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Roger Baxter delivered the presentation at 2014 Africa Iron Ore conference. The Africa Iron Ore conference is the annual gathering for iron ore and stainless steel executives engaged in the African Region. For more information about the event, please visit: http://www.informa.com.au/africaironoreconference14

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  • 1. The South African mining sector challenges and opportunities Roger Baxter Chief Operating Officer Presentation to African Iron Ore Conference, 4 June 2014

2. Presentation outline How does South Africa score? Conclusion Global and local drivers Key drivers of mining competitiveness Why Mining is Crucial to South Africa Unpacking the constraints for mining 3. The prospects of Commodities at a global level are mostly driven by economic growth Since 2008, the global commodities markets have been hit by the multiple effects of: The W shaped recession-slow recovery in the EuroZone The slowdown in economic growth in China. The V shaped recession- slow recovery in the US economy. The reduction in quantitative easing by the Federal Reserve. But prospects are stabilising: Despite ongoing structural issues the Eurozone is expected to post a modest positive growth rate in 2014. Chinas economy has stabilised and is expected to grow at >7% in 2014. The US economy is recovering, with consumer confidence rising. The impact of tapering on commodity markets should ease. 4. PWC Annual Mining Report Titles 2005 Enter the Dragon 2007 Riding the wave 2008 as good as it gets 2009 When the going gets tough 2010 Back to the Boom 2011 The game has changed 2012 The Growing Disconnect 2013 A Confidence Crisis 5. The World economy is gradually recovering Source: IMF WEO October 2013 -5 -3 -1 1 3 5 7 9 11 13 15 Economic growth rate, selected countries and regions China South Africa United States European Union Sub-Saharan Africa 6. Risks at the Global level remain. Source: IMF WEO October 2013 0 50 100 150 200 250 300 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 %ofGDP Gross public debt to GDP ratios, selected countries Germany Japan South Africa United Kingdom United States 7. Despite the volatility in the short-term, the long-term fundamentals are positive for growth in commodity demand Long term drivers of demand remain intact: Trends in urbanization and industrialization appear to be entrenched for the next few decades in China, India and other EMs. By 2050 another 3 billion people at the global level will urbanize. Most of this urbanization will take place in emerging market economies (UN population division). The infrastructure expenditure to accommodate global urbanization is significant. The quantity of minerals required to support this urbanization will remain large. 8. World urban population growth (Billion people) Rising urbanisation, 3 billion people to urbanise by 2050 (most of the growth in Africa) Source: UN, McKinsey 0.4 0.5 0.5 0.8 0.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 2010 Urban Pop. China India Other Asia Africa RoW 2050 Urban Pop. The world is set to urbanise close to another 3 billion people by the middle of the century 9. Perceptions about Mining by RSAs people in general Little link made between role of minerals and the functioning of a modern society. Little credit given to the mining industry for playing a key role in South Africas economic development over past 130 years, which has transformed South Africa into the most industrialised country in Africa 10. Metals and minerals in a Smart Phone Copper (16 grams) Silver (0.35 grams) Gold (0.034 grams) Palladium (0.015 grams) Platinum (0.00034 grams) Ceramic magnetic switches containing rare earths Indium Titanium dioxide Indium tin oxide source USGS http://pubs.usgs.gov/fs/2006/3097/ source NRC critical minerals report 11. Metals and Minerals in a car 960kg iron &steel 109kg Aluminum 22.7kg Carbon 19 kg Copper, 34kg for a hybrid 19kg Silicon 11 kg Lead 10kg Zinc 7.7kg manganese 6.8kg Chromium 4.1kg Nickel 0.3 kg Platinum +Antimony, barium, beryllium, cobalt, gallium, gold, magnesium, molybdenum, neodymium, indium, palladium, Sulphur, rhodium, silver, strontium, tin, titanium, tungsten, vanadium, zirconium. 12. Even a Wind Turbine uses a significant amount of metals and minerals 335 tons of steel (chrome included) 4.7 tons of copper 13 tons of fiberglass 3 tons of aluminum 1,200 tons of reinforced concrete 13. Some of the worlds famous buildings would not have been possible without Mining 14. Even the cosmetics and makeup are made from minerals Talc Mica Kaolin Calcite Titanium dioxide Zinc oxide 15. Perceptions and realities about RSA mining PERCEPTION REALITY Is a Dirt Digger Is uncaring about the lives of workers and does not pay well Does not care about the environment, communities Poverty at the doorstep of prosperous mines Profits and benefits exported to a small bunch of Capitalists Resistant to Transformation Does not matter to SA- Ingi Saldago- Business Report-Eskom was right to switch off the Mines 16. Perceptions and realities about RSA mining PERCEPTION REALITY Is a Dirt Digger Another R300 billion and 200 000 jobs created in downstream industries Is uncaring about the lives of workers and does not pay well 67% reduction in fatality rate, average wages per employee up 12% p.a. Does not care about the environment, communities Poverty at the doorstep of prosperous mines Spent R2 billion on communities, R4 billion on skills and R20 billion in corporate taxes in 2012. Profits and benefits exported to a small bunch of Capitalists Shareholders balanced 50% local, 50% offshore, R12 billion in dividends Resistant to Transformation >R150 billion in BEE deals concluded, good progress on all pillars of Charter Does not matter to SA- Ingi Saldago- Business Report-Eskom was right to switch off the Mines 18% of GDP, 50% of exports, 1.3 million jobs, 94% of electricity, 17.2% of corporate tax 17. The ANC Mangaung Elective Conference ANC rejects wholesale nationalisation as a policy option. ANC has adopted the National Development Plan as a key strategic area. Over the next five years, the ANC will take decisive and resolute action to overcome the triple challenges of poverty, inequality and unemployment, which are at the heart of South Africas socio- economic challenges. The most effective weapon in the campaign against poverty is the creation of decent work, and creating work requires faster and more inclusive economic growth. Using South Africas natural resources in a manner that benefits the nation as a whole. 18. The ANC Mangaung Elective Conference mining specific resolutions State intervention with a focus on beneficiation for industrialisation. Equitably sharing the rents. Strategic minerals will be investigated and declared. Strengthening of the state mining company. Mining should create safe and decent work, and mineral extraction should not compromise local communities or the environment. There is a need to develop and enhance mineral knowledge linkages. 19. The Chamber of Mines supports the ANC Policy Resolutions A greater degree of policy certainty is emerging. In a number of areas the how is critically important. Encouraging further beneficiation is an important issue and further work regarding the how is taking place. Energy security can be guaranteed through private sector investment and cooperation between government and the private sector. 20. Presentation outline How does South Africa score? Conclusion Global and local drivers Key drivers of mining competitiveness Why Mining is Crucial to South Africa Unpacking the constraints for mining 21. Progress has been made to get the economy back on to a higher growth path (3.2% 1994 to 2012). However, SAs unemployment rate is too high (>20%), its levels of income inequality are very high (Gini coefficient 0.59). Government has now placed the creation of meaningful employment as a central pillar of economic policy. All parties recognise that higher levels of sustainable, balanced and labour absorbing economic growth is key to reducing unemployment (NDP, NGP, IPAP5). South Africa requires faster, more balanced and inclusive economic growth 22. South Africa While South Africas growth rate has risen to 3.2% p.a. 1994-2013, it is just too slow to meaningfully tackle unemployment & poverty 35 24 18 15 12 10 9 8 7 - 5 10 15 20 25 30 35 40 2 3 4 5 6 7 8 9 10 YearstodoublerealGDP % annual growth rate Number of years to doubling real GDP at different growth rates 23. Too much of the economys recent growth has been driven by credit fuelled non-tradable demand side, & tradable export sectors have languished.. Source: StatsSA 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 R'millions South Africa: Contribution to GDP in real terms, non-tradable vs tradable sectors of economy (real terms) Non-tradable sectors (financial services, wholesale and retail trade, etc) Tradable sectors (mining, manufacturing, agric) 24. -8 -4 1 5 9 13 17 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 %ofGDP. %growth. Real annual GDP growth for tradable sectors versus non-tradable sectors, and the current account deficit as % of GDP Tradable Non-tradable Current account % of GDP Resulting in large external imbalances, that must be funded by capital flows.. Source: StatsSA 25. To ensure more balanced and higher levels of growth & job creation the country needs its tradable export sectors to grow at a much faster pace This is where mining fits in: Mining has a very large employment, foreign exchange earning and GDP multipliers. The National Development Plan (NDP) recognises the important role that mining can play. 26. Mining - The Essential Core Of SA Economy Creates 1.35 million jobs (520 000 direct & 830 000 indirect). Accounts for about 19% of GDP (9% direct, 10% indirect & induced). Critical earner of foreign exchange >50%. Accounts for 20% of private investment (12% of total investment). Attracts significant foreign savings (R1.4 trillion/ 29% of value of JSE). 2012, R20 billion & R5.6 billion in royalties. R437 billion in

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