What is the agenda of newly released charter?
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.
Sibanye Gold Beatrix shaft. The new mining charter will stifle further private sector investment, says the writer.