ZWANE DROPS MIN­ING bomb CHAR­TER

The new doc­u­ment is rid­dled with con­tro­ver­sial clauses, rad­i­cal changes and claims of near-zero con­sul­ta­tion, mak­ing le­gal ac­tion in­evitable

CityPress - - Front Page - DEWALD VAN RENS­BURG and JAN DE LANGE dewald.vrens­burg@city­press.co.za

The new Min­ing Char­ter, re­leased this week, has al­most no chance of sur­viv­ing a court chal­lenge and will prob­a­bly be sus­pended within a week, say min­ing lawyers. One vet­eran black min­ing ex­ec­u­tive told City Press that the depart­ment of min­eral re­sources may have wil­fully plunged it­self into months, or pos­si­bly years, of law­fare “be­cause by do­ing so, they think they will be seen to be do­ing rad­i­cal eco­nomic trans­for­ma­tion”. “Who will in­vest un­der these con­di­tions? No one.” Even the ANC said it was seek­ing an ur­gent meet­ing with Min­eral Re­sources Min­is­ter Mosebenzi Zwane af­ter he re­vealed, at very short no­tice, the new char­ter on Thurs­day – over­shad­ow­ing his col­league, Fi­nance Min­is­ter Malusi Gigaba, who spoke at about the same time on how to re­store eco­nomic con­fi­dence.

The gov­ern­ing party’s eco­nomic trans­for­ma­tion com­mit­tee raised con­cerns about the new 30% own­er­ship tar­get and the po­ten­tial ef­fect on jobs, ANC spokesper­son Zizi Kodwa told busi­ness news site Fin24.

This echoes the pub­lic dress­ing-down Zwane re­ceived when he an­nounced a “Cabi­net de­ci­sion” last year to in­ves­ti­gate banks that closed the Gupta fam­ily’s bank ac­counts. The an­nounce­ment proved to be a lie.

The new char­ter con­tains many brand-new rules that would sig­nif­i­cantly sub­or­di­nate ex­ist­ing white and for­eign share­hold­ers in South African mines – very likely forc­ing them to di­lute their own­er­ship.

If the char­ter sur­vives le­gal challenges, it would be a rad­i­cal de­par­ture from the first two char­ters – re­leased in 2004 and 2010 – with many tar­gets still un­clear.

One im­me­di­ate con­se­quence would be to force mines to sell or trans­fer sev­eral bil­lion rands in as­sets to black com­pa­nies in record time to “top up” to the new 30% own­er­ship tar­get.

This would have to be done within 12 months, mak­ing it un­likely that these trans­ac­tions would be fi­nanced by banks or even by the tra­di­tional means of black eco­nomic em­pow­er­ment (BEE) deal fi­nance, com­pris­ing ven­dor loans from the min­ing com­pa­nies them­selves.

The Cham­ber of Mines an­nounced that it was go­ing to court to in­ter­dict the char­ter less than an hour af­ter it ap­peared in the Govern­ment Gazette on Thurs­day.

Amid wide­spread uncer­tainty about what the char­ter’s many new pro­vi­sions col­lec­tively do, min­ing com­pany shares on the JSE plum­meted, with more than R30 bil­lion in mar­ket value dis­ap­pear­ing on Thurs­day af­ter­noon.

The An­glo Amer­i­can group was par­tic­u­larly hard hit, with its two ma­jor sub­sidiaries in South Africa, Kumba Iron Ore and An­glo Plat­inum, los­ing 7% of their value.

UN­LIKELY TO SUR­VIVE

Min­ing lawyers told City Press that the new char­ter was an easy le­gal tar­get. Jac­inta Rocha, a min­ing law an­a­lyst, said it was ir­ra­tional and un­con­sti­tu­tional, adding that it of­fended “ba­sic prin­ci­ples of South African law”.

“The min­is­ter has two ad­vis­ers. If I were him, I would fire them both.”

“There are far too many con­sti­tu­tional con­cerns. A con­sti­tu­tional chal­lenge will be suc­cess­ful,” said War­ren Beech, head of min­ing at law firm Hogan Lovells.

Al­lan Reid, min­ing head at Cliffe Dekker Hofmeyr, agreed. “I do not think it would stand up in court – on sev­eral grounds.”

The top-up it­self was prob­a­bly open to le­gal chal­lenge be­cause it ret­ro­spec­tively im­posed new con­di­tions on rights the state had al­ready granted, said Reid.

The char­ter needed to be rea­son­able in the le­gal sense, he added, say­ing the cham­ber’s claims of nearzero con­sul­ta­tion and the rad­i­cal changes the char­ter con­tained made it vul­ner­a­ble on those scores as well.

“The com­pos­ite whole of the con­tents ren­ders it un­rea­son­able,” said Reid.

The char­ter could be in­ter­dicted within a week as the court ap­pli­ca­tion was prob­a­bly mostly drafted a long time ago, in an­tic­i­pa­tion of at least some of the char­ter’s con­tents, he added.

Nonethe­less, push­ing out a doc­u­ment that was guar­an­teed to be taken to court “might have been po­lit­i­cally mo­ti­vated”, said Beech.

Per­haps Zwane was just cav­ing in to the in­ces­sant pres­sure to come up with some­thing, he added.

WHAT DOES IT DO?

The new char­ter splits the in­dus­try in two, with sep­a­rate rules on black own­er­ship for new min­ing rights hold­ers on the one hand – and ex­ist­ing min­ing rights hold­ers on the other.

One of the most con­tro­ver­sial clauses ap­plies only to new min­ing rights. It says the mines will pay 1% of rev­enue to black share­hold­ers above and be­yond any prof­its or div­i­dends. Ac­cord­ing to Rocha, only a money bill can levy a roy­alty of this na­ture, adding to the char­ter’s un­con­sti­tu­tion­al­ity. Rocha used to be the di­rec­tor-gen­eral of the min­eral re­sources depart­ment, then known as the depart­ment of min­er­als and en­ergy.

New rights will only be is­sued if 30% black own­er­ship is in place, while the old rights hold­ers get 12 months to top up. It is not clear how much of the in­dus­try would be sub­ject to the wide-rang­ing ad­di­tional “new holder” rules, given the ma­tu­rity of the in­dus­try.

How­ever, Beech said the “new” regime could rapidly ap­ply to large swathes of the “old” ex­ist­ing in­dus­try.

“It should ap­ply to all cur­rent prospect­ing rights that get con­verted to min­ing rights,” he told City Press.

“It will cre­ate a mixed or hy­brid sys­tem when ex­ist­ing mines ex­pand or con­sol­i­date their old rights with new rights. It will cre­ate quite a bit of com­plex­ity.”

One of the new con­di­tions is that you can only get a prospect­ing right with 50% plus one black per­son share­hold­ing. Reid called this “one of the most un­rea­son­able pro­vi­sions I have ever seen”.

“Who will in­vest if they have no con­trol over their investment? We can only as­sume that Zwane has de­cided to chase the last in­vestors out of South Africa.”

THE NEW RULES

Other new con­di­tions on “new” min­ing rights in­clude re­stric­tions that stop the 30% black own­er­ship from ever get­ting di­luted.

For new min­ing rights, the tar­get is not only 30%, but 30% with spe­cific shares for em­ployee schemes (8%), com­mu­nity trusts (8%) and black en­trepreneurs (14%).

Af­ter that, each cat­e­gory of black share­holder “shall en­sure” that shares they sell go to the same cat­e­gory of black share­holder. This seems to mean an em­ployee share trust can only sell to an­other em­ployee share trust, while a com­mu­nity trust can only sell to an­other com­mu­nity trust. “This could cre­ate prac­ti­cal dif­fi­cul­ties,” said Beech. “Em­ployee stock own­er­ship plans may not find other such plans with the means to buy their shares.”

Even more re­stric­tively, if a black en­tre­pre­neur were to sell their shares, the char­ter seems to oblige them to spend the money on min­ing “as­sets” only.

If new shares are is­sued to raise cap­i­tal, it can­not di­lute the black share­hold­ers – im­ply­ing they must get free shares if they can­not pay.

FIRE SALE

By the cham­ber’s es­ti­ma­tion, its mem­bers have 38% black “own­er­ship” on ag­gre­gate. This, how­ever, in­cludes “once em­pow­ered” credit for past deals.

By the es­ti­ma­tion of the min­eral re­sources depart­ment, cur­rent black own­er­ship is what mat­ters.

“Very few com­pa­nies have 30% purely on eq­uity. Their im­me­di­ate con­cern is the top-up,” said Beech.

This could quickly in­volve an unimag­in­able amount of forced deal-mak­ing.

The lo­cal min­ing in­dus­try has as­sets to­talling more than R1.2 tril­lion, ac­cord­ing to Stats SA’s pub­li­ca­tion, An­nual Fi­nan­cial Sta­tis­tics, based on com­pany sur­veys.

Every per­cent­age trans­ferred would then be roughly R12 bil­lion. As­sum­ing that the in­dus­try is even just four per­cent­age points short of the 30% goal, the char­ter calls for sales of R48 bil­lion in as­sets in a sin­gle year.

“These trans­ac­tions take a long time. You can­not do deals in 12 months,” said Beech.

“There is a limited pool of peo­ple who could buy these as­sets, es­pe­cially black en­trepreneurs. So, in­sti­tu­tions like the In­dus­trial De­vel­op­ment Cor­po­ra­tion would have to put in quite a bit.”

The tra­di­tional fi­nanc­ing mech­a­nism for many BEE deals in min­ing has been ven­dor fi­nanc­ing, whereby the mine lends the money to the BEE part­ner and the debt gets paid over time with div­i­dends. “Few com­pa­nies can do that right now,” said Beech. A se­nior min­ing ex­ec­u­tive told City Press that the new char­ter seem­ingly learnt noth­ing from the lack of trans­for­ma­tion in the past 10 years of the char­ter sys­tem.

“No one has ben­e­fited, ex­cept the banks and lawyers who ar­ranged the deals,” he said.

‘WE KNEW NOTH­ING’

The Cham­ber of Mines claims the new char­ter con­tains vir­tu­ally no in­put from it – un­like the first two char­ters, which were ne­go­ti­ated ex­ten­sively.

A draft char­ter in 2015 had in­cluded the cham­ber’s ma­jor con­cern – the end of “once em­pow­ered”. Since then, there has ap­par­ently been no real en­gage­ment.

Be­fore Zwane be­came min­eral re­sources min­is­ter, the cham­ber had struck a deal with his pre­de­ces­sor, Ngoako Ra­matl­hodi, to jointly go to court for a declara­tory or­der on the once-em­pow­ered is­sue.

Af­ter Zwane’s ap­point­ment, Pres­i­dent Ja­cob Zuma asked the cham­ber to stop that case and ne­go­ti­ate in­stead, said Roger Bax­ter, CEO of the cham­ber. He would not be drawn on what tar­gets the cham­ber would ac­cept. “Quid pro quos must be ne­go­ti­ated,” said Bax­ter. The last time the cham­ber met Zwane was in March. Be­fore that, there had been a meet­ing in Jan­uary. One cham­ber ex­ec­u­tive spec­u­lated that Zwane was, in Jan­uary, try­ing to seal a deal in time for the Min­ing Ind­aba.

PHOTO: DEAAN VIVIER

FAULTY LOGIC Min­ing Min­is­ter Mosebenzi Zwane’s newly drafted Min­ing Char­ter was in­stantly slammed by the min­ing in­dus­try for be­ing un­ten­able. The ANC has also ex­pressed reser­va­tions about the doc­u­ments, wor­ry­ing that it may lead to job losses in the sec­tor

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.