South Africa walks min­ing tightrope

De­spite some con­ces­sions, the draft char­ter still has pro­vi­sions that in­vestors find un­palat­able

Mail & Guardian - - Business - Te­bogo Tsh­wane

South African min­ing stocks lost R50-bil­lion af­ter the first draft of Min­ing Char­ter III was pub­lished in June last year. A year later, the sec­tor’s re­ac­tion to the 2018 draft un­der Min­eral Re­sources Min­is­ter Gwede Man­tashe hasn’t been as dra­matic but there are still rum­blings that it will make the sec­tor un­com­pet­i­tive and unattrac­tive.

Man­tashe has the un­en­vi­able task of try­ing to bal­ance trans­for­ma­tion goals with the need to pro­mote in­vest­ment in an in­dus­try that has been in de­cline for sev­eral years.

But when South Africa is weighed against other min­ing coun­tries on the con­ti­nent, all is not gloom and doom.

Ac­cord­ing to the Fraser In­sti­tute’s an­nual min­ing sur­vey for 2017, on the pol­icy per­cep­tion in­dex (PPI), South Africa is ranked at 13 out of 15 African coun­tries.

The in­dex rates the at­trac­tive­ness of min­ing poli­cies ac­cord­ing to is­sues such as se­cu­rity, un­cer­tainty, po­lit­i­cal sta­bil­ity and un­cer­tainty con­cern­ing dis­puted land claims. The in­sti­tute de­scribes it as a re­port card on how at­trac­tive gov­ern­ment poli­cies are from an ex­plo­ration man­ager’s point of view and it usu­ally ac­counts for 40% of an in­vest­ment de­ci­sion. The other 60% is based on a coun­try’s min­ing po­ten­tial.

But in terms of over­all in­vestor at­trac­tive­ness, South Africa ranks rel­a­tively high on the con­ti­nent. On the in­vest­ment at­trac­tive­ness in­dex, a com­bi­na­tion of PPI and min­ing po­ten­tial, South Africa is at num­ber four, be­hind Botswana, Mali and Ghana.

“South Africa has one of the most de­vel­oped fi­nan­cial mar­kets on the con­ti­nent, from the cap­i­tal mar­ket to the bank­ing sec­tor. It has the best na­tional in­fra­struc­ture in Africa and is one of the most de­vel­oped economies. We also have one of the largest, di­ver­si­fied de­posits of min­er­als any­where in the world,” said Peter Ley­den, a di­rec­tor at law firm Her­bert Smith Free­hills.

“The ques­tion be­comes, what is the is­sue that is pre­vent­ing South Africa from be­ing one of the top min­ing des­ti­na­tions in the world? The prob­lem is the [pol­icy and reg­u­la­tion] un­cer­tainty we have had.”

The new draft of the min­ing char­ter is a step to­wards cer­tainty and makes sev­eral con­ces­sions on con­tro­ver­sial is­sues in­tro­duced by Man­tashe’s pre­de­ces­sor, Mosebenzi Zwane.

The char­ter recog­nises the on­ceem­pow­ered, al­ways-em­pow­ered clause, so any min­ing com­pany that reached the 2010 char­ter’s 26% black eco­nomic em­pow­er­ment (BEE) tar­get is compliant. But it still pro­poses an in­crease of the BEE share­hold­ing to 30% for new min­ing projects and gives min­ing com­pa­nies with ex­ist­ing rights five years to raise their BEE level to 30%.

The clause was a fea­ture in the 2004 and 2010 char­ters.

The Min­er­als Coun­cil, which rep­re­sents 90% of the min­ing com­pa­nies in South Africa, said it did not sup­port this be­cause it “prej­u­dices ex­ist­ing rights hold­ers that se­cured their rights on the ba­sis of the 2004 and 2010 char­ters”.

The coun­cil found it dis­ap­point­ing that the draft did not al­low its re­quire­ments for ju­nior and emerg­ing min­ing com­pa­nies to be phased in, which would cur­tail ex­plo­ration, the lifeblood of the in­dus­try, it said.

An­other con­di­tion that would de­ter new min­ing in­vest­ment is the 5% free car­ried in­ter­est for min­ing com­mu­ni­ties and em­ploy­ees. That means 10% of the min­ing share­hold­ing will be given to the re­spec­tive par­ties, be­sides a 1% of earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­sa­tion div­i­dend for com­mu­ni­ties and work­ers if a mine fails to pay div­i­dends in the first five years.

Sev­eral other coun­tries on the con­ti­nent in­sist on free car­ried in­ter­est. The Demo­cratic Re­pub­lic of Congo (DRC), one of the world’s largest pro­duc­ers of cobalt, which also mines di­a­monds and cop­per, has a free car­ried in­ter­est con­di­tion of 5%, and Mali and Tan­za­nia have be­tween 10% and 16%.

Ley­den said that, al­though South Africa’s char­ter might not be as oner­ous as Tan­za­nia’s or the DRC’s, there was still a need to make the sec­tor more at­trac­tive to in­vestors.

“For South Africa, we have a very de­vel­oped min­ing in­dus­try, so there’s not a lot of ex­cite­ment [com­pared with] other ju­ris­dic­tions, where it’s a bit un­der­de­vel­oped. You have coun­tries like Ghana and even Zim­babwe where there is po­ten­tial for new dis­cov­er­ies and projects.”

In a bid to at­tract in­vest­ment, di­a­mond and ura­nium pro­ducer Namibia said it was plan­ning to do away with its black own­er­ship re­quire­ment in the min­ing sec­tor. The coun­try’s mines min­is­ter was quoted by Reuters as say­ing that giv­ing ex­plo­ration li­cences to peo­ple who didn’t add value would slow down black em­pow­er­ment.

The Fraser In­sti­tute said that, when poli­cies were con­sid­ered, Namibia was the sec­ond-most at­trac­tive ju­ris­dic­tion on the con­ti­nent. It is ranked at 39 glob­ally.

For its poli­cies, Botswana came in at num­ber one on the con­ti­nent and at 21 out of 91 coun­tries. Ley­den said that was be­cause the di­a­mond pro­ducer had had the same min­ing codes since 2001, with very few amend­ments.

“In­vestors need to know that, if they put the money in on day one and they build their fi­nan­cial model, the reg­u­la­tory regime and re­quire­ments are going to be sta­ble in the life of their project. The first thing we need to do is get a sta­ble, clear and con­cise set of reg­u­la­tions and poli­cies that cre­ate sta­bil­ity in the min­ing sec­tor,” Ley­den said.

Min­ing projects usu­ally have long leases, of­ten up to 30 years from ini­tial ex­plo­ration and pro­duc­tion. South Africa has had three min­ing char­ters since 2004, and the Min­er­als and Petroleum Re­sources De­vel­op­ment Amend­ment Bill has been wait­ing to be fi­nalised since 2013.

Other trans­for­ma­tion re­quire­ments that have come un­der scru­tiny in­clude stip­u­la­tions that min­ing-rights hold­ers must buy 80% of the ser­vices they need from South African com­pa­nies, of which 70% must be black owned, and 70% of goods must be bought from South African man­u­fac­tur­ers, of which 26% must come from 51% black­owned firms.

The char­ter is open for pub­lic com­ment for 30 days af­ter its re­lease on June 15. The depart­ment will hold a sum­mit on July 7 and 8 for com­ment and to make “mi­nor” changes be­fore the char­ter goes to the Cabi­net.

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