Business Day

Shift ownership policies — Exxaro

• Exxaro CE in plea to government at mining indaba to ditch rigid policy

- Charlotte Mathews Energy & Resources Writer, mathewsc@fm.co.za

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

 ?? /Russell Roberts ?? Counterpro­ductive: Exxaro Resources CEO Mxolisi Mgojo said BEE legislatio­n disenfranc­hised black entreprene­urs and profession­als.
/Russell Roberts Counterpro­ductive: Exxaro Resources CEO Mxolisi Mgojo said BEE legislatio­n disenfranc­hised black entreprene­urs and profession­als.

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