Mining versus the state in Australia and SA
There is an interesting parallel between the South African mining industry’s response to Mineral Resources Minister Mosebenzi Zwane and the Mining Charter he has introduced, and the mining sector’s response to a superprofit tax in Australia that helped bring down Prime Minister Kevin Rudd.
The obvious similarity is that both mining sectors have been engaged in what they argue is a fight for their survival in the face of a grasping government burdening companies with more demands. However, unlike in Australia, miners in SA are unlikely to win much sympathy among the broader populace, given its dismal history of exploitation and treatment of black workers during its 150-year history.
Local miners face an altogether different battle to bring society to its side against a government headed by a liberation party, albeit one holding a rapidly decaying moral high ground.
They are on a hiding to nothing arguing against more black ownership and transformation of the sector as outlined in the third version of the charter. Such arguments can only be interpreted by broader society as protecting white ownership. No single advertising campaign will alter that perception no matter what underlying financial realities the Chamber of Mines presents as an argument.
Another divergence in the narrative shared with Australian miners in challenging the state comes in the responses and the strategy the mining industries in both countries have used.
The Australian miners made a blunt and brutal financial argument about increased taxes that was largely understood and resonated with those whose pensions stood to be affected by the higher tax. In SA, with its underlying social and political issues, the industry has to deal with many more facets, making the argument against the new charter much more difficult and less clear-cut as it deals with a tainted mines minister overseeing a process to bring greater transformation to a sector that has historically been white-dominated.
The Sydney Morning Herald reported in 2011 that the local mining industry had spent A$22m on a six-week advertising campaign to oppose a 40% tax on mines’ superprofits, arguing that the proposed levy by Rudd was deeply damaging to a key component of the Australian economy. The campaign contributed to the Labour Party removing him as leader.
The similarity in arguments about the Resource Super Profit Tax (RSPT) to those put forward by the South African Chamber of Mines against the charter is notable. “The RSPT would have destroyed shareholder value, shelved projects and acted as a massive disincentive to future minerals industry investment, with negative flow-on consequences for every Australian,” the Minerals Council of Australia was quoted by the Herald as saying at the time. The chamber made similar arguments against the now suspended charter when it was gazetted by Zwane in June, arguing it could destroy the mining sector.
The charter demanded that black ownership of mining companies increase to 30%, from 26% within 12 months, for empowerment shareholders’ debts made to buy their stake to be written off after a decade, and for mining companies to skim 1% off their revenue line to pay their empowerment partners, who are not obliged to use that money to repay debts. The chamber estimated that on the basis of the mining industry’s sales in 2016, the 1% of turnover equated to R5.8bn, a cost marginal platinum and gold miners could ill afford.
These issues are just a few of the problematic aspects of the mining charter that numerous CEs, bankers and lawyers have flagged, with the document that will be reviewed by a full bench of judges in mid-December.
One description of the charter from an influential figure in the local mining industry is that it is a “nefarious and incompetent” document, designed to facilitate the transfer of ownership and financial benefits to political cronies rather than genuinely empower broader SA.
Another criticism of the charter, one that the Australian mining industry successfully highlighted and that brought many Australians around to its view, is that the effect on pension funds stands to be substantial. A sizeable portion of government pension funds administered by the Public Investment Corporation is invested in mining companies.
Private pension funds too are exposed to mining shares, which lost R51bn in value the day the charter was gazetted.
Debt will become more expensive for miners as financiers involved in empowerment deals put the onus on the companies to guarantee the debt, limiting their capacity to take on further debt for capital expansion or acquisitions. Local mining companies would decline.
The consequences are dire for the country, where unemployment is high and growing numbers of unemployed miners are turning to illegal mining within brutal criminal syndicates. The threat to people’s future financial security won the battle for Australian miners. The arguments presented by the chamber have arguably not resonated with the public and it has an almost impossible task to make that happen.