Shared value is a management strategy employed by organizations to find business opportunities in social problems. While philanthropy and CSR focus efforts focus on “giving back” or minimizing the harm business has on society, shared value focuses on maximizing the competitive value of solving social problems – in new customers and markets, cost savings, talent retention, and more.The mining industry is a significant source of value to the South African people. The stakeholders in the mining industry include employees, their families, the unions representing them, the government, shareholders, suppliers and customers. A recent report published by PwC examines the impact the mining industry has on its stakeholders and the ways in which mining companies are increasing their shared value.
Almost 38% of companies included in SA Mine 9th Edition – Highlighting trends in the South African Mining Industry published by PwC in September 2017 had readily available value-added statements. According to the report, these companies represent 88% of the revenue of all the companies surveyed. This illustrates the impact and importance of improving value to stakeholders.
The total value created by the companies surveyed increased by 12% from R161 billion to R180 billion, aided by increasing commodity prices and “a significant cost focus which had a direct impact on revenue received and profitability.” However, companies continue to be burdened by high labor costs, despite reducing the number of employees, and a challenging economic climate.
The report shows that funds reinvested declined as companies cut back on capital investment, and mining companies are now tasked with determining how to create more value for stakeholders when costs continue to increase.
According to the report, one way to attract investment and benefit all stakeholders is through less policy and regulatory uncertainty.
In June 2017, Mosebenzi Zwane, Minister of Mineral Resources launched the third revision of the Mining Charter amid much controversy. Mining share prices fell and the Chamber of Mines issued an urgent interdict against the revised charter on the basis that there had been a lack of consultation with affected parties.
While the implementation of the Mining Charter has since been suspended pending an investigation into its legality, the PwC report attempts to evaluate the current levels of compliance against the proposed future requirements contained in the revised Mining Charter.
In the new Charter, black ownership is set at 30%, consisting of 8% employee share ownership, 8% to the mine community and 14% to BEE entrepreneurs. The previous Mining Charter required a minimum of 40% representation, while the revised Charter requires 50% black board representation of which 25% needs to be black women.
According to the PwC report, of the 29 companies analyzed in the survey, only 19 disclosed their executive management. Of these, only three met the target for executive/top management of 50%. This suggests that the mining industry still has a way to go to meet the requirements of the proposed new Mining Charter.
The mining industry can ill afford regulatory uncertainty, which is what the looming third revision of the mining charter has brought. The South African mining industry is crucial to development. Regulatory uncertainty breeds an environment of distrust between mining companies and government where a spirit of cooperation is necessary.
Beneficiation in a country with high unemployment rates is a way to increase stakeholder value indirectly by increasing employment opportunities. According to PwC, this is something the mining industry in South Africa does reasonably well.
Most of the gold mined in South Africa is sent to Rand Refinery. The 99.9% pure gold then goes directly to end users or jewelry manufacturers and thus beneficiation in the gold industry is mostly achieved. The South African government has also introduced programs to further beneficiation through gold loan schemes, trade agreements and other initiatives to link jewelers with investors.
The majority of platinum mined in South Africa is sent through Implats or Amplats refiners. The majority of this product is then exported to car manufactures, the jewelry trade and other users. To achieve higher beneficiation, says PwC, South Africa would need to grow its automotive catalyst and jewelry manufacturing sectors.
In the coal industry, 61% of coal produced in South Africa is purchased by Eskom. As coal is the primary source of energy in this country, 100% of that 61% has achieved beneficiation.
Beneficiation has already added and can potentially add more value to the South African economy. However, according to PwC, “it is competing for scarce resources such as electricity and skills.” Addressing these issues is likely to have a more positive impact on beneficiation than trying to enforce it though legislation.
Illegal mining is estimated to cost the South African economy R7 billion per year, and has become more prevalent in recent years. Illegal mining causes the closure of commercial mines, not to mention injury and death to the illegal miners themselves. This is a complex issue which the South African government and the Chamber of Mines need to work together to address.
Illegal mining is largely driven by poverty and unemployment. Rampant retrenchment in the mining industry has also lead many miners to take desperate measures to provide for the extended families for which they are the sole breadwinner.
South Africa’s neighboring countries also have socio-economic challenges that breed illegal mining activities. The Chamber of Mines report that 70% of arrested illegal miners are undocumented foreign nationals.
Furthermore, gold’s high value and the high number of abandoned gold mining areas and the relative ease of finding willing buyers has made it an easy target for illegal miners.
The Chamber of Mines emphasizes the need for mining houses, the DMR and the South African police service to work together to clamp down on illegal mining activities. However, the prevalence of illegal mining is symptomatic of broader socio-economic distress, in a country struggling to create employment opportunities for its citizens and keep its economy afloat.
Creating shared value is an important part of sustainable development, and as a top risk to the mining industry, one that demands attention. It requires mining companies to no longer see social and environmental issues as separate from financial issues. To achieve success in turbulent times, it is important for mining companies to embrace innovative ways in which their business can benefit society, and benefit themselves.