Alarm over new min­ing char­ter The coun­try’s min­ing in­dus­try waits with bated breath to see if a con­tentious new min­ing char­ter will be writ­ten into law. We look at the po­ten­tial im­pli­ca­tions for the sec­tor.

Finweek English Edition - - THE WEEK - Editorial@fin­week.co.za

sibanye Gold is one of the com­pa­nies thought to be most at risk by gov­ern­ment’s sur­prise “third” min­ing char­ter, a doc­u­ment gazetted by the depart­ment of min­eral re­sources (DMR) on 15 April. But the po­ten­tial dam­age to the coun­try’s min­ing sec­tor would ex­tend far be­yond just Sibanye Gold, ac­cord­ing to a re­port by Mor­gan Stan­ley, which cal­cu­lated that the net present val­ues of com­pa­nies in the whole in­dus­try would be re­duced by a quar­ter.

That’s as­sum­ing the new char­ter is passed into law in its cur­rent for­mat, or even passed into law at all. Ar­gu­ing the prin­ci­ple of sep­a­ra­tion of pow­ers, re­spected min­ing lawyer Peter Leon, of Her­bert Smith Free­hills, said in an editorial in Busi­ness Day that min­is­ters and de­part­ments ap­ply laws but don’t pro­mul­gate them.

“We see this draft char­ter as an open­ing gam­bit in the dis­cus­sions with the in­dus­try and we would ex­pect the DMR to make cer­tain con­ces­sions to the re­quire­ments,” said Mor­gan Stan­ley an­a­lysts Brian Mor­gan, Christo­pher Ni­col­son and Le­ory Mn­guni in a re­port dated 20 April.

The re­quire­ments in­clude per­pet­ual em­pow­er­ment equal to 26% of min­ing firm eq­uity, as well as in­creased em­ploy­ment eq­uity and pro­cure­ment tar­gets. It’s the eq­uity part that’s most im­por­tant though.

That’s be­cause the DMR and the in­dus­try are al­ready at log­ger­heads over the prin­ci­ple of “once-em­pow­ered, al­ways-em­pow­ered”. The in­dus­try has taken the mat­ter to the North Gaut­eng High Court in Pre­to­ria where it hopes to be on the right side of a declara­tory or­der over whether firms are re­quired to re-em­power them­selves in the event their BEE hold­ing falls be­low 26%.

By gazetting a draft min­ing char­ter in­sist­ing on per­pet­ual BEE of 26%, the DMR has short-cir­cuited the de­bate. This is oner­ous for com­pa­nies such as Sibanye Gold, which saw its em­pow­er­ment hold­ing in the former Gold Fields gold mines sold down be­fore 2014 fol­low­ing the dis­so­lu­tion of Mve­laphanda Re­sources.

Per­haps worse still for Sibanye is that the draft char­ter mud­dies the wa­ters of its pro­posed pur­chase of Rusten­burg Plat­inum Mines from An­glo Amer­i­can Plat­inum (Am­plats), which helped it claim to have ful­filled its BEE tar­gets.

By gazetting a draft min­ing char­ter in­sist­ing on per­pet­ual BEE of 26%, the DMR has short­cir­cuited the de­bate.

By sell­ing the mines, Am­plats now tech­ni­cally fails to meet the new 26% tar­get.

Ditto the mat­u­ra­tion of the Exxaro Re­sources/Kumba Iron Ore em­pow­er­ment deal in Novem­ber this year, which may leave both of these com­pa­nies hav­ing to find new em­pow­er­ment part­ners (Exxaro has al­ready un­der­taken to do so as it was al­ways a black­con­trolled com­pany).

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