Doubts over SA’s mineral wealth plan
SOUTH Africa’s plan to force mining companies to give the black majority a bigger stake in the country’s mineral wealth, faces a major obstacle convincing banks to back billions of dollars of fresh deals in an industry in decline.
Mineral Resources Minister Mosebenzi Zwane said on June 15 that local mines should be at least 30% owned by black people, up from the previous requirement of 26%.
The mining companies need banks to help fund transactions that transfer the stakes to black investors who often don’t have the capital to invest due to their marginalisation during white rule.
“The charter will have an effect on our ability to finance the mining industry in SA,” Investec spokeswoman Ursula Nobrega said.
“We already exercise caution as to who and what projects we finance.”
SA is pushing to increase black ownership as it seeks to redress economic imbalances caused by apartheid.
The introduction of the latest charter triggered a sell-off in mining stocks and a drop in the rand.
The sector, once the economy’s bedrock and the foundation on which Johannesburg was built, now accounts for only 7.3% of GDP, while fixed-investment into the industry shrank, hitting a 10-year low last year, according to the Chamber of Mines, which represents the biggest producers.
SA holds the biggest reserves of platinum, chrome and manganese and mining companies operating in the country include Anglo American, Glencore and AngloGold Ashanti.
The new rules do not give credit for deals already concluded and from which black shareholders have since divested.
They also impose a community-development tax equal to 1% of revenue and expand quotas for buying goods and services from black-owned companies.
The Chamber of Mines said it would challenge the new rules in court, while Deputy President Cyril Ramaphosa called for the charter to be reconsidered and the ANC said the legislation may cause job losses.
With mining companies using diminishing cashflows to finance empowerment deals, “there could be fewer bankable transactions”, resource finance head for Rand Merchant Bank (RMB), Sandile Mbulawa said.
Business development director Henk de Hoop said that if the charter was implemented in its current form, fewer companies would meet RMB’s predetermined measures for funding approval.
Moody’s Investors Service said the proposals were credit negative for mining companies because they would likely require miners to use cash or raise debt to facilitate the equity transfer.
“We expect that current shareholders are unlikely to support a further dilution of their equity interests,” Moody’s said in a report on June 21.
By 2014, all member companies of the Chamber of Mines had complied with legislation requiring them to have 26% black ownership, according to the organisation. At that stage, black investors held stakes equivalent to 38% of the mining industry, according to the chamber.
“The availability of bankable opportunities will determine whether our exposure to the sector will grow or shrink,” chief executive of London-based Old Mutual Nedbank Group, Mike Brown, said. While Nedbank remains committed to funding the South African mining industry, it will “carefully assess the risks of every client and transaction”.
President Jacob Zuma said last week in parliament that he supported the charter.
The current version of the charter is clumsy, inconsistent and lacks clarity, Brown said.
There’s going to be a lengthy legal process and a long period of uncertainty, all of which is “bad news for the mining industry and investment, growth, jobs and the South African economy”. — TMG