The document discusses challenges facing the South African mining industry. It summarizes trends showing mining exploration budgets declining globally since 2012 but increasing in 2018. In South Africa, mining now contributes less to GDP and employs fewer people than in the 1980s. Challenges include rising costs, a declining resource base, and policy uncertainty under previous administrations. Revitalizing the industry will require addressing these challenges through stable and transparent policies that encourage investment and exploration.

2. Prospecting for Solutions: Challenges
facing the South African Mining Industry
James AH Campbell
Managing Director, Botswana Diamonds plc
30th April 2019
Drexel MBA Delegation

3. Drexel MBA Delegation 3
Drexel University MBA delegation
30th April 2019, Johannesburg
Outline
• Global Mining Trends
• Global Exploration Trends
• The South African Mining Industry
• Trends
• The Legacy of Mining
• MPRDA
• Mining in South Africa
• Mining Operations
• Majors
• Junior & Emerging miners
• Revitalising the Industry
• Challenges & Outlook
• Conclusions
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4. Global Mining Trends
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Global commodities outlook
Diamonds

6. Drexel MBA Delegation
The global mining “Big 5”
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Top 5 Market Cap
(USD)
1. BHPB 196.40B
2. Rio Tinto 96.11B
3. Vale 64.04B
4. Glencore 53.93B
(43.53B GBP)
5. Southern
Copper
27.97B USD
1
2 3
4 5
Source: Yahoo, 24/02/2019

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China’s share of global demand
• China continues to
dominate global
commodity demand
as urbanization of
the Chinese
economy continues.
• The ongoing trade
war between the US
and China is
expected to drive
demand for
commodities in the
short term.
• Infrastructure
development
projects in China
and India are
expected to drive
demand in the
longer term.

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Source: White & Case
A Chinese slowdown and trade tensions have been flagged as top risks for 2019 by over 50% of senior
decision-makers in a recent global survey.
Two possible
alternative scenarios
would have major
global repercussions:
1. A slow down in
Chinese growth
reducing domestic
steel output (iron ore
demand);
2. An increase in local
steel and aluminium
output to support local
employment
(aluminium and steel
demand).
China’s share of global mining risk

9. Global Exploration Trends
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10. Drexel MBA Delegation 10
Trends in global exploration spend
• Investment in
exploration
plummeted after
2012, reaching a
historic eleven-year
low in 2016
• 2018 figures show
encouraging signs of
strengthening of
global exploration
activity, on the back
of rising bulk
commodity prices
Sources: S&P Global; Stockhead
Annual exploration budgets are on the increase

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Trends in global exploration spend
• The grassroots share of
exploration budgets has
been declining since the
1990’s
• Late-stage and mine site
exploration budget shares
are trending upward,
reflecting short-term focus
and risk aversion
Majors are driving exploration spend: late-stage is regarded as less risky than grassroots

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Trends in global exploration spend
• Over half of global
exploration spend is
directed to gold
projects.
• Exploration efforts
have increased
worldwide on the back
of stronger metal
prices

13. The South African Mining Industry
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14. SA mining sector contribution
14
• In 2018, the growth of
the SA mining industry
(1.2%) was greater
than that of the SA
economy.
• This was due to the
poor performance of
the SA economy under
President Zuma.
• Employment grew in
2018 in the coal,
manganese, iron ore
and chrome sectors.
• Jobs lost in gold and
platinum resulted in a
net job loss.
Source: SA Minerals Council
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• South Africa is the world’s
largest producer of PGMs
(68%).
• SA produces 52% of world’s
chrome.
• Once the world’s top gold
producer, SA currently
accounts for 4.2% of global
production.
• 70% of SA coal is consumed
locally in power stations;
higher grades are exported.
• SA still has 335 years of
PGMs and 256 years of coal
reserves available.
• The country has an
estimated 39 years of
available gold resources
remaining.
Contribution by commodity
Sources: Statistics SA; Minerals Council SA
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South Africa’s mining exports
Sources: Wikipedia; Center for Industrial Development
• China is the largest
export destination
for SA iron ore.
• Over 60% of China’s
platinum imports
and 65% of chrome
come from SA.
• SA’s aluminium and
steel exports to the
US are under
pressure owing to
the new US import
tariffs.
• SA mining exports
are very sensitive to
to strengthening of
the Rand.

17. Ranking of SA mining sector
Source: Statistics SA
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• Once the backbone
of the SA economy,
in 1980 mining was
the second most
influential industry
in SA after
manufacturing.
• By 2016, it had
dropped to 6th place,
where it remains
today.
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18. SA mining sector trends
• In 1980, mining contributed 21% to
the GDP. In 2018, this was down to
7.3%.
• In 1987, mining employment peaked
at over 760 000 individuals. In 2018,
mining employed over 450 000
people.
• In 2006, the PGMs sector became the
largest mining employer in SA, ahead
of gold. In 2018, PGMs employment
was down to 167 000 people.
• During the 2001-2008 commodity
boom, SA mining shrank by 1%/yr,
while the top 20 mining export
countries grew at an average 5%/yr.
• The SA mining industry is smaller now
than it was in 1994.
Sources: Statistics SA; Mining Review
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19. SA mining stocks performance
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• The JSE Mining Index has
outperformed the JSE All
Share Index over the last two
years.
• The JSE Mining Index is,
however, still lagging behind
the All Share Index over a 15-
year period.
Source: PWC
• The performance of mining
indices does not reflect the
long-term value of the
industry.
• It reflects investors’ short-
term perceptions of the
earning potential of a given
commodity.

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Risk - investors’ perceptions
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• In terms of ‘investment attractiveness’:
– Botswana is the highest ranked African
country being 32nd (43rd 2018) in the world
– South Africa’s overall ranking has improved to
43rd (58th 2018) globally
• In terms of ‘policy perception’:
– Botswana is the highest ranked African
country being 12th (21st 2018) in the world
– South Africa’s overall ranking has improved to
56th (81st 2018) globally
• And ‘best practices mineral potential’:
– Botswana’s overall ranking has improved to
53rd (64th 2018) globally
– South Africa is the highest ranked African
country being 30th (21st 2018) in the world
“The median score for Africa on policy factors (PPI) increased this year. This was also the case for the
region’s median investment attractiveness score. In terms of overall investment attractiveness, as a
region, Africa ranks as the second least attractive jurisdiction for investment.”
Investment Attractiveness Index (Fraser Institute, 2018)

21. The Legacy of Mining
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The harsh reality…
The 1886 gold rush catapulted South Africa into industrialization. In 1980 mining accounted for 21% of GDP.
The 2012 strikes led to the Marikana massacre. In 2018 a landmark settlement ended a historic class action.

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…behind the virtual reality
SA is the world’s largest producer of PGMs. It also hosts large chrome and manganese resources.
The SA mining industry has been shrinking, with inputs costs rising faster than selling prices.

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The MPRDA: 15 years of uncertainty

25. Mining in South Africa
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26. Drexel MBA Delegation 26
Mining in SA

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The mining “Big 5” in South Africa
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Top 5 Market Cap
(ZAR)
1. Glencore Xstrata 826.02B
2. BHP Group 700.83B
3. Anglo American 525.22B
4. Anglo Platinum 198.22B
5. South 32 192.51B
1
2 3
4
Source: Sharedata, 25/02/2019
5

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South Africa’s own mining “Big 5”
28
Top 5 Market
Cap (ZAR)
1. Anglo Platinum 198.22B
2. Kumba Iron Ore 124.65B
3. Anglogold Ashanti 85.48B
4. Exxaro 55.14
5. Assore 51.21
Source: Sharedata, 25/02/2019
1
2 3
4 5

29. Market capitalisation - Majors
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SOME COMMON TRAITS OF MAJORS:
• Owners of mining operations
• Typically more than one mine
• Exploration activities are
internally funded through
production cashflow
• Exploration spend is
discretionary
• Publicly traded and privately
owned
• Large corporate structures
• Internal assurance processes
• Lengthy decision processes
• Technical and non-technical
management
• Operations may be placed on
care and maintenance
pending improvements in
market conditions
Source: PWC
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A look at South Africa’s Top 40
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Value distributed (Top 40 companies)

31. Drexel MBA Delegation
A look at South Africa’s Top 40
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Breakdown of operating expenses (Top 40 companies)

32. Junior mining in SA
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Source: PWC
Company* Market Cap
(ZAR)
Listing
Gemfields 2.83 B JSE, BSX
MC Mining 1.47 B LSE, JSE
Orion Mining 0.77 B ASX, JSE
Resource Generation 0.58 B ASX, JSE
Diamcor 138 M TSX-V
Transhex 89 M JSE
Botswana Diamonds 88 M AIM
• The junior mining sector is funded primarily from
offshore.
• Exploration and resource development projects in
SA rely on availability of foreign investment.
• Dual listing does not equate dual funding.
*Selected companies with market cap < ZAR 3 billion.
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33. Junior mining contribution in SA
33
• In 2018, junior and emerging
miners had estimated revenues
of R54.4 billion and expenses of
R55.5 billion, despite the
ongoing challenges.
• Certain provisions in the 2018
Mining Charter acknowledge the
juniors’ specific requirements for
growth and development
• The exploration sector (largely
junior and emerging miners), is
exempt from the provisions of
the Charter.
The junior and emerging mining sector represents 10% of the industry.
Drexel MBA Delegation

34. Revitalising the Industry
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35. The State of South African mining
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• The future of South Africa’s mining sector is in flux
• Rising costs, declining resource base and inadequate exploration/project pipeline
• Input costs have been rising at a faster pace than selling prices, affecting profit
margins and employment
• Recovery post-Marikana has been thwarted by falling commodity prices and
general mistrust between key players.
• Industry decline has been compounded by prevailing regulatory and policy
uncertainty
• International investment has dwindled amid the uncertainty and malfunction of
the Zuma administration
• Much hope has been laid at the feet of the man of the moment, President Cyril
Ramaphosa
• Good progress with a new Minerals Bill under Minister Mantashe
• Investor confidence can return, however it will have to be rebuilt from a low
base
Sources: fse.org, MinCoSA, SAIIA, Sibanye Stillwater
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36. Drexel MBA Delegation
Challenges & Outlook
36
STRENGTHS
• Diversified mineral resources
• Track record of economic mining
• Global demand for coal, Fe, Cr, Mn,
PGMs
• Extensive infrastructure network
• Sophisticated financial systems
• Juniors companies on the rise
WEAKNESSES
• Mistrust
• Political factions
• Legacy of mismanagement and
corruption
• Opaque licensing processes
• Unclear beneficiation / strategic
minerals policy
OPPORTUNITIES
• Upward trend in metals prices
• Job creation, sustainable
transformation
• Tax incentives, junior incubators
• Govt’s recommitment to National
Development Plan
• Value-added exports
THREATS
• Unresolved MPRDA / Mining
Charter
• Perception of hostile environment
• Alienated investors
• Power supply shortages
• Mechanisation vs job creation
debate
• Risk of downward spiral

37. Conclusions
From ‘sunset’ to ‘sunrise’ …..
• Rigorous and transparent licensing process
• Learn from neighbouring countries
• Investment incentives
• Learn from Canada, Australia
• Enabling exploration investment
• Vertical integration of mining
• Links into manufacturing and beneficiation
• Increase value-weight ratio of exports
• Technology to enable sustainable mining
• Re-skilling of workforce
• Efficient use of water and power
• Extend life of existing mines
… and above all, consistency, predictability and stability
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38. Questions?
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39. Drexel MBA Delegation
About the Author
• James Campbell is Managing Director of Botswana Diamonds plc and has spent over
thirty years in the diamond industry in a variety of leadership roles both in major and
junior companies. He is also a Non Executive Director of Shefa Yamim ATM (a precious
stones explorer in Israel, listed on the LSE).
• Previous roles include Chief Executive Officer and President of Rockwell Diamonds Inc,
Non Executive Director of Stellar Diamonds plc, Vice President - New Business for
Lucara Diamond Corp, Managing Director of African Diamonds plc, Executive Deputy
Chairman of West African Diamonds plc.
• James worked at De Beers for over twenty years; his roles included General Manager
for Advanced Exploration & Resource Delivery and Nicky Oppenheimer's Personal
Assistant.
• James holds degrees in Mining & Exploration Geology from the Royal School of Mines
(Imperial College, London University) and an MBA with distinction from Durham
University. He is a Fellow of the Institute of Mining, Metallurgy & Materials, South
African Institute of Mining & Metallurgy and Institute of Directors of South Africa. He
is also a Chartered Engineer (UK), Chartered Scientist (UK) and a Professional Natural
Scientist (RSA).
• James is also chairman of Common Purpose SA (a not-for-profit organization that
develops leaders who can cross boundaries and is synonymous with the terms ‘cultural
intelligence’ and ‘leadership beyond authority’.).
39
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40. Drexel MBA DelegationDrexel MBA Delegation 40
162 Clontarf Road
Clontarf
Dublin 3
Ph: +27 83 457 3724
Web: www.botswanadiamonds.co.uk
Twitter: @BotswanaDiamond
Email: james@botswanadiamonds.co.uk