Xstrata South Africa: Impact of unbeneficiated chrome exports to China; Committee's report on illegal mining operations deliberations

Meeting report

Consideration of Committee Report on the Committee’s Oversight visits to illegal mining areas: 21 October 2009
The Committee went through the report, page by page. No major changes were made to the report accept for grammatical corrections, and matters where the Committee felt that stronger emphasis was needed. On page 3 of the report, Members of the Committee agreed that the following line should be added; “due to suspicion of South African Police Service involvement in Freestate illegal mining, South African Police Service members from outside the Free State would monitor illegal mining in the Free State.”

Members of the Committee recalled that during the visit, they were prevented from going down to one of the shafts in the mine as they had received a threat from illegal miners, saying that they would be kidnapped if they went down into that area of the mine.

The Chairperson told the Committee that even the Chief Executive Officers and management of the mine received threats from illegal miners, to the effect that the miners knew their families and where their children went to school, and thus should not interfere with the miners’ activities. Criminals determined who went into the shaft. Members of Parliament should not have such restrictions, especially those set by criminals, placed upon them.

The Chairperson said that Members came across another situation that was unacceptable. In Section 3.4 of the report, he suggested that it should be clearly stated that the poor living conditions and standard of the roads posed serious health hazards to the people of the community and made it difficult for children at a nearby school to learn.

There was also hostel, close to a school, that was running many illegal activities, including the smelting of illegally mined gold, which distracted the children in the school from their learning.

Ms J Ngele (ANC) commented that Section 4.1 of the report did not include the names of the female delegates from Impala Platinum. The section only had names of the males who were part of the delegation.

The Chairperson referred the Committee to Section 4.3 of the report and highlighted that the method of production in mines was the main cause of deaths, due to ground collapses. However Impala Platinum had its own unique way of mining, which focused on having narrow streamlines. The work area was not wide and thus the pillage that was used could resist the weight from the rock above. However, that meant that the mines lost a certain percentage of their production area, to save lives. He believed that this method of production adopted by Impala should be imposed on other mine companies, even if that needed to be done through legislation.

Ms N Mathibela (ANC) said that there was a shortage of police in Barberton, Mpumalanga, and that was the main cause of the failure to eradicate illegal mining. In Barberton, gold was being smelted under a bridge.

The Chairperson said that it was important for the Report to state that there was an influx of illegal immigrants into the Barberton area. The illegal mining matter has lead to a rise in gangsterism in the area. Illegal miners were killing each other for the gold. One group of illegal miners would go down into the shaft but when they attempted to come out with the gold, another group would be waiting to forcefully take the gold from them. If there was resistance from mine security, the illegal miners would not hesitate to shoot them. However, there were also other means of illegal mining, where people mined illegally for domestic use. This form of illegal mining was found in coal mines.

The Chairperson felt that the concluding part of the Report should state that South Africa has lost more than 200 miners since the start of illegal mining. There was no suggestion that these deaths would lessen or stop. Lives were constantly being lost, yet despite that the illegal mining continued, with the loss of R 5.6 billion per annum to the country. That showed how lucrative the illegal mining was to the miners.

Mr E Lucas (IFP) said one of the things that came out clearly in the oversight visit was the nature of the market, as without that market, the illegal mining would be doomed.

The Chairperson referred to the section of the Report containing the recommendations. He noted that there regulations noted, but Section 143 of the Mining Act and Regulation 3.1.1 of the Minerals Act were old laws that needed to be revised. The recommendations made in the meeting, however, needed to be supported by existing laws.

The Chairperson also highlighted that at all the mines that the Committee visited, the Committee had asked management what the circumstances were for closure of a shaft that still had minerals in it. Most of the illegal mining was taking place in closed shafts. The shafts should be given to small operators, if there is knowledge that the shafts still have gold. The Committee was intending to tell both the Department and the mining companies that no mine should be closed, without a small-scale miner being given opportunities to exploit what still remained.

The Chairperson agreed that as long there was a market, illegal mining would never cease. There were legal gold dealers in Gauteng, who were buying gold from illegal miners. Everyone in the small mining town was saying that the illegal gold was being sent to Johannesburg. The dealers were known, and the police had identified them, but no arrests were being made. The licences of legal gold dealers should be revoked when they were found dealing in gold that was mined illegally.

The Security Cluster also had to be involved, as it was not right at all for mining to be controlled by criminals. The Chairperson said that it was important that the recommendations made by the Committee must stipulate that the Security Cluster should be involved. The Chairperson said that South Africa did not want a situation such as that in Columbia and Italy, where the mafia controlled the State.

Mr C Gololo (ANC) said that the Chairperson was quite correct, and he believed it was important for the South African National Defence Force to intervene in the matter.

Mr V Magagula (ANC) said that a task team had to be set up, composed of National Intelligence and other Security Cluster members.

Mr E Marais (DA) said that the Committee should reconsider the fines, as the amounts were very small compared to the nature of the crimes.

The Chairperson said the reason that the fines were very small was that it had been a long time since the Minerals Act had been amended. He agreed that there should be strong measures to deter people from illegal mining. He also pointed out that people arrested while undertaking illegal mining were not actually charged with such an offence, but purely charged for trespassing and could get away with a small fine, such as R 50. That did not serve in any way as a deterrent.

Mr Marais said that the maximum jail time for people caught conducting illegal mining should be a maximum of 30 months.

The Committee agreed that there was no need to make the recommendations at this point, as it had not yet taken legal advice.  The Committee’s message was clear, that a solution must e found to the issue of illegal mining.

The Chairperson added that something needed to be said about the G Hostel in the Free State, as it was a hub for criminal activities. There was a school across the road from the Hostel. There were serious shortages of houses in the area. The Committee had to talk about the conversion of the hostel to family units.

Ms Mathibela recommended that the local municipality should turn the hostel into family units by June 2010.

Mr Gololo agreed that the hostel should be turned into family units instead of the local government demolishing the structure.

Mr Marais said that Section 143 of the Mining Act was actually the most important part of the oversight conducted by the Committee. The dealers who were buying the gold had a lot of cash, and thus the fines needed to be increased to a much higher amount. He recommended that the Act should be amended to impose a  fine of at least R30 000 to R50 000. He felt that a minimum and maximum fine should be stated in the legislation.

The Chairperson said that Mr Marais was right, as the dealers were making a lot of mining from illegal mining.

Ms L Moss (ANC) said that it was important for the Committee to meet with a legal advisor on the matter as soon as possible.

The Chairperson said that State Law Advisors would be contacted that week and steps would be taken to deal with the matter. A number of other State departments would also be contacted. The Department was also going to invite stakeholders to discuss how the recommendations could be implemented.

It was agreed that the report would not be adopted formally, until the Committee received legal advice on the recommendations made in the meeting.

Xstrata South Africa: Briefing on impact of unbeneficiated chrome exported to China
The Xstrata delegation was composed of Eric Ratchikopha, Executive Director, Mr Mark Moffelt, Chief Financial Officer, Mr Deon Dreyer, Managing Director: Chrome and Vanadium, and Mr Thabo Moseki.

Mr Eric Ratchikopha, Executive Director, Xstrata told the Committee that Xstrata was a company that originated in Switzerland and was listed on the London Stock Exchange. It had over 68,000 employees in 19 countries. It was a major producer of base metals: copper, lead, nickel and zinc: coking coal, thermal coal, ferrochrome and vanadium.

The company had been in South Africa for over a decade. The company had invested over R 45 billion in South Africa since 2002. It had approached the Department with suggestions on beneficiation.

Mr Ratchikopha continued that ownership targets had been achieved by the company across all operations. In the chrome business, the company had Merafe as a partner and Merafe was partly owned by the Royal Bafokeng. Merafe jointly participated in the running of the business.

In the platinum business Kagiso was a 26% partner. Kagiso had recovered all their initial investments into the company and were now merely making profits. Kagiso had 100% net value on their investments.

The company was funding Ngazana's 26% share in Eland Platinum. That was called vendor financing. The company had also given vendor financing to other partners such as Bakwena-Ba-Mogopa.

Discussion
Mr Gololo asked if Xstrata was a 100% South African company. He asked if there were women in its management, since all the delegation now presenting to the Committee were men.

Mr Mark Moffelt, Chief Financial Officer, Xstrata replied that Xstrata was a company listed on the London Stock Exchange. It was not listed in South Africa. A wide range of shareholders held it. Had the company succeeded in merging with Anglo America, its profile would have been substantially changed. It would have secured a local listing of the company.

Mr Gololo said that he knew that smelter companies were exempted from paying tariffs to Eskom, and that depended on the price of the product being smelted.

Mr Moffelt said the situation used to be the way that Mr Gololo had described it to be, however it had changed. It was called the Commodity Linked Tariff. All electricity purchases for Xstrata with regards to the smelting of ferrochrome were charged at standard electricity prices.

Ms Mathibela asked why there was only one lady in the Executive of the company.

Mr Ratchikopha referred the Committee to Slide 37 of the presentation. In management, 14% of the people were women. However the company did not have all the information in the meeting. Xstrata requested that it be given a chance to forward the information to the Committee at a later stage.

Ms Mathibela said that even though the company had told the Committee the number of employees it had, they were not categorised. She wanted to know how many women were in the company and how many blacks there were, and how many people with disability were employed in the company.

Mr Ratshikopha conceded that when it came to employment equity a lot needed to be done. There were efforts to ensure that transformation took place in the company. However it was not an easy task.

Mr Moffelt added that Xstrata acknowledged the Charter for the industry. Women were more disadvantaged in the past. The next chapter on transformation would focus on empowering black women in the company. Companies however needed to be recognised for advancing black women in the industry.

Ms Mathibela said that she was saddened by the fact that the company was still only thinking of incorporating black women in its executive. She was really not impressed and doubted whether the company had a time frame to drive transformation.

Ms Mathibela said that Xstrata had also failed to tell the Committee what types of companies were in the list of black enterprises with whom Xstrata worked.

Ms Mathibela asked how the willing buyer and willing seller arrangement worked.

Mr Moffelt replied that the willing buyer willing seller process applied to the acquisition of mineral rights, which were State property. The price would be set on a willing buyer, willing seller basis.

Ms N Ngele(ANC)  asked how the company was involved in rural development.

Mr Thabo Moseki, Xstrata representative, said that the presentation was not really about what was happening at that moment in the company. The presenters were saying that in the next chapter of transformation, there was going to be more emphasis on rural development and skills development. Xstrata was saying that the mining industry should have initiatives to promote rural development, given that most mines were in the rural areas.

Mr Deon Dreyer, Managing Director: Chrome and Vanadium, Xstrata, added that the company had built Phase One of the Lion Plant in the Skuurpoort Valley, which was a rural area. The project aimed at creating jobs in that area. The company also trained people from that rural community as artisans and boilermakers.

Ms Ngele commented that the company seemed not to be doing what it said that it was doing.

Ms Mathibela asked the delegation from Xstrata to explain where its employees originated, and whether they were South Africans, or were migrant labourers from other countries.

Ms Mathibela said that the work done by the company affected people's health. The mines were polluting the air in the areas they were operating in. She therefore asked what measures company was taking to assist in health matters in the communities where it was operating.

Mr Dreyer replied that there were two points. The company complied with all laws that governed environmental matters. It also had strict policies in place to ensure that its production did not pollute the environment.

Ms D Mathebe (ANC) asked the delegation from Xstrata to give a profile of the mines that Xstrata owned in South Africa.

Mr Dreyer replied that the company had eight chrome mines, and five smelters. The company had one vanadium open cast mine and fourteen coal mines.

Mr Gololo asked how the company was ensuring that it met the Black Economic Empowerment requirements, and how it dealt with the issue of fronting when it came to Black Economic Empowerment companies.

Mr Moffelt said that none of Xstrata's partners were fronting. It was not a problem that existed in the company's empowerment deals.

Ms Mathibela asked if it was true that the company had 50 black executive directors, or was it just an exaggeration.

Mr Ratshikopha replied that the company had just taken the Department of Trade and Industry quota, the Mining Charter and the Mining Code. The company had not actually said that 50 % of its executives were black. The statement was made for comparison purposes. Xstrata was aware that the Charter was under review.

Ms Mathibela asked how Xstrata was meeting the quotas stated by the Mining Charter.

Mr Ratshikopha said that Xstrata was meeting with the Committee to discuss how the Charter should be reviewed.  One of the things that the company was doing was examining the various pieces of legislation.

The company's involvement in communities and rural development should be taken into consideration when scorecards were being drawn. 

The Chairperson noted that a number of questions had been asked. The presentation did not meet the expectations of Members, and they still were not sure what Xstrata wanted to tell them, although the input was appreciated.

The Chairperson asked if the listing on a foreign stock exchange a sign of a lack of confidence in the South African economy.

Mr Moffelt replied that Xstrata was not like Anglo-America. Xstrata was founded in Switzerland with $500 million as capital. Xstrata had invested R40 billion into South Africa, which was a sign of the confidence that the company had in South Africa. The company had created jobs in South Africa. The tax got paid in South Africa, so there were benefits for the country.

The Chairperson asked how, if Government assisted Xstrata in the proposal to beneficiate ferrochrome, would South Africa benefit.

The Chairperson asked what kind of ownership the black partners in the business had, whether they had  voting rights, how they participated in the company, and the real benefits of the 26% that black people owned.

Mr Moffelt replied that Xstrata was proud of its empowerment ownership. The partnership deals that Xstrata had were sustainable.  In the chrome business, the company had Merafe as a partner, and Merafe was partly owned by the Royal Bafokeng. Merafe jointly participated in the running of the business.

In the platinum business Kagiso was a 26% partner and Kagiso had recovered all their initial investments into the company and were merely making profits. Kagiso had 100% net value on their investments.

The company was funding Ngazana 26% share in Eland Platinum. That was called vendor financing. The company had also given vendor financing to other partners such as Bakwena- Ba- Mogopa.

In their coal business they also had Mr Patrice Motsepe's company Arm Coal as a partner. The companies that Xstrata partnered were active partners in the running of the business and were involved in all decisions made.

The Chairperson noted that Xstrata had said that it had been in discussions with the Department of Mining, but had not told the Committee what came out of those discussions. It was making serious suggestions.

Mr Dreyer said that the company had had a meeting with the Department of Mining. The Department was looking at the information that was given to it by Xstrata on the issue of beneficiating ferrochrome.

The Chairperson told the delegation that they had not indicated to the Committee how it complied with the requirements raised in the various statutes governing the industry. However, the suggestions that the company was raising were welcomed by the Committee. 

Mr Ratshikopha said that indeed the delegates were not going into detail on how they were meeting the requirements of the statutes. They could meet again with the Committee to discuss that information. It was fair for Members to expect the delegates to expect information on employment equity, although the delegation had not expected these questions to be asked, merely wanted to share their ideas with the Committee.

Mr Moffelt added that the company was pleading for mining companies to be involved in reviewing the Mining Charter. Between the regulators and the labour unions, mining companies had to establish an approach that would suit everyone when dealing with the matter.

Mr Lucas said that he did not see why exactly the company had requested to meet with the Committee. However there was a problem with the way business looked at the Charter. The Charter should be a guideline only. Business should go beyond what was expected by the Charter and the minimum standards that it set. He was also not happy about hearing the same names repeated over and over when it came to Black Economic Empowerment Deals.

The Chairperson thanked Xstrata for the presentation. At the same time, he mentioned that Members were not entirely satisfied with their presentation. Members of the Committee were not impressed by the fact that the company was only partnering with individuals that were in every business in South Africa. The Committee would prefer for new faces to benefit from business in South Africa.

The meeting was adjourned.