What is the agenda of newly re­leased char­ter?

The Star Early Edition - - OPINION & ANALYSIS - So­ria Hay So­ria Hay is head of cor­po­rate fi­nance at Bravura.

THE GOV­ERN­MENT seems to have been want­ing to cre­ate the big­gest shock pos­si­ble in the min­ing in­dus­try with the newly re­leased min­ing char­ter, which raises ques­tions around the true agenda. The in­stru­ment for rad­i­cal eco­nomic trans­for­ma­tion, as ex­pressed by Min­eral Re­sources Min­is­ter Mosebenzi Zwane, could in fact rad­i­cally cur­tail min­ing de­vel­op­ment in South Africa. With lim­ited con­sul­ta­tion with the Cham­ber of Mines or other in­dus­try in­vestors prior to the re­lease of the char­ter, the in­ter­ests of key in­dus­try stake­hold­ers are clearly not the main driver here.

While the re­quire­ment of 30 per­cent BEE for all min­ing rights listed in the char­ter re­leased on Thurs­day is a con­sid­er­able over­all in­crease from the pre­vi­ous 26 per­cent, this in it­self is not the end of the world.

The In­for­ma­tion and Com­mu­ni­ca­tion Tech­nol­ogy (ICT) char­ter, for ex­am­ple, also re­quires 30 per­cent and cer­tain ap­proved ben­e­fi­ci­a­tion pro­grammes can be off­set against 11 per­cent of the BEE share­hold­ing.

Devil is in the de­tail

How­ever, the devil is in the de­tail, as within this 30 per­cent, the new min­ing char­ter re­quires 8 per­cent to be owned by em­ploy­ees, 8 per­cent by mine com­mu­ni­ties and 14 per­cent by black en­trepreneurs. Fur­ther em­ploy­ment equity level re­quire­ments are sim­ply un­re­al­is­tic, for ex­am­ple there are just not enough fe­male tech­ni­cal pro­fes­sion­als in the coun­try to meet tar­gets of up to 44 per­cent of women.

There are sev­eral glar­ing is­sues with the new char­ter.

The ma­jor prob­lem here is that all mines have al­ready im­ple­mented BEE deals un­der the pre­vi­ous leg­is­la­tion, at the re­quired 26 per­cent. While an ex­emp­tion has been created elim­i­nat­ing the spe­cific ap­por­tion­ment re­quire­ments if the rights holder is al­ready on 30 per­cent, these min­ing com­pa­nies will not qual­ify for this ex­emp­tion.

Does this make them non-com­pli­ant, and are they now re­quired to com­pletely re­struc­ture? It’s cer­tainly not as sim­ple as top­ping up their BEE within 12 months. And fur­ther­more, it is clear that the “once em­pow­ered, al­ways em­pow­ered” ap­proach within this sec­tor is no longer on the ta­ble.

Another fac­tor that will se­ri­ously cur­tail the over­all de­vel­op­ment of South Africa’s min­ing in­dus­try is the 50 per­cent plus 1 BEE re­quire­ment for all new prospect­ing rights.

The ex­plo­ration side of min­ing, which is the most dif­fi­cult to find fi­nanc­ing and fund­ing for in South Africa, will be se­ri­ously im­pacted.

Not even the Pub­lic In­vest­ment Cor­po­ra­tion or the In­dus­trial De­vel­op­ment Cor­po­ra­tion are will­ing to fund early ex­plo­ration.

The new char­ter re­quires for­eign min­ing equip­ment sup­pli­ers to pay 1 per­cent of their an­nual turnover, pre­sum­ably only in South Africa, to the Min­ing Trans­for­ma­tion and De­vel­op­ment Agency. This cost will most likely just be passed through to the mines.

Also, there is a lack of clar­ity on who runs this agency, and how trans­parency and good cor­po­rate gov­er­nance will be en­sured. The same agency will also re­ceive a fur­ther 2 per­cent of the levi­able amount on skills de­vel­op­ment.

Fi­nally, the 30 per­cent BEE share­hold­ing re­quire­ment is in fact a com­plete mis­nomer when it comes to the true dis­tri­bu­tion of funds.

The min­ing char­ter re­quires 1 per­cent of an­nual turnover to be paid to the BEE share­hold­ers, prior to any dis­tri­bu­tions to any of its other share­hold­ers, which again in­cludes the BEE share­hold­ers.

For ex­am­ple, a mine may have turnover of R800 mil­lion, and prof­its of R40 mil­lion. R8m must be paid to the BEE share­hold­ers be­fore div­i­dends are de­clared.

Should 100 per­cent of the prof­its then be de­clared in div­i­dends, a fur­ther R12m would go to the BEE share­hold­ers, and R28m to “other” share­hold­ers.

The BEE share­hold­ers have there­fore re­ceived R20m, and the other share­hold­ers R28m. This equates to a full 42 per­cent of prof­its go­ing to BEE share­hold­ers.

How­ever, it is im­por­tant to un­der­stand that the in­vest­ment to build the mine would have been funded pro­por­tion­ately to share­hold­ing.

The other prob­lem with this point is that low com­mod­ity prices, such as we have ex­pe­ri­enced over the past four to five years, have largely left mines either marginally prof­itable, or mak­ing a loss. How­ever, the 1 per­cent of an­nual turnover that needs to be paid to the BEE share­hold­ers does not de­pend on prof­itabil­ity.

The min­ing char­ter, al­ready caus­ing dam­age in the mar­kets, is cer­tainly rev­o­lu­tion­ary as promised, but not in a pos­i­tive way. The char­ter will cer­tainly sti­fle fur­ther pri­vate sec­tor in­vest­ment, the last thing that the al­ready chal­lenged in­dus­try needs.

Another fac­tor that will se­ri­ously cur­tail… South Africa’s min­ing in­dus­try is the 50 per­cent plus 1 BEE re­quire­ment for all new prospect­ing rights.

PHOTO: SIMPHIWE MBOKAZI

Sibanye Gold Beatrix shaft. The new min­ing char­ter will sti­fle fur­ther pri­vate sec­tor in­vest­ment, says the writer.

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