Speech by Mark Cutifani, CEO of Anglogold-Ashanti and CEO designate of Anglo American, to the Mining Indaba, Cape Town, February 7 2013

"MINING'S CONTRIBUTION TO SUSTAINABLE DEVELOPMENT"

Acknowledgements

Mr Chairman, industry colleagues, ladies and gentlemen.

It is a privilege to present today's Keynote Address at the invitation of my colleagues of the International Council on Mining and Metals.  We represent 22 of the largest mining companies in the world - reflecting a common view of our need to promote and lead by example in the establishment and management of sustainable exploration, mining and processing practices.  Consistent with developing best practices for our industry we understand that great mines, those that deliver enduring value to society, start with development that takes proper account of stakeholder needs through their various life cycles. 

Great mines contribute to society well beyond mine closure - leaving the world a better place to live today and for the future.       

Opening Remarks

Given we are in Africa and the general theme of the Cape Town Indaba is more African centric in nature - it is appropriate to open with some reasons why we should be generally optimistic about our place in our evolving global landscape:

• Africa is home to roughly 40% of the world's natural resources, which includes water, sources of energy, land and commodities. Resources that we must nurture to ensure we create a foundation for the long term development of the potential of our Continent.
• Africa has the world's quickest growing population - with the current population of one billion likely to exceed two billion by 2025. 
• Africa has the world's best age demographic - it will have more people of working age in 2025 than either India or China.
• Seven of the world's fastest growing economies are in Africa.  The most recent example of an emerging economic transformation is Serra Leone - growing at 45% thanks to the development iron ore related infrastructure.  The great news for Serra Leone - that infrastructure will enable growth across a whole range of other industry sectors, because the Government has worked out how to leverage success in one industry into other sectors.
• The African economies are among the least leveraged in the world and they are only now starting to recognise their own development potential.
• Africa's labour costs are extremely low by any standards - leaving lots of room to rapidly increase economic participation of a large proportion of the population.
• Despite its current regional challenges, Africa is rapidly democratizing and establishing new governance standards. And while the mainstream mining industry players are still struggling to find their feet, junior and the more adventurous players of scale, are finding and developing new operations that have the potential to shape a this great continent.

In this context it is becoming more clear to most global progressive thinkers...Africa is open for business.

However, on the other side of the ledger we are doing many things that limit our potential to benefit from these natural resources.  Whether these actions are deliberate - reflecting the mistrust of substantial owners of capital per our recent colonial history - or incidental - reflecting a lack of knowledge of how businesses work in a global competitive context, it doesn't really matter.  The simple fact is we are not doing all we can to leverage our natural resource wealth.

I will take this last point up a little later in my conversation, as it will have substantially more context and relevance in light of some other points I would like to make in relation to the subject matter of this speech.

Mining - Talking to the Numbers

When we talk about mining we need to be clear - we are talking about the most important industrial activity on the face of the planet.  A bold assertion some may argue.

So, let me simply allow the numbers to do the talking:

• Gross revenues from the sale of products from mining and quarrying were around 11.5% of global GDP in 2010.
• The value of services consumed to generate this GDP is estimated to be another 10% of GDP - bringing the combination of two to 21.5% of global GDP.
• If we then consider the contribution of the products of mining to:
  • Agriculture - fertilizers and mechanization improving crop yields by 100%...adding a further 3.5% incremental contribution to GDP.
  • Manufacturing - steel and other products of mining provide the bulk of the materials that artisans work into the tools of modern society...at 50% of benefit at least a further incremental 7% contribution to global GDP.
  • Energy and utilities - a world substantially powered by the products of mining, delivering 70% of energy feedstock and an incremental 3.5% of GDP.
  • Transport/Storage/Communications - facilitated by the products of mining and certainly a justifiable 5% incremental contribution to GDP.
  • Other items - in terms of service activities, public administration and other items not captured, if we make a simple assumption that the products of mining are used to house people, facilitate communications and interactions and support global trade - it is not unreasonable to assert mining products support at least 15% of the contribution of these sectors to global GDP.  This incremental contribution adds another 6% to the global GDP pie attributable to the products of mining.

Correspondingly, it is my contention that mining drives more than 45% of the world's economic activity.  And while am I open to debating whether the products of mining contribute to GDP in the proportions I present - the "envelop of contribution" still exceeds any comparable industrial activity by a quantum leap.

Everything you can touch in this room is either grown or mined, including the person you are sitting next to you. Just look around you - mining is part of everything we touch and do.

So, the most important challenge we all face - to help support our industry prosper into the future - is to promote what we do and how important it is in the lives of the 7 billion people that we share our planet.

At the same time we can also point to the fact our industry is one of the least environmentally invasive industrial activities:

• We take up less than 1% of the earth's surface in the extraction of the materials that support our global way of life.
• We produce less than 3% of the world's carbon gases and we consume less than 1% of the earth's water resources to produce our products.
• We produce the materials that are essential to clean polluted air, water and land so that we can support the health and well-being of those that we share our planet. 

In simple terms we make the world as we know it possible, and we make the creation of a sustainable future for our children, a possibility.

However, on the flipside of my global perspective is the local perspective.  A hole in the ground, a waste dump that intrudes the visual landscape or a tailings dam that covers a children's playground are all manifestations of local impact.  The perennial challenge we face as an industry - how do we reconcile the greater good we create with the inevitable local interruptions we create.  The challenge we face and the opportunities we can create for communities revolve around dealing constructively with this inherent conflict.

Now some argue that to simply reflect our physical disruptions within the narrow context of mining operations is a little disingenuous. That is, the products of mining also increase carbon loads and so on. I certainly acknowledge that point.  However, my primary purpose is to reflect on the facts as they relate to the physical act of mining.  In that context I would contend that mining in of itself is not the enemy of society, simply a tool that reflects the choices we make in the way we choose to live our lives. 

So, if we want to change the world in which we live we must go beyond isolating a relatively manageable symptom of our condition and start addressing the more profound issues that will change our world.  A dialogue around reducing energy consumption, sharing our resources more equitably and cooperating on major global initiatives is where we must focus our transformational dialogues.  The debilitation of the mining industry simply makes the current system less efficient, constraining the distribution of the resources we need to alleviate poverty and human desperation. 

In my view we should start dealing with the global drivers of our current circumstance instead of treating symptoms.  This focus on symptoms simply exacerbates the plight of the poor and the dispossessed, within our current social constructs.

I have no doubt we can create a new paradigm around what our industry is to the world and how it is perceived in its local context.  In other words, how do we breathe life into the concept..."think globally, act locally".

Mining - Making the Numbers Count

In making the point that we are not doing enough to make these numbers count let me talk to the challenges we face in Africa - the challenge of turning our contribution potential into more overt socially sustainable outcomes.  In making these points I refer to the ICMM's Kathryn McPhail's seminal research document, "Sustainable Development in the Mining and Minerals Sector - The Case for Partnership for at Local, National and Global Levels".  This was a worthy bronze award winner in the annual IFC/Financial times essay competition.

In summary, let me work from the key points made in that insightful analysis.

• As a prerequisite to achieving valued outcomes corporate entities must take the time to understand the context in which they work and apply appropriate sustainable mining practices.  These practices have been well articulated in the ICMM's Codes of Good Practices.
• Governments must put in place appropriate macro-economic policies that encourage investment in exploration and mining developments.
• Regulatory frameworks must be developed that are transparent and practical that deliver:
  • Security of land tenure,
  • Development codes that are clear and consistent,
  • Governance structures that reduce corruption and manipulation by individual entities.
• Regulatory reform must be cascaded from National to Regional to Local jurisdictions to ensure harmonization of regulatory frameworks at the project level.
• Regulatory frameworks must also attract and be supportive for the development of other associated and non-associated industries in mining areas.  The key here is to recognize that mining can be a catalyst, both as a consequence of its investment in enabling infrastructure and the increase in local disposable incomes, for the establishment and growth of more general commercial activities.
• Revenues must be appropriately shared between National, Regional and Local entities. Governments must ensure revenue flow to local municipalities to ensure development that takes place in partnership with industrial players.
• The issue of poverty alleviation at the local level must be a prime focus of both companies and governments - as the clear manifestation of mining's contribution to society must survive the local economic perception test.  Consistent with that perception criterion an appropriate disputes resolution process must be aligned by all key participants.

The definition of partnership has to be about how each participant imagines what a successful future looks like and what compromises can be made to ensure both parties can be accommodated in defining a pathway to a new reality.

Mining - Partnerships Measured in Local Metrics 

As we watch the progress of new major mining projects we are seeing the emergence of some very clear trends that we must all take the time to understand and respond with courage and innovation.

The rise of local expectations, fuelled by improving communications and the presence of more effective NGOs that understand the emerging power of the local voice, is redefining the concept of Sustainable Mining Practices.  In simple terms if we cannot convince our local partners that the developments we propose for their backyard will benefit them in the long term - our ability to develop our projects will be seriously compromised.  With that thought let me put a new value proposition to you that is struck with a local perspective in mind.

First, we have to think beyond our historical characterisation and eliminate a conversation that talks to us being an "Extractive Industry".  While we may extract products from rocks - we are overwhelmingly a "Development Industry" that creates new social possibilities.  We should be the "Development Partner" that supports and catalyses the creation of wealth for all.

Second, the wealth we create comes in many forms.  In the context of local communities we have to think beyond traditional and technical "Life of Mine Plans".  We must talk to "100 Hundred Year Plans" - defining a contribution to local communities and enduring eco-systems that live beyond the limited timeframe that our projects may occupy. To help you understand what this might look like do yourself a favour and go and visit the Eden Project in the UK.  Or, read the book - "101 Things to do with a Hole in the Ground", by Georgina Pearman.  We must be creative in defining what we can do to change the lives of those we partner for the future.

Third, we must listen with both ears and develop our strategies to address those issues we can that connect with the work we do in our projects.  We must understand we are integral with the communities in which we work.  In that context we can start with an engineer's Maslow Hierarchy of Needs approach - but ultimately locals must help us understand what is valued in their context. Putting those points together value may be:

• Access to Clean water,
• Generating clean energy,
• Ensuring food security and access to tracts of land and expertise for new agriculture developments,
• Municipal planning that considers long term sanitation health services, and waste management
• Supporting the development of world class education facilities and skills development,
• Facilitating the entrance of other industrial players in - for example, commercial infrastructure including energy, transport and communications facilities,
• Protection of local and regional water, flora and fauna habitats.
• Partnering with international development NGO's to improve local development capacity

And so the list may continue.  It isn't about the specific list of issues - it is more about what is important and necessary for that community in its own 100 year context.

The mining industry is an industry that can and should be supported by governments both in terms of the wealth that can be created by the utilisation of natural resources and through the community transformation that we can help effect.  Beyond the immediate and obvious benefit that comes from our products, we can also be used to help build broader social infrastructure that supports development of local regions and population centres. At the same time I must be quick to add we do not want to take on the role of government.  However, by the nature of our work and the scope of projects we build we can be a very important partner in building long term social infrastructure that benefits local and regional economies.

The ICMM literature around its "Partnerships for Development Project" describes what is possible across the breadth of the mining industry.  In this respect the mining industry can be viewed as a much deeper social development agent by the virtue of location and scope of its project developments.

South Africa - A Local Perspective

Given we are in Cape Town and in bringing a close to my observations around our African context, a commentary on our South African opportunities and challenges cannot be left without comment.  As I suspect most of you know I have a changing personal circumstance that makes this conversation a little more delicate.  So I will be clear in making my points as the CEO of AngloGold Ashanti and as President of the South African Chamber of Mines.  At the same time, while not making comments on Anglo American's current platinum conversation, people know that my general views are ones that I carry and speak to without fear or favour, irrespective of my current or future circumstance.

My first point, South Africa is a great country that has defied the critics and consistently grown its economy since 1994.  Some of you may be a little surprised to hear that South Africa's compounding economic growth of around 3.2% is only 0.2% behind another great resource country's growth, Australia, over the same period.  Now when one considers the social investment South Africa has had to carry as it has tried to right some of the wrongs of previous regimes, one can only marvel at the progress that has been made in a relatively short period of time. 

No other country in the world has delivered the relative improvements in social benefits to its population.  Connections to grid power, provision of low cost and affordable housing and improvements in a whole range of social structures and grants over the corresponding period of democracy have been remarkable.  The frustrating aspect of this position is the government is its own worst advocate - it simply forgets that not only do you have to do a good job; you must also make sure people understand what a good job has been done.

At the same time we have many challenges and of course there have been missteps.

If I can loosely quote our Deputy President in-waiting - "we are still teenagers in democracy, others have had 200 years to get things right".

To be more specific, the good things we have going for us:

• We have a Constitution that is a product of great thought and careful consideration on how a great future can be navigated around short term interests and petty rivalries.
• We have a functioning and independent judiciary that generally understands the concept of the separation of powers, in terms of not letting the process of application of the Constitution to not be politicised.
• We have a regulatory framework in the form of the MPRDA that is also a world class piece of legislation.  Now while it has some limitations, a consequence of some drafting and application challenges - it is never-the-less a good document.
• Mining taxes are mid-ranking competitive - with royalties considered to be leading edge best practice.
• We have world class infrastructure that still needs some tender love and care and we have a skills base that is strong - but also needs some nurturing as we are losing senior skills to other jurisdictions.

On the negative side of the ledger let me take those three points that I identified as being poisonous for investors and growth in our industry:

1. On security of tenure, it is great to see the Nationalisation debate "kicked into touch".  However, we have now replaced one form of ownership uncertainty with two new devils.  The description of "strategic minerals" and what may be done with assets that fall into this category is already scaring investors.  Maybe we have no right to be scared - but so far no one can define what the term actually means in terms of the impact on current industry participants.  Following the Anglo Platinum public conversations we now have a new sovereign risk that appears to have hit the table.  The threat of license withdrawal for companies that need to address real market challenges introduces another security of tenure dimension that is concerning for investors.  It is unfortunate and it has to be said, the minute a government introduces a new idea or possible threat to security of tenure the impact on shareholder sentiment is devastating.  However, I am comforted by the recent dialogue from each of the key players recognising the concerns and damage that has been wrought from these early emotional responses to, what is understandably, a tough situation.
2. The issue of legislative transparency is critical.  The current proposals in the MPRDA Amendment Bill need to be carefully articulated - particularly in the context of ministerial discretion.  While we trust our Minerals Minister, the key question will always be asked...but who or what will follow?  In that same vein the issue of tax reform has further eroded certainty and trust.  This should not necessarily be the case and so we need to conclude the SIMs processes to demonstrate we will not do an "Aussie" and score an own goal on this front.  It would be a tragedy to go from one of the most progressive systems to a dysfunctional patchwork that further erodes investor confidence.
3. On governance - the Minister is continuing to build bureaucratic capability and transparency.  However, until we have the equivalent structures and process that match our most significant competitors this will remain a concern for major mining investors.

Some may say I am being a little over sensitive when it comes to mining and our South Africa political legacies and regulatory framework.  So again, let me share a key statistic with you.  Since 2007 the JSE all-share index is up 60%.  However, through that same period the mining index has remained flat.  Yes, that is correct we are 60% behind the rest of the economy in terms of value for shareholders.  Now, given we represent 19% of the South Africa's economic activity...and jobs...this represents a devastating outcome for the country.  Or at the very least it represents a massive opportunity loss in terms of economic transformation, investment and jobs.

Now, I certainly will not put this blame at the feet of the Government.  The great tragedy of our industry is that we have been partners in, what can only be described as a modern tragedy.  So, everyone one in this room, everyone in Cape Town and everyone in South Africa must become part of a new dialogue.  We must all become part of a new solution.   

In my view I feel I can voice these policy concerns because I believe in South Africa's new democracy and the ability to debate the issues of policy that will shape the future of our industry.  Consistent with this policy debate we also take full accountability for our own shortcomings as an industry.  While we have not always got our communications and engagement processes right - there is no doubt we believe the only way we can deliver of South Africa's great potential is if we are enthusiastic participants in the policy debate and its subsequent formulation.

While I know an engaged policy debate will help us construct our future pathway it does not guarantee we will not have another Marikana.  But the one thing I am sure of is if we continue to shout at each other through the media and other forums we will each count the cost in lost opportunity and social dysfunction.  Marikana was a symptom of a much greater issue that needs us to engage and work together to find collective solutions.  The simple fact is we need each other if we are going to realise our great potential.   

In that same context we take our leadership obligations seriously - that is, to be an informed, an honest and sensitive participant in a debate that will ultimately determine whether South Africa realises it's real potential...or settles for second best as so many of our competitors have done. 

A Final Thought

As industry leaders we must seek out partners that share a new Vision of what our future could be.  It may be a politician, it may be a community or a religious leader or it could be a simple man or woman that understands what they need and is open to a discussion around how we might be part of a solution they have yet to find.

However, there is one thing I know.  We each have a responsibility to be a leader - to seek a new future and to be the first to extend a hand in partnership to those that will develop this brave new world we all want to be part of.  The big advantage we have in our industry - we are more important to the future success of our world than any other industry I know.  It is time we stood up and be true to the responsibility that position demands of us.  We have to promote our industry without fear or favour and be open to the criticism that will help us develop towards our potential.

I hope you will join us as we create the world we would want for all of our children.

Mark Cutifani

Click here to sign up to receive our free daily headline email newsletter