Shift ownership policies — Exxaro
• Exxaro CE in plea to government at mining indaba to ditch rigid policy
Exxaro Resources CEO Mxolisi Mgojo told the Mining Indaba on Tuesday that government policy focus on black ownership had to move to sustainable wealth-creation rather than rigid formulas that locked black shareholders into heavily encumbered structures. Exxaro has been criticised by coal customer Eskom for allowing black empowerment shareholding to fall to 30% from more than 50%.
Government policy focus on black ownership had to move to sustainable wealth-creation rather than rigid policy formulas that lock black shareholders into heavily encumbered structures, Exxaro Resources CEO Mxolisi Mgojo said on Tuesday.
Mgojo, who was delivering a speech at the four-day Investing in African Mining Indaba, was speaking after sharp criticism was levelled at Exxaro by Eskom, its largest coal customer, for allowing black empowerment shareholding to fall to 30% from more than 50%. Eskom requires its suppliers to be 50% plus one share black-owned.
Acting Eskom CEO Matshela Koko said in January Exxaro had “shown Eskom the finger” and had “no decency to even engage on the matter”.
Mgojo said it was time to evaluate what had worked and what had failed in black empowerment over the past 22 years so that more sustainable black wealth and ownership could be created.
The first wave of empowerment that occurred in the 1990s created what appeared to be impressive, black-owned conglomerates. But they were vulnerable to the whims of the markets and had complex, geared structures. Many subsequently collapsed.
He said capital was accumulated only by allocating it to productive assets that delivered a return above the cost of capital. But black people initially had no capital and the early structures were designed to deliver an equity return without any actual equity ownership. “It was a recipe for tears and frustration and that is precisely the experience of BEE [black economic empowerment],” Mgojo said.
BEE legislation disenfranchised black entrepreneurs and professionals, he said.
Mgojo said in the cyclical mining sector, where BEE transactions with strict lock-up conditions were put in place before the 2008 crash, participants were unable to reduce debt at appropriate moments.
In the eight years to January 2016, the JSE Resources 20 index lost 70% of its value and numerous BEE mining structures collapsed.
Those that survived have maintained reduced stakes in mining companies, but these stakes represent real, tangible black wealth, Mgojo said.
They are held in companies with senior black managers and professionals. Examples include African Rainbow Minerals, which has been able to diversify into financial services, Kagiso Tiso Holdings, the Mineworkers Investment Company, Wiphold and Pembani.
Mgojo said black ownership had to move to less encumbered black equity shareholding. Less rigid structures would ensure these businesses were more sustainable and could invest for future expansion. The debate could not simply be about regulatory compliance.
“At the core of these issues are conversations that are deeply emotional and political on matters that are technically, economically and financially complex,” he said.
IT WAS A RECIPE FOR TEARS AND FRUSTRATION AND THAT IS PRECISELY THE EXPERIENCE OF BEE