This time, miners are being set up for failure
• It is all about compliance with highly prescriptive targets, rather than about the spirit of transformation
Outlining its objectives, the new, reviewed Mining Charter describes itself as “a government instrument designed to achieve mutually symbiotic sustainable growth and broad-based and meaningful transformation of the mining and minerals industry”.
It is a revealing clause — not because of the sustainable growth and broad-based transformation goals, which few would quarrel with, but because it situates the charter so explicitly as one imposed by the government on the industry.
That reflects a process that was fundamentally different from the one adopted in crafting the final version of the first charter, which was signed in October 2002 and took effect in May 2004, as well as the second, amended charter signed in 2014.
In its language and its content, the third Mining Charter could hardly be more different from that first, “pathfinding” charter, as those involved in crafting it like to describe it. But the contrasts between “MC1” and this latest “MC3” highlight how far the transformation project has strayed from the path, in at least two ways.
One is that the relationship that business, the government and labour built so carefully and with such great difficulty around the previous charters has fallen apart. The other is that the first charter’s shared vision, of a “globally competitive mining industry that … offers real benefits for all South Africans” has not materialised as hoped despite all the time, effort and money that has gone into delivering on the targets.
Fixing the mess now is going to be much more difficult than it was back in 2002, because the economics and the politics are now so much rougher. Then, the mining industry was more robust and the halcyon years of the commodities boom were just dawning. Now, those boom years are over and a muchreduced mining industry is in deep crisis, with 70,000 jobs lost in the past five years and investment in sharp decline.
Now, too, SA’s sharp inequality and growing levels of frustration over the failure to deliver real economic participation by black people helped to drive more populist pressures for change and, along with blatant state capture, have driven a “radical economic transformation” agenda that is very different from that which those who crafted MC1 had in mind.
IT ARGUABLY GIFTS STAKES TO THE NEW OWNERS RATHER THAN SELLING THEM AT FAIR MARKET VALUE EMPOWERMENT SHAREHOLDERS ARE ENTITLED TO 1% OF TURNOVER EVEN WHEN A MINE IS UNPROFITABLE
It’s easy to forget that the first charter came out of a historic compromise, in which SA’s large mining companies agreed to new mining legislation that gave over “custodianship” of the mineral rights they owned to the state, in return for security of tenure. The companies would apply to convert their “old order” to “new order” rights. They would sign up to comply with the Mining Charter, which was to be drawn up in terms of the new legislation as a condition of their new order licences.
The charter process began in 2001 and the industry, represented by the Chamber of Mines, prepared its own draft. But when a government draft with a 51% black ownership requirement was leaked on July 26 2002, it shocked the market. Mining shares crashed, losing R52bn of their value — about 7% of the industry’s total market value at the time.
The crisis prompted industry, the government and labour to go into a “huddle”. Representatives of the chamber, the National Union of Mineworkers and the government went to an Anglo American bush lodge to sort out their differences. By October, the talks had produced a charter that was signed by all parties, taking effect in May 2004, when the new legislation, the Mineral and Petroleum Resources Development Act, took effect.
Unlike Thursday’s dense 52page, highly prescriptive document with its many targets, the first charter was just a dozen pages long. It set aspirational, soft targets on skills development, employment equity, procurement, housing and living conditions, community development and the like, rather than imposing percentages.
The exception was ownership. The charter set a target of 15% black ownership by the end of the first five years, rising to 26% by the end of 10 years. The 15% was based on investment bankers’ rough calculations of how much funding could be raised for empowerment transactions in the industry, which they estimated at R100bn over five years and the chamber’s members agreed to facilitate raising this. The charter made it clear that the transfer of ownership “must take place in a transparent manner and for fair market value”.
Fast forward to 2009, when the charter came up for review amid a crisis, with commodity prices crashing and the industry bleeding jobs following the global financial crisis.
Again, the charter process was a negotiated one, with the government, labour and business negotiating the amended charter and simultaneously crafting a package designed to stop job losses in the industry, this time through a new umbrella body, the Mining Industry Growth Development and Employment Task Team, which brought all the parties together.
The government team included all the relevant departments — mining, Treasury, labour, trade and industry — while the industry representation had broadened to include the newly formed South African Mining Development Association, whose different notion of empowerment ownership deals was one of the factors that prolonged the negotiations.
This time, the principals met in the Drakensberg, followed by tough negotiations over about eight months on the terms of MC2. The Department of Mineral Resources had assessed the industry’s performance on the charter objectives and found it wanting.
The scorecard of the new charter, signed in September 2010, set explicit numerical targets for the objectives. It did not change the ownership targets but fudged the crucial but contested issue of whether companies whose empowerment shareholders cashed in their stakes would have to re-empower themselves — the “once-empowered, always-empowered” issue. That issue deadlocked industry and the government by early 2015, prompting an application to the courts for a declaratory order, which had been on hold.
The first two charters were negotiated and signed by all parties, all of which had to make concessions to get at least some of what they wanted.
The consultation process that Mineral Resources Minister Mosebenzi Zwane and his department pursued this time — unilaterally rather than with other government departments — was not a negotiation process but one in which the department met stakeholders. It seems some got more of a hearing than others, with the South African Mining Development Association’s views said by some miners to have prevailed.
The chamber, which is now a much more diverse body than it once was and represents 90% of the mining industry, said it had had no meetings with the minister or his department in the past two months and had never heard of many of the provisions in the new charter. Its response has been unprecedentedly combative. The chamber is not just another stakeholder — its members actually have to implement the charter.
More than 12 years after MC1, the new charter’s language recognises “a noticeable improvement in levels of compliance” but focuses on how little has been achieved and how much the industry needs to do to be transformed, blaming “a compliance-driven mode of implementation, designed only to protect the ‘social licence to operate’.”
The new charter is all about compliance to highly prescriptive targets, rather than about the spirit of transformation.
The 30% ownership target for new and existing mine licences is just the start of it, particularly the way the charter imposes on mining firms the structure and effectively the financing of the deals that need to be done to comply, which arguably gift stakes to the new owners rather than selling them at fair market value.
It’s a notion of “ownership” that is not real ownership, in which empowerment shareholders are entitled to 1% of turnover even when a mine is unprofitable but can sell their shares only to other black shareholders rather than in the market.
Many of the targets are impractical and will set the industry up for failure. But given Zwane’s intimate Gupta links, the most disturbing elements in the charter may be his creation of a Mining Transformation and Development Agency, which will take a cut of many pies. Since Zwane took office in 2015, the relationship between the industry and his department has soured sharply.
That puts question marks over whether this charter was ever going to end anywhere but the courts. Arguably, the industry should long ago have set out its own vision of transformation, and proactively drafted a charter that could have advanced this.
A meaningfully transformative charter, of the kind envisaged in MC1, would give many more black people real executive control of mining companies and spread the benefits widely, while also making the industry stronger and more competitive.
Whether that is possible in this environment is a question. But it is surely still worth a try.