Andrew Lane, Deloitte Consulting (Pty) Ltd - What is the role of mining companies in supplying affordable housing, clinics and schools for mining communities?
 

Andrew Lane, Deloitte Consulting (Pty) Ltd - What is the role of mining companies in supplying affordable housing, clinics and schools for mining communities?

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Andrew Lane, Deloitte Consulting (Pty) Ltd delivered the presentation at IMM’s Mozambique Coal Conference 2013. ...

Andrew Lane, Deloitte Consulting (Pty) Ltd delivered the presentation at IMM’s Mozambique Coal Conference 2013.

The IMM’s Mozambique Coal conference features a comprehensive program which discusses the latest mining developments, assesses the way forward for the country’s crucial port and rail progress and examines Mozambican Government policies and the investment opportunities.

For more information about the event, please visit: http://www.immevents.com/mozambiqueconference

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Andrew Lane, Deloitte Consulting (Pty) Ltd - What is the role of mining companies in supplying affordable housing, clinics and schools for mining communities? Andrew Lane, Deloitte Consulting (Pty) Ltd - What is the role of mining companies in supplying affordable housing, clinics and schools for mining communities? Presentation Transcript

  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. What is the role of mining companies in supplying affordable housing, clinics and schools for mining communities? Andrew Lane 16 July 2013
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Monitor Wrote the Book on Strategy Monitor’s sustained investment in thought leadership generates unrivaled intellectual capital for our clients According to Harvard Business Review, seven of the 16 most influential business books over the past 25 years have been written by Monitor authors
  • © 2012 Deloitte Touche Tohmatsu Limited Let’s examine the context for this question View slide
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Tough times for mining shareholders 0 20 40 60 80 100 120 140 160 180 Coal Price vs. Coal Producers (2010 – 2013) Coal Price Anglo American (Coal) BHP Billiton Vale Ncondezi Coal Rio Tinto Xstrata Sources: JSE Limited; Bloomberg.com Deloitte4 50 60 70 80 90 100 110 120 130 140 Diversified Mining shares vs. Commodity Price Index (2010- 2013) BHP Billiton Rio Tinto Anglo American CRB Commodity Spot Index 30 50 70 90 110 130 150 170 Gold Stocks vs. Spot Gold Price (2010 – 2013) Barrick Gold Newmont Mining Goldcorp Gold Bullion spot price 50 70 90 110 130 150 170 190 Iron ore producers vs. iron ore price (2010 – 2013) Rio Tinto BHP Billiton FMG Vale Iron Ore Price View slide
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Mining market capitalisation showing a decline Market capitalisation decreased by 9.9% year on year (May 2012- May 2013) Deloitte5 832.5 924.5 -9.9% 20132012 Market Capitalisation of Top 29 Listed Stocks (USD) Market Cap (USD M) Sources: Datastream
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved.Deloitte6 Seaborne Iron Ore Balance (mt) Seaborne Met Coal Market Balance (mt) Global Thermal Coal Market Balance (mt) Refined Copper Market Balance (mt) Primary Aluminium Market Balance (mt) Refined Nickel Market Balance (kt) 130 205 256 -98-79 -48 -16 -200 -100 0 100 200 300 ‘18‘17‘16‘15 50 ‘14‘13 -114 ‘12‘11‘10 0.4 0.4 0.1 0.0 -0.1 -0.4 -0.2 0.0 0.2 0.4 ‘18‘17 -0.2 ‘16‘15‘14‘13‘12 -0.3 ‘11 -0.2 ‘10 -0.4 29 14 9 -7 22 4 -10 0 10 20 30 ‘16‘15 -1 ‘14‘13 3 ‘12 2 ‘11‘10‘09‘08 1.3 2.3 0.9 1.5 1.2 1.7 1.1 1.0 1.4 0.0 0.5 1.0 1.5 2.0 2.5 ‘16‘15‘14‘13‘12‘11‘10‘09‘08 13 27 43 27 53 911 0 10 20 30 40 50 60 ‘18‘17‘16 2 ‘15 4 ‘14‘13‘12‘11‘10 4.0 -12.0-20 0 20 40 60 80 33.0 ‘13 23.0 ‘12 25.0 ‘11 50.0 ‘10 67.0 ‘09 47.0 ‘08 ‘16 14.0 ‘15‘14 Global commodity markets are moving into surplus Market Balances for Industrial Commodities Sources: Datastream
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. • Head grades declining all over the globe ,Copper by (30%), Nickel by (40%), Gold and Zinc by 10%. • Miners have to ‘run harder just to stand still’ (Xstrata) • Copper ore-grades in Chile expected to fall from 0.9% in 2008 to 0.57% by the end of the decade. “More than $35 billion has been invested in mines since 2004, but with no corresponding increase in production” (Diego Hernandez, CEO Antofagasta) • Since the start of 2000, over 75% of new base metal discoveries are blind at depths > 300m • Deep deposits are difficult to fins which significantly increases cost of extraction • Also raises complex safety and risk issues – high risk of rock falls, flooding, gas discharges, underground earthquakes and ventilation problems • According to US Geological Reserve, almost 80% of base metal reserves in less developed countries or growth markets • Miners need to move out of comfort zone to maintain reserves and production • Corruption, infrastructure and governance increasingly big issues as miners move into unchartered regions • Lack of water supply in remote mine regions and in arid environments i.e. Northern Chile • Power supply availability. A big issue in South Africa and Chile. Bottlenecks in electricity supplies mean miners face some of the highest power tariffs in the world • Heavy equipment lead times above average • Less developed transport infrastructure in developing economies • Key issue for global miners who need to reach agreement with all stakeholders in a region • Social License issues have even suspended development of permitted projects i.e. Minas Conga (Peru) and El Morro (Chile) • Tighter environmental standards will raise capital expenditures, forcing companies to manage new and existing projects more carefully than they have in past years • Regarded as one of the biggest threats to global mining sector in 21st century • Increased taxes, royalties, permitting hurdles, export restrictions, expropriation, legislated local ownership, nationalisation • Playing out in developed economies (i.e. Australia MRRT) and developing economies. Latin American jurisdictions such as Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Honduras, Panama, Peru and Venezuela have all tried to increase the government's share of mining revenues via tax reforms` • Lack of fiscal stability puts development of capital projects at risk in these countries • Shortage of skilled labour. By 2020 Canada will need 100,000 new mining workers (Canadian Mining Human Resources Council), Australian resources projects may have a shortfall of 36,000 trades workers by 2015 (Australian National Resources Sector Employment Taskforce) • Lack of engineers that have the skill sets to build larger, more complex projects Growing backlogs of EPCM contractors Sources: Datastream Long-term structural supply issues remain in place Deloitte Declining Ore Grades Deeper Mines Heightened Sovereign Risk Critical Infrastructure Shortage Social License to Operate Resource Nationalism Human Capital
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Canadian Government vetoed the C$5.2bn takeover of Progress Energy Resources by Petronas, because it "was not satisfied that the proposed investment is likely to be of net benefit to Canada". Mongolian government is trying to renegotiate the 2009 investment agreement on the Oyu Tolgoi mine Kenya has given mining companies operating in the country three years to cede a minimum 35% equity to local investors In mid-May, Indonesia decided to impose a 20% export levy on virtually all unprocessed ores under a new mining law. The country has also announced plans to implement a total export ban on nickel and other ores, effective January 2014. Under new rules, foreign companies must sell down their stakes in mines in the country, so that by the tenth year of production the assets are at least 51% owned by Indonesian entities. Uruguay plans to implement measures to compel larger mining projects in the country to share their profits with the federal government and comply with tougher environmental standards Liberian government is reviewing all concessions granted foreign multinational mining and forestry companies China's strategically co-ordinated approach to securing key commodity inputs via state sponsored lending and export credits Australian PM Julia Gillard speaking in May - "I don't own the minerals, governments only sell you the right to mine the resource. A resource we hold in trust for a sovereign people. They own it and they deserve their share." DRC Govt. amended mining code will more than double royalty payments, introduce capital gains tax and raise tax charges on imports of mining equipment and machinery. Increased state participation in mine projects from 5% to 35% Bolivian government declares the nationalisation of Glencore's Colquiri zinc-tin mine and revoked the mining rights of Vancouver-based South American Silver Corp Bauxite and iron ore rich Guinea will buy additional 20% stakes in mining projects Extreme risk category in Resource Nationalism Index for 2013. Argentina shocked investors with the expropriation of YPF from former Spanish owners Repsol . In northern Argentina, thousands of residents protest against Canada's Osisko Mining gold mine project Peru – new tax on windfall mining profits. Zambia have pushed for 25% to 35% state participation in mining projects Zimbabwe has released a draft amendment to its indigenisation policy, confirming that the government will not provide compensation for the 51% share it will hold in foreign- owned mining companies Mexico's Congress voted in favour of a proposed 5% mining royalty scheme, paving the way for a full vote in the Senate as Mexico tries to broaden its weak tax take. Resource Nationalism is here to stay; Mozambique is no exception Deloitte Ghana hiked corporate tax rate to 35% from 25% and cut capital allowances to 20% from 80% for five years. South Africa’s cabinet has approved hiving off the state mining company as a standalone entity, a move in line with proposals for greater state participation in the mining sector in the country.
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Mozambique’s Growth is Accelerating Deloitte9 Mozambique 6.9 Developing Economies 5.7 World 3.3 Real GDP CAGR, 2007 - 2011 (%) CAGR in FDI Inflows, 2000 - 2011 (%) 8.0 18.0 68.4 AfricaDeveloping Economies Mozambique Sources: World Data Bank, 2012; UNCTAD (2011), Handbook of Statistics; IFC and Worldbank (2012), “Doing Business”; Fitch Ratings Mozambique’s GDP growth rate is double World GDP growth… … FDI into Mozambique is growing faster than the rest of the continent (2000–2011)
  • © 2012 Deloitte Touche Tohmatsu Limited Key to Rankings 0-39 40-80 81-120 121-160 161-185 SSA Ease of Doing Business Ranking, 2013 However it is still relatively risky… Burundi Zimbabwe Kenya Ethiopia Eritrea North Sudan Niger Mauritania Mali Nigeria Chad Central African Republic Uganda Liberia Sierra Leone BurkinaGambia Sao Tome & Principe Equatorial Guinea Djibouti Senegal Guinea Bissau Namibia South Africa Tanzania Democratic Republic of the Congo Angola Madagascar Botswana Zambia Gabon Swaziland Lesotho Malawi Rwanda Benin Ghana Ivory Coast Guinea Cameroon Congo Republic Comoros Mozambique Togo Country Overall Political Risk DR Congo 74 Zimbabwe 72 Angola 56 Tanzania 53 Zambia 51 Mozambique 50 South Africa 41 Botswana 33 Political Risk of Select Countries, 2012 Sources: Source: World Data Bank, 2012; UNCTAD (2011), Handbook of Statistics; IFC and Worldbank (2012), “Doing Business” Higher ranking indicates greater difficulty in doing business (scale 1 – 185) Higher risk rating indicates higher political risk (scale 1 – 100)
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Ease of doing business SSA Ease of Doing Business Ranking by Category Protecting Investors Paying Taxes Construction Permits Enforcing Contracts Trade Across Borders Getting Credit Registering Property Getting Electricity Starting a Business Overall Rating South Africa 39 10 32 39 82 115 1 79 150 53 Botswana 59 49 39 132 68 147 53 51 90 99 Zambia 94 82 97 151 89 156 12 96 151 74 Mozam- bique 146 49 105 135 132 134 174 155 174 146 Tanzania 134 16 21 44 1 12 22 27 13 15 DRC 181 35 36 10 36 40 13 17 26 30 Angola 172 9 29 24 46 36 22 24 17 41 Zimbabwe 172 20 22 42 18 38 22 11 35 27 Deloitte11 Sources: Source: World Data Bank, 2012; UNCTAD (2011), Handbook of Statistics; IFC and Worldbank (2012), “Doing Business”
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. As a mining destination, Mozambique ranks favourably compared to other SADC countries… Deloitte12 0 10 20 30 40 50 60 70 0 20 40 60 80 Botswana South Africa DRC Mozambique Zambia Tanzania Zimbabwe Angola 1. South Africa 2. Botswana 3 DRC 6.Tanzania 7. Zimbabwe 8. Angola 4. Mozambique 5. Zambia Source: BMI Mozambique Mining Report Q2 2012 CountryReward Country Risk Most Favourable Least Favourable Most Favourable Least Favourable Risk and Reward Ranking, by Country
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Mozambique still faces some significant challenges • Despite sustained growth for two decades, half of the population lives below the national poverty line • Two thirds of the population do not have access to running water inside their homes • The resources boom has resulted in an influx of foreigners into the country • Regional economic differences are resulting in rapid urbanisation • Inflation poses some social stability threat • Half of the national budget is funded by donor partners which has an impact on the balance of political power • There is a significant infrastructure backlog Deloitte13 Source: Institute for Security Studies, Mozambique Situation Report
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Mining Companies are increasingly involved in provision of bulk infrastructure Deloitte14 Russia SA Australia Brazil GuineaZambia Mainly State State with some private operators PPP between state and & private companies Mostly Private funding with State getting ownership rights Mozambique
  • © 2012 Deloitte Touche Tohmatsu Limited What does this have to do affordable housing, clinics and schools for mining communities?
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Mining Constituents Business Organised labour Labour Government Community Desire  Maximise profit  Retain license to operate Challenge  Changing government expectations  Government requirements for royalties, taxes, profit share, and social spend can erode profitability  Can’t always meet community expectations  Don’t always understand community needs  Don’t fully understand labour dynamics Outcome  Risk and uncertainty Desire  Share in the mining wealth  Social growth and expansion  Quality of life Challenge  Government has not delivered  Mining industry’s ability / willingness to share wealth is limited Outcome  Social unrest and frustration Desire  Decent standard of living Challenge  Poor education/understanding  Difficult working conditions  Perception of continued exploitation  Perception that unions have failed workers Outcome  Wildcat strike action Desire  Membership  Drive government policy Challenge  Losing/changing support  Role in government and society  Job losses Outcome  Fight for relevance Desire  Maximise revenue to the state  Provide infrastructure and social services  Economic competitiveness  Economic transformation Challenge  Multiple arms of government not aligned  Policy often unclear / unstable / inconsistent  Role of organised labour in governing alliance Outcome  Have not always delivered to communities Deloitte A mining company’s role in society is a function of the conflicting interests of stakeholders
  • © 2012 Deloitte Touche Tohmatsu Limited So, what’s the answer?
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Corporate Social Responsibility Creating Shared Value  Value: Doing Good  Citizenship, philanthropy, sustainability  Discretionary or in response to external pressure  Separate from profit maximisation  Agenda is determined by corporate footprint and CSR budget  Impact limited by corporate footprint and CSR budget  Value: Economic and societal benefits relative to cost  Joint company and community value creation  Integral to competing  Integral to profit maximisation  Agenda is company specific and internally generated  Realigns the entire company budget Source: Porter, M. and Kramer, M., “Creating Shared Value”, published in the Harvard Business Review (January – February, 2011) Beyond Corporate Social Responsibility — Creating Shared Value Deloitte
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Engage Effectively with Stakeholders Deploy Inclusive Solutions Measure Socio-Economic Impact 1 2 3 Source: Monitor Analysis, 2012 Three Tools to Creating Shared Value Deloitte  Identify where shared value can be unlocked  Understand real needs  Defuse strained relationships  Create sustainable socio-economic impact  Make the right investment decisions  Frame the debate between stakeholders  Build a shared vision of the future
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Few credible tools exist for measuring / tracking socio- economic return in a holistic manner Well established tools exist for measuring financial return . . . Return to Shareholders Return to Country Return to Citizen Examples of Impact  Profit Margin  NPV  IRR  ROI  Financial Security  Physical Security  Social Networks  Professional Satisfaction  Maximize company profit  Retain license to operate  Share in the mining wealth  Social growth and expansion Main DesiresStakeholder  Company shareholders  Industrialisation and Transformation  Job Creation and Transformation  Political Stability  National Reputation  Maximize government revenue  Provide infrastructure and social services  Local, Provincial and National Governments  Community members  Employees Source: Monitor Analysis, 2012 Start by getting the facts on the table Deloitte
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Global Mining House Government National Local Provincial Employees Unions Private Shareholders Department of Environmental Affairs Department of Mineral Resources Department of Labour Mine Industry Associations Owners Job seekers Chamber of Mines Private Shareholders National Union of Mineworkers Department of Human Settlements District and Local Municipalities Provincial Government Employees / Dependents Current Employees Other Unions Board of Directors Investors Various Members and Makeup General Public YouthVotersMedia Rio Tinto Traditional Leaders Local Businessmen Community ANC Ruling Faction Other Factions Unions Department of Labour Department of Mineral Resources Government National Provincial Institutional ShareholdersCommunity Department of Environmental Affairs Local Businessmen Ruling party Ruling Faction Other Factions Employees Financial Institutions AMCU Civil Society Job creation, beneficiation and safety Revenue for the state Environmental compliance Policy positions and political allies Services and infrastructure Social upliftment, economic transformation Re-election Political favour Justice and peace Membership, bargaining power Profit and license to operate Standard of living Business opportunities Return on investment Power Profit and license to operate Job security, living wage, decent work Employment opportunities Portfolio Source: Monitor Analysis, 2012 The stakeholder environment is not trivial – take the time to understand it properly Deloitte
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Source: IFC and Harvard Kennedy School, “Scaling up inclusive business: Advancing the knowledge and action agenda”, 2010 Inclusive Solutions Deloitte “An inclusive business is one which seeks to contribute towards poverty alleviation by including lower- income communities within its value chain while not losing sight of the ultimate goal of the business, which is to generate profits.” – World Business Council for Sustainable Development “Inclusive business models include the poor on the demand side as clients and customers, and on the supply side as employees, producers and business owners at various points in the value chain. They build bridges between business and the poor for mutual benefit.” – United Nations Development Programme
  • © 2012 Deloitte Touche Tohmatsu Limited So, in summary
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved. Mining companies do have a role in society. This requires difficult trade offs  Get the facts on the table – what real impact has been or needs to be created for whom and by whom  Take the time to fully understand the stakeholder landscape  Think inclusively Deloitte
  • ©2010 Deloitte Touche Tohmatsu Limited. All rights reserved.