Min­ing Char­ter comes at a price

The third re­vi­sion of the Min­ing Char­ter is ‘a more ex­treme ver­sion’ of the pre­vi­ous ones, and will add to pres­sure on the min­ing in­dus­try, ex­perts say

CityPress - - Business and Tenders - JUSTIN BROWN justin.brown@city­press.co.za

The im­ple­men­ta­tion of the lat­est re­vi­sion of the Min­ing Char­ter will re­sult in ma­jor costs for local min­ing com­pa­nies. This is ac­cord­ing to Pa­trick Ley­den, di­rec­tor at Her­bert Smith Free­hills, who was speak­ing this week at a me­dia event that was held to look at the lat­est edi­tion of the char­ter – which is into its third re­vi­sion. The new draft was re­leased by gov­ern­ment on April 15. There was a sug­ges­tion in the re­vised char­ter that it could ap­ply ret­ro­spec­tively, said Ley­den.

“This will re­sult in sig­nif­i­cant costs to re­work­ing the min­ing com­pa­nies ... You can’t pun­ish com­pa­nies for do­ing pre­vi­ous deals,” he said.

Peter Leon, co-chair part­ner of Her­bert Smith Free­hills’ African prac­tice, said if com­pa­nies kept hav­ing to redo em­pow­er­ment deals ev­ery time a BEE in­vestor sold out, it would be costly for com­pany share­hold­ers.

Leon is no­table for mainly rep­re­sent­ing the in­ter­ests of the min­ing in­dus­try.

“Few deals will be in line with the pro­posed char­ter,” Ley­den said.

A key is­sue of con­tention re­lat­ing to the ex­ist­ing min­ing char­ter was the “once em­pow­ered, al­ways em­pow­ered” prin­ci­ple, where min­ing com­pa­nies want credit for pre­vi­ous deals done. Gov­ern­ment, how­ever, wants the com­pa­nies to en­sure they have the re­quired amount of black own­er­ship at all times.

On the one side, the gov­ern­ment has said min­ing com­pa­nies have failed to com­ply with the char­ter, while the Cham­ber of Mines has strongly dis­agreed with this. It said many min­ing firms ex­ceeded the 26% black own­er­ship re­quire­ment.

“The most con­tested as­pect of the char­ter is the 26% own­er­ship re­quire­ment,” Ley­den said. “We are go­ing to char­ter three with­out re­solv­ing the is­sues in char­ter two.”

The Cham­ber of Mines has taken gov­ern­ment to court over the “once em­pow­ered, al­ways em­pow­ered” prin­ci­ple.

And to align with the sec­tor codes, the def­i­ni­tion of “his­tor­i­cally dis­ad­van­taged South Africans” had been re­placed with “black peo­ple”, said Ley­den.

“The lat­est char­ter is very prescriptive when it comes to the in­clu­sion of black en­trepreneurs, work­ers and com­mu­ni­ties,” he said.

An­other key is­sue was that min­ing com­pa­nies could get an 11% off­set for tak­ing part in ben­e­fi­ci­a­tion. But there was no mech­a­nism in the char­ter to cal­cu­late this off­set.

The re­quire­ment for BEE pro­cure­ment has risen from 40% to 60%.

How­ever, half of the 60% must be bought from small busi­nesses – com­pa­nies with a turnover of less than R10 mil­lion.

“Are there enough small busi­nesses to make the spe­cialised min­ing equip­ment?” asked Leon.

Em­ploy­ment eq­uity re­quire­ments for the min­ing sec­tor have also been sig­nif­i­cantly hiked.

Leon said it was pos­si­ble a new ver­sion of the re­vised char­ter could be pub­lished in July.

“The lat­est char­ter is a more ex­treme ver­sion of the pre­vi­ous char­ters,” Leon said, adding that it should be a “pol­icy doc­u­ment” rather than a le­gal doc­u­ment, he said. “The Min­ing Char­ter is a blunt leg­isla­tive in­stru­ment.” In min­ing, in­vestors sorted reg­u­la­tory pre­dictabil­ity sec­ond only to the ge­ol­ogy of a coun­try, said Leon.

“If you don’t have reg­u­la­tory cer­tainty, peo­ple won’t in­vest.”

Adding to the pres­sure on the local min­ing sec­tor was the fact that com­mod­ity prices had fallen sharply.

Leon quoted the UN Con­fer­ence on Trade and De­vel­op­ment global in­vest­ment trend mon­i­tor, re­leased in Jan­uary, which showed that for­eign di­rect in­vest­ment (FDI) flows into Africa fell by 31% in 2015 to $38 bil­lion (R558 bil­lion).

FDI flows into Mozam­bique fell by 21% to $3.8 bil­lion in 2015. Nige­ria’s FDI dropped by 27% to $3.4 bil­lion when the coun­try was hit by the drop in oil price. South Africa’s FDI flows fell off by 74% to $1.5 bil­lion last year.

The drop in com­mod­ity prices had had an ef­fect on South Africa’s econ­omy be­cause the min­ing sec­tor was key to the coun­try’s ex­ports, gross do­mes­tic prod­uct and tax rev­enues.

“The drop in com­modi­ties prices has also re­sulted in big job losses,” said Leon.

The fall in com­modi­ties prices had added to the mis­steps in the man­age­ment of the econ­omy, as well as bot­tle­necks in in­fra­struc­ture in power, rail and the ports. “Labour re­la­tions re­main frac­tious,” he said. Leon held up the Botswana min­ing code as “the best min­ing code in An­glo­phone Africa”.

“If they sus­pend or can­cel your min­ing right in Botswana, there have to be very good grounds,” he said.

Leon de­scribed the move by Pres­i­dent Ja­cob Zuma to re­fer the Min­er­als and Petroleum Re­sources De­vel­op­ment Act back to Par­lia­ment as “pos­i­tive news”.

Ben Winks, a Her­bert Smith Free­hills as­so­ciate, iden­ti­fied three key stick­ing points associated with the pro­posed new act.

First, Winks said, there was a need for sep­a­ra­tion be­tween the law gov­ern­ing min­ing and the law gov­ern­ing oil and gas, in­clud­ing shale gas and coal-bed meth­ane.

Se­condly, the act looked at plac­ing ex­port re­stric­tions on strate­gic min­er­als, in­clud­ing coal and iron ore.

Winks said it was short-sighted to de­clare cer­tain min­er­als as strate­gic be­cause this could vi­o­late in­ter­na­tional trade agree­ments.

“South Africa could face a World Trade Or­gan­i­sa­tion com­plaint – sim­i­lar to the com­plaint China faced,” he said.

Thirdly, the min­is­ter of min­eral re­sources was given cer­tain pow­ers in terms of the act, but those pow­ers should rather rest in the hands of Par­lia­ment.

“The min­is­ter can change the law at will – this cre­ates a lot of un­cer­tainty,” Winks said.

PHOTO: GETTY IM­AGES

DIV­ING IN­VEST­MENT The lat­est Min­ing Char­ter has been met with op­po­si­tion by min­ing houses, who be­lieve the cost of im­ple­ment­ing it will be too high

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