Mining Masterclass conference Investment Opportunities in the Mining - PowerPoint PPT Presentation

Simmons and Simmons Mining Masterclass conference Investment Opportunities in the Mining Sector in Southern Africa 1 November 2018 Inclusive Prosperity

Southern Africa Mineral Map Mining is a strategically important sector in a mineral-rich African economy Ranking by prodn. volume Mineral Map Commentary Southern Africa has a lot of “hot" resources wand global • Angola Global Rank leadership in production for most Diamond 6 South Africa still a key producer for coal and a major • Zambia Global Rank supplier for India and China Copper 7 Zambia Angola Resources that can extend over 100 years • Mozambique Global Rank Mozambique Tantalum 4 South Africa, host to the highest grade primary vanadium Malawi • Aluminum 16 resources, accounts for 13.5% of global resources and high grade manganese resources Zimbabwe Global Rank Platinum 3 The Copperbelt region, 2 nd largest global copper reserve, • Diamond 8 Botswana is the main copper mining area in Africa and is situated in Zimbabwe Central Africa running through Zambia and the Botswana Global Rank Democratic Republic of Congo Diamond 2 Namibia Namibia Global Rank Land locked Botswana has great coal deposits but lack of • Uranium 4 affordable transport to port has seen the country’s miners becoming innovative Diamond 9 South Africa Global Rank Swaziland Zimbabwe has good shallow deposits that remain • Platinum 1 unexplored or not mined Diamond 7 South Africa Lesotho • Mozambique has seen investment into coal and gas and Gold 7 enjoys proximity to ports Coal 7 Iron Ore 7 Coal Gold Diamond Platinum Iron ore Chromium Copper Zinc Lead Manganese Uranium Limestone Phosphate Lithium Vanadium Global Rankings in terms of production (2016 figures) Note: 2 Inclusive Prosperity

Mining in Southern Africa – Overview Southern Africa is emerging as the world’s premier mining destination Southern Africa is a key contributor to global mineral production 1 …and mining remains a big contributor to Southern Africa GDP 3 % Contribution of Mining to GDP* Share of Southern Africa vis-à-vis RoW Platinum 78,2% 21,8% 16,2% 15,6% 15,6% 15,1% 14,3% Diamonds 50,8% 49,2% 13,3% 13,6% 13,4% 11,6% 10,8% Vanadium 13,5% 86,5% Gold 5,5% 94,5% Copper 4,2% 95,8% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Southern Africa RoW *Of SADC countries Southern Africa has a host of mining projects under operation 2 * Mining is also a large contributor to exports 4 Mining Projects as of Jan’17 % Contribution to Foreign Exchange Earnings* 191 40,0% 60,0% 48 47 36 30 10 7 4 3 Other Sectors Mining *Of SADC countries *Includes both operating assets and exploration projects Sources: 1. World Mineral Production, 2012-16, BGS (Link) 3. SADC Statistical Yearbook, 2015 (Link) 3 Inclusive Prosperity 2. Mining in Africa, Africa Mining IQ (Link) 4. Industry, SADC (Link)

Country Rankings South Africa and Botswana highest amongst other Southern African nations Rankings as per Ease of Doing Business and Investment Attractiveness Index 1, 2 Southern African Countries’ Investment Attractive Index Rank in Africa 2016 2017 Ranking 73 74 72 71 97 98 133 137 101 108 181 182 141 133 114 100 105 111 155 161 DB 1 2 12 13 16 17 18 19 19 20 Attractiveness 23 Investment 27 30 33 34 35 36 37 39 45 South Africa Botswana Zambia Mozambique Namibia Angola Malawi Lesotho Swaziland Zimbabwe • According to RMB’s “Where to Invest in Africa 2018 ” report, South Africa was rated 2 nd as the most attractive African country to invest in Africa • Countries such as Botswana and Namibia are considered as investment grade economies due to their improved infrastructure allowing narrow transport routes between themselves and that of advanced economies such as SA The RMB Investment Attractiveness Index considers two factors to determine the level of investment attractiveness in a country, such as: Economic activity, expressed as a weighted average of market size and forecasted levels of GDP growth • The operating environment, depicted as a weighted average of four international surveys that measure the ease of doing business • The Doing Business Ranking uses 11 indicator sets to measure the aspects of business regulation that matter for entrepreneurship such as starting a business, getting a location, getting credit, among others, and is given a score between 0-100 Sources: 1. Where to Invest in Africa 2018, RMB 4 Inclusive Prosperity

Determinants of Investment Capital inflow is a function of availability of natural resources, macroeconomic performance, investment and regulatory environment Availability of natural resources Investment climate Possession of natural resource reserves is a major factor that World Bank places four Southern African countries in the top 10 • • affects investment into Southern African countries, especially in countries in Africa in its Ease of Doing Business Ranking Report, resource rich countries such as South Africa and Namibia 1 namely Botswana, South Africa, Zambia and Lesotho 4 DB Score For Southern Africa* Starting a business Dealing with construction Resolving insolvency 76 permits 64 37 Enforcing contract Getting electricity 53 45 55 Trading across borders 66 Registering property 55 73 53 Paying taxes Getting credit Protecting minority investors *Ease of Doing Business Macroeconomic performance Regulatory environment Scored Between 0-100 Macroeconomic factors such as economic growth, population, Governments are increasingly realizing the potential for Foreign • • urbanization and rising income levels play an important role in Direct Investment (FDI) to achieve not only economic growth, attracting foreign investment as these factors indicate the level of but developmental objectives as well, as reflected in their efforts consumption expenditure 1 to improve the regulatory environment 5. Some have already been completed • – South Africa – Botswana – Zambia Average Population Growth Real GDP Growth Urbanization Forecast (2030-35) 3 : Forecast (2019) 2 : Level (2030) 3 : 2.3% 2.4% 44.6% Sources: 1. Determinants of FDI in Sub – Saharan Africa, 3. Demography, IFR, 2015-16 (Link) 5 Inclusive Prosperity Utrecht University (Link) 4. Africa Investment Report 2017, FT (Link) 2. Southern Africa Economic Outlook 2018 (Link) 5. Rise of Sustainable FDI, SAIIA (Link)

Lags in terms of investment attractiveness, mainly as a result of the perception of regulatory uncertainty South Africa As one of the most mineral rich countries in the world, there are many mining business • opportunities to be found in South Africa as its total mineral reserves are estimated to be worth $2.5 trillion (R20.3 trillion) 1 The Mining Charter has been resolved and mining industry bought into by industry, • government and labour New Dawn with Ramaphosa leadership Opportunities • – requested pledges of investment of US$100 billion over the next 5 years in February 2018 and already have half the pledges Uncertainty on next elections for the country in 2019 poses a big halt to investment • High unemployment rate • Labour has bargaining power with strong labour parties • Infrastructure – rail, ports and electricity • Challenges Foreign exchange fluctuation • Real GDP growth was 1.3% in 2017. The 2018 estimate and 2019 projections show GDP growth of 1.5% • and 1.8%, respectively 7 It is expected that revenues will continue to increase in 2018, on the back of higher prices and marginally • higher production volumes across mining businesses Outlook 27.3% 9.1% 82 nd 5.4% 1.3% 57.4 YoY % GDP Growth Rate Population (mn) Inflation Unemployment Ease of Doing Business Mining Sector (As of 2017) (As of 2018) (as of 2017) (as of 2017) (Ranking as of 2018) (% of GDP as of 2017) Sources: 1. Brand South Africa, (link) 3. Mining Weekly, 14th June 2016 (link) 5. Santander, 2018 (link) 6 Inclusive Prosperity Daily Mail, 8 th March 2018 (link) 2. South African High Commission, 2018 (link) 4. FitchSolutions, 2018 (link) 6.

Broad-Based Black Economic Empowerment Mining Charter III – Key highlights Ownership Ownership - breakdown • Increase to 26% with mining companies given five years to comply % Ownership • Once empowered, always empowered principle remains 30 % 5% 5% New target 20% 5% 26 % Current Entrepreneurs Employees Community Inclusive procurement, supplier and enterprise development Employment equity Locally manufactured 70 % 20 % 50 % goods Board Of which 20 % Executive management 50 % 25% Senior management 60 % 60% Local content BEE representation Middle management 25% 60% 30% Junior management 70% Local services 80 % Employees with disabilities 1.5% Core and critical skills 60% 7 Inclusive Prosperity