTAL $923 million

Total cost over ten years: $3.1 B

$2.9 B medical infrastructure $195 million tax breaks $41 million for oversight, awareness, research

BUILDING COMMUNITY THROUGH HOUSING

Community Investment by Mines

Royal Bafokeng Nation 150,000 residents High standard of living Quality housing Company-driven

Royal Bafokeng Holdings $2.92bn in holdings Spent $69mn in 2010

for community services

Community-based Investment Funds

Portion of profits

Public assistance

Tax Incentives

>10% Administrative

Current Housing Problems

Decreased Productivity Unaccommodating to families Encourages continued migration High levels of TB transmission Housing allowance not effective Lack of urban planning

Community-centered Housing

Present Future

Community-centered Housing

200,000 units for $2bn

Affordable and Cost-effective

1 person per room Family-friendly Public-private funding Integration

Water as a Human Right. S.A. Constitution

Who and What AMD effects? Not only a consumption issue.

Immediate Problems to address with Acid Mine Drainage

Abandoned Mines Prevent Decanting (Over Flow)

Pumping water out

Monitoring current AMD

Where are the immediate areas of concern?

Gauteng Province: •Western Basin •Central Basin •Eastern Basin

Immediate Costs (Years 1-2) (Detailed in Appendix)

Pumping Capital Costs: Pumps: $ 550,000 Pump Installation: $ 920,000

Operating Costs: Running Costs: 2.8 Million dollars per/year = $5.6 Million (2yrs)

Monitoring Costs of Basins Ground water monitors, shaft level monitors, surface water quality

monitoring, surface water monitoring, data compilation. 3.3 million per/year =$ 6.6 Million (2yrs)

TOTAL IMMEDIATE (SHORT TERM) COSTS: $13.7 Million

Med/Long Term Investments

•Medium Term Solution: -Neutralizing Treatment Plants

•Long Term Solutions: -Water Reclamation Plants (e.g. eMalahleni)

Med/Long Term Investment Costs Years (3-10) (Detailed in Appendix)

Neutralization Treatment Plants Capital Costs: $9M per mine/basin Operating Costs: $2.3M per mine/basin per yr 5 years = $20.5M USD per mine/basin

Water Reclamation Plants $35M USD per mining site

TOTAL Med, Long COSTS for 14 Mining Sites: $780M USD for years 3-10

TOTAL Short, Med, Long COSTS: Approximately $800M USD over 10 years

Stakeholders: NGOs, Gov’t, Companies

Opportunity for South Africa

In Gauteng Province by 2015, water demand will outstrip supply.

eMalahleni water

reclamation plant produces 24 Million Liters of potable water a day.

Innovation – “Digital Miners” By Miners For Miners using Information Communication Technology (ICT)

Miner Group Formation

Video Production Feature a “star” miner

Video Dissemination through small projectors. Job training Health habits Social issues.

Digital Miners – Cost/Benefit

Cost $1.1M USD per yr = 11 Million over 10 years (Appendix for details)

Benefits: Capacity building of miners. Group dynamics created. Health education simplified and cost effective. Dissemination of information and training are

standardized.

Execution: Budget

Item Cost

Labor 4

Health 3.1

Housing 2

Environment .8

Innovation .01

TOTAL 10 Billion

Execution: Challenges

Migrant Workers Persistent Racial Segregation Frayed Relationships Entrenched Systems / Inertia Consistent Enforcement

Conclusion

Increasing Productivity Increasing Longevity Building Community Mining as an opportunity for all South Africans

THANK YOU.

Appendix: Investment Fund Budget

Year Mining Company Investment Public assistance Total holdings2013 100,000,000.00 50,000,000.00 150,000,000.00 2014 100,000,000.00 50,000,000.00 300,000,000.00 2015 100,000,000.00 50,000,000.00 450,000,000.00 2016 100,000,000.00 50,000,000.00 600,000,000.00 2017 100,000,000.00 50,000,000.00 750,000,000.00 2018 100,000,000.00 50,000,000.00 900,000,000.00 2019 100,000,000.00 50,000,000.00 1,050,000,000.00 2020 100,000,000.00 50,000,000.00 1,200,000,000.00 2021 100,000,000.00 50,000,000.00 1,350,000,000.00 2022 100,000,000.00 50,000,000.00 1,500,000,000.00

Total Public Cost 500,000,000.00 Assumption: Mining companies will increase community investment because of tax benefit. Most spend around $5mn per year in 2012.

Appendix: Housing Goals

Case Study – Upgrading of South African AngloGold Ashanti residences (2008) “The key objectives for the near future are for AngloGold Ashanti to: speed up home ownership by constantly improving or redevelopment

of new Home Ownership Models; increase formalisation; initiate community re-integration programmes; manage the rising demand for residences; and enter into joint ventures with public and private partners in an

attempt to source sufficient accommodation for its employees.” http://www.anglogold.com/subwebs/informationforinvestors/reports08/ReportToSociety08/f/upgrading_AGA_res.pdf

Appendix: Housing Strategy Encourage and fund housing developments that are affordable, safe, and lower costs of social services. Formal urban planning lacks in many mining towns. Many

miners choose to build informal housing, using the housing allowance for other needs. Promote family dynamic, curbing negative effects of familial isolation.

Implementation type: Public-private partnership. For some mines, public will take full responsibility. For others, private required to do more in order to reach Integrated Development Plan of community.

Time Frame: Begin needs assessment immediately. Within 6 months begin design. First wave of construction starts in Year 3. Second wave starts Year 8.

Feasibility: Firms such as Affordable Living Solutions Africa already begun building in mining communities housing designed for individuals that make $170-$1,700 per month. AngloGold Ashanti admits one of key priorities is to “enter into joint ventures with public and private partners in an attempt to source sufficient accommodation for its employees.”

Limitation: Difficult to prevent workers from living in informal housing.

Examples: Lonmin is already working to convert hostels to single and family units Multiple mines have stated 1 person per room as goal (Lonmin, Anglogold Ashanti) Anglogold Ashanti provides $137 monthly housing allowance

Innovation: Miners permitted to use housing allowance on already subsidized government-sponsored housing. Provide tax incentives for private sector development.

Appendix: Housing Budget Year Unit Cost Units Built Yearly Cost2013 8,000.00 10,000.00 80,000,000.00 2014 8,444.80 20,000.00 168,896,000.00 2015 8,914.33 30,000.00 267,429,926.40 2016 9,409.97 40,000.00 376,398,707.08 2017 9,933.16 30,000.00 297,994,856.39 2018 10,485.45 30,000.00 314,563,370.41 2019 11,068.44 30,000.00 332,053,093.80 2020 11,683.84 10,000.00 116,838,415.27

USD Total 1,954,174,369.35 Inflation rate assumed to be constant at 5.56%

Housing cost estimation: http://openarchitecturenetwork.org/projects/10x10_housing

Appendix: references

Prokopenko, J. (1999), Productivity Management: A Practical Handbook, Geneva, International Labour Office.

ILO. 2004. Social Dialogue at Enterprise Level: Successful Experiences. Available online www.ilo.org/public/libdoc/ilo/2005/105B09_252_engl.pdf (accessed 09 November 2012).

United Nations OHCHR. 2011. A Guide for Buisness: How to Develop a Human Rights Policy. Available online http://www.ohchr.org/Documents/Publications/DevelopHumanRightsPolicy_en.pdf (accessed 08 November 2012).

Appendix: Projected Government Healthcare Expenditures for Mining

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Medical infrastructu

re

.05 .04 .04 .04 .03 .015 .015 .015 .015 .015 .015

Oversight .001 .001

.001

.001

.001

.001

.001

.001

.001

.001

.001

Tax breaks .005 .10 .20 .20 .20 .20 .20 .20 .20 .20 .20

Research promotion

.002 .002

.002

.002

.002

.002

.002

.002

.002

.002

.002

Awareness campaigns

0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.76 0.76

Total Cost/year

.51 .41 .42 .42 .32 .17 .17 .17 .17 .17 .17

Total Cost 3.1

*All Values in billion USD

References

"South Africa: Preventative TB trial disappoints | SAfAIDS." Welcome to SAfAIDS | SAfAIDS. N.p., n.d. Web. 10 Nov. 2012. <http://www.safaids.net/content/south-africa-preventative-tb-trial-disappoints>.

BMW South Africa HIV/AIDS Project Budget, World Economic Forum, 2002.

WHO-Choice Unit Cost Estimates for Service Delivery Estimation, 2007-2008, South Africa. http://www.who.int/choice/country/country_specific/en/index.html

Appendix: Picture Citations

Water Picture: ghidularadean.ro Miner 2 Pic: businessinsider.com Hands at pump Picture: fullcircletravel.co.uk Acid Drainage: personal.psu.edu Girl with Water: Pbs.org Prometej.info Clinic Picture: Clintonfoundation.org

Environmental Appendix

Appendix: Digital Miners

Digital Miners is a concept based on Digital Green (www.digitalgreen.org), which works on improving agriculture development and health development by incorporating ICT. All assumptions on budget above are based on prior experience by a consulting member in this organization.

Environmental Appendix

Environmental Appendix

Capital Costs: Pumps: 4800000 $551,724.14 Pump Installation 8000000 $919,540.23 Operating Costs: $0.00 Running Costs 25000000 $5,747,126.44

$7,218,390.80

Appendix: Community Investment Strategy Portion of profits can be used for mini sovereign wealth fund, but unlike RBN, an elected local

board should decide on allotment. Limit administration cut to under 10%, not 25% of RBN.

Implementation type: Company, possible gov’t partnership Time Frame: Effective immediately. Provides funding for other interventions we discuss. Feasibility: Many companies already spend millions for community development. This provides more structured model. Limitation: How much local power you want to give over funding provided by government. Given power to local authorities on how funding is used may lead to corruption/mismanagement Examples: Royal Bafokeng Holdings Anglogold Ashanti - only $3.2mn in 2010 (http://www.anglogoldashanti.co.za/subwebs/InformationForInvestors/Reports10/supplementary-information/communities-community-investment.htm) Lonmin - about $4mn in 2011 (https://www.lonmin.com/Lonmin_Annual_Report_2011/Root/business_review/sustainability_review/key_sustainability_performance_statistics.html) Innovation: Government supplements company’s contribution to fund. Provides tax incentives (i.e. no taxes on profits that are contributed to fund)