TOP-UP IN THE BALANCE
Adding another 4% black empowerment shareholding to satisfy the new mining charter requirements should be easy for mining companies in theory — but there are many potential pitfalls in the details
Mining companies travelled a rocky road to achieving their first 26% black economic empowerment (BEE) ownership target by 2014. With that experience, achieving another 4% may be a little easier for some, though no cheaper, and not within the unrealistic 12month deadline set in the new mining charter. For companies counting historical transactions it will be far harder.
The new charter is highly prescriptive. An applicant for a new mining right must have at least 30% “black person” shareholding — to be 8% held by an employee share ownership plan, 8% by mine communities and 14% by BEE entrepreneurs.
It says all existing rights holders must top up to 30% within 12 months, irrespective of historical transactions, though it does not have to be in the 8:8:14 proportion. The nonrecognition of historical transactions is being challenged in court by the Chamber of
Mines. The charter says BEE shares can only be transferred to another black person and black shareholders may not be diluted by the issue of new shares.
If a company’s dividend distributions are not enough to pay off the debt incurred on these shares within the next 10 years, the debt must be written off, the charter says.
Black shareholders must be actively involved in operations, including in transport, trading and marketing their proportionate share of production.
Historical transactions are recognised if based on units of production and share asset deals, including at company level, asset level or on all operations, which means companies like Anglo American Platinum should qualify. But historical transactions do not count when mining rights are renewed or sold.
Every company presented a different case in the first round of BEE transactions. DRDGOLD, for example, broke new ground in 2014 when it applied to the department of mineral resources to approve its black partners rolling up their 26% stake in its operating entities, including the Ergo surface assets, into a 10% stake in the listed entity. Subsequently, many other companies did the same.
At the time it did the deals DRDGOLD had both underground and dump operations but now treats only dumps, which puts it in a different category from underground miners, according to the Mineral & Petroleum Resources Development Act (MPRDA).
DRDGOLD CEO Niel Pretorius says the conditions included that this 10% stake constituted full compliance — in other words, based on value, it constituted a 26% interest in the minerals held by Ergo in terms of new-order licences.
“If the charter survives, and if we elect to remain under the MPRDA, which we will decide at some point in the near future, we may have to do a top-up of 4%,” Pretorius says. “We vendor-financed our current BEE deal a year ago, for just over R50m. It was paid off by way of a 75% retention of dividends around 2012.”
At Drdgold’s current share price, 4% of the company is worth about R72.8m.
Anglo American Platinum’s slow achievement of full black empowerment status aroused considerable controversy in the mid-2000s.
Because of its size it was impossible to finance a full 26% black stake in the listed entity and it used a slightly different basis, the “hybrid valuation method” to achieve BEE. This means using units of production and calculating credits from selling undeveloped platinum resources to black people.
Its BEE credits were earned on deals including those with Royal Bafokeng on the Bafokeng Rasimone Mine, African Rainbow Minerals on Modikwa, Atlatsa at Bokoni, the Bakgatla nation at Union Mines, Mvelaphanda at Booysendal and Northam, the Kotula employee share scheme and the Lefa La Rona Community Trust.
Media manager Mpumi Sithole says the group’s BEE is now close to 30%. It will not provide any further information at this point.
As SA’S biggest home-grown miner,
Anglo American’s BEE is most likely to fall under the spotlight. According to its latest transformation report, it has concluded R67bn of BEE transactions since 1994. Among its subsidiaries, Kumba Iron Ore has 29% BEE ownership, Anglo Coal SA 28.5%, and De Beers 26.6%.
An Anglo American spokesman says the group is still studying the new charter so cannot respond to questions such as whether Anglo’s BEE level included historical transactions that would no longer qualify or how much it would cost to achieve 30% within 12 months.