Country’s mining houses prepare for regulatory turmoil
• Department says Mining Charter will be finalised, gazetted early this year
RAMIFICATIONS FOR THE FUTURE OF THE INDUSTRY COULD BE DIRE IF INVESTORS ARE SCARED OFF BY THE REGULATORY UNCERTAINTY IT WOULD BE HOPED THAT INDUSTRY’S APPARENT FIGHTING STANCE DOES NOT DERAIL EFFORTS IN 2017 TO SECURE ITS FUTURE SURVIVAL
The recent return of commodity prices to sustainable levels is a godsend for South African mining executives who have been fighting off external pressures on various fronts. One of their biggest headaches is undoubtedly the local regulatory environment that has backed them into a corner from which it appears they are now ready to fight.
Relations between government and the local industry have been on a steady downward trend, most notably following the appointment of Mosebenzi Zwane in September 2015 as minister of mineral resources. The source of friction lies primarily in the minister’s apparent disregard for industry interests, as is evident from the discord around the latest proposed revisions to the Mining Charter and the Mineral and Petroleum Resources Development Act (MPRDA).
It is industry’s view that its voice has not been heeded, and that regulations as proposed threaten the future of mining in the country.
An industry source says that tensions had risen to such unprecedented levels by the end of last year that the Chamber of Mines had considered applying for an interdict to prevent the Department of Mineral Resources from publishing the charter as presented.
“Frankly, I’ve never known the parties to be so far apart on the eve of the Mining Indaba that they are now at a complete impasse,” the source said. “The problem is there doesn’t seem to be any understanding in the department of the problems faced by the industry such as flat commodity prices, an unpredictable regulatory environment, labour issues and administered costs from Eskom and Transnet that are way above the inflation rate.”
Chamber of Mines CEO Roger Baxter offered a conciliatory response to questions on the stand-off with government, saying that a joint effort between business, labour and government was needed to stabilise the industry. He did say, however, that it would “consider all options” should it be unable to reach an amicable solution that ensured future sustainability.
“It is the chamber’s view that should the Draft Reviewed Mining Charter be implemented as it had been proposed by the department it would have a severe and negative impact on the sustainability of the industry,” Baxter says.
“The Chamber of Mines had voiced its concern about both the process and content of the proposed Mining Charter, and engagement with the department on the charter has resumed.
“The chamber remains hopeful that the Department of Mineral Resources will take the industry’s considered and extensive responses to the proposed charter into account.”
Responding to questions on the process and timelines, the department said it had been engaging with stakeholders and that it intended to finalise and gazette the final charter during the first quarter of this year.
While this would finally provide some clarity and certainty for the industry, mining legal expert Peter Leon of law firm Herbert Smith Freehills suggests that delays to the release of the revised Mining Charter may in fact help the industry.
UNCERTAINTY
“The fact that the Mining Charter has not been published is probably positive considering that the version the department released last April is so bad,” he says. “Uncertainty is never good for investment, but to the extent that the department is reconsidering its position in relation to the charter, it could be a positive.
“It is a bit of a double-edged sword because clearly continued regulatory uncertainty is not good for investment and nobody knows how Mining Charter 3 is going to come out, but I think that if the delay results in a better product, it is better than something that is rushed and enacted quickly.”
He adds that the process around the MPRDA Bill, by contrast, saw the Chamber of Mines urging quicker action to have this finalised which, in retrospect, “may not have been a good idea”, Leon added.
A sign of the industry’s reluctance last year to remain at the mercy of government demands was a growing inclination to take disputes to the courts.
Notably, Aquila Steel won a landmark case for its prospecting and mining rights, while AngloGold Ashanti won a case against the department for reckless issuance of Section 54 stoppages. This action was taken one step further by Sibanye in January when it instituted claims amounting to nearly R27m against the minister and mining inspectors for unnecessary Section 54 stoppages.
“I think this kind of response from the industry is quite unprecedented. Before, the philosophy was by and large ‘go along to get along’, and I think that’s changed,” Leon says. “These Section 54, Mining Charter and regulatory issues — combined with pressure from shareholders and difficult market conditions — have all had an effect on the industry, and I think there is now a view within the industry that enough is enough.”
The ramifications for the future of the industry could be dire if investors are scared off by the regulatory uncertainty and statements that are increasingly antibusiness.
The steady disposal of assets by some of the country’s (and world’s) mining stalwarts such as Anglo American, BHP and Rio Tinto is almost certainly due to this negative business environment. Noncore or underperforming assets would naturally have come under the hammer following the 2014-15 commodity price collapse, but an unfavourable environment is surely prompting a rethink.
Investec Asset Management head of Resources for Frontier and Emerging markets Hanré Rossouw says he senses an element of fatigue among miners who might feel it is better to rather exit the South African market.
“There is certainly talk of Anglo spinning out some of their South African assets, BHP has already done so effectively through South32, and Rio hasn’t really been in the country for a while. So there will be companies that say we can’t deal with it, while others like Glencore and so on are happy to take on that level of uncertainty,” Rossouw says.
It would be hoped that industry’s apparent fighting stance does not derail efforts in 2017 to secure its future survival. Should the Department of Mineral Resources’s head be in the right place, it will hopefully utilise the corridors and meeting rooms at the Cape Town International Convention Centre to coax, rather than corner, industry executives into a more conciliatory position.