Mining charter: Disaster or boon?
Lack of consultation aside, the ownership targets are laudable and the existing empowerment credits must be thrashed out This ill-considered charter’s effect on investor confidence is dealing a further blow to the already embattled industry
The controversy that has erupted over the mining charter, which was gazetted last Thursday as mine bosses were preparing to head off on their long-weekend bush getaways, is as much a reflection of the state of relations between the government and business as it is about a Cabinet minister, Mosebenzi Zwane, who is not trusted. It is also as much a fight about process as it is about content.
Bonang Mohale, the chairperson of Shell South Africa, recently described those relations as “terribly regressed and extremely troubled” in the Black Management Forum’s African Leader magazine. Now the regression has reached a new low.
The start of the fight can be traced back to March 2015, when former mining minister Ngoako Ramatlhodi was due to release the 10-year review of the first mining charter that had expired in 2014. This was put on hold to allow the parties to seek a declaratory court order to clarify the issue of ownership.
When the Chamber of Mines took the matter to court a few months later, the 10-year review was released, showing the industry falling woefully short on a range of empowerment aspects, only doing well in areas such as social spending, where it counted the conversion of hostels into decent houses as empowerment.
The chamber angrily released its own review, which, based on its own methodology, showed the industry to be doing badly, but not as badly as the government or nonprofits such as the Benchmark Foundation had suggested.
Relations were then repaired to a point where the declaratory order application was suspended and negotiations were resumed. That was until Ramatlhodi’s abrupt removal as minister in 2015, to be replaced by Zwane.
One must spare a thought for the industry. Over the past five years, mining houses have had to contend with three mining ministers: Susan Shabangu with her abrasive style, Ramatlhodi with his tough but amenable approach and now Zwane, who moonlights as a transaction facilitator. Just ask the Glencore bosses in Switzerland. How they must miss Ngoako now.
The industry complains that it was barely consulted about the new mining charter. An investment banker, who asked to remain anonymous, says that, with the change of minister, “the door was shut”. But the National Union of Mineworkers says it had six thorough consultation sessions with the department since April 2016.
Zwane says he consulted the ANC “up to the top six”, yet secretary general Gwede Mantashe has been reluctant to confirm this and it seems the party’s economic transformation committee was left out.
So, did Zwane take workers into his corner and accede to demands like employee share ownership schemes, only to ram through whatever other ideas he had? Only a court and a threatened review can answer that. But instead of complaining, the chamber should reveal what it would have suggested had the industry been properly consulted. Or they could proactively seek a hearing from Parliament’s portfolio committee on mineral resources and present their case, and have their views tested with the minister present.
Two contentious aspects that arise out of the charter are the 30% black ownership target as well as the “continuing consequences” principle, often referred to as “once empowered, always empowered”.
First, on ownership. In 2004, when the then minerals and energy minister, Phumzile Mlambo-Ngcuka, was about to release the charter, a leaked version claimed that it contained a 50% black ownership target. Markets were shaken. The charter was released with a 26% black ownership target.
Now, 13 years later, a target of only four percentage points higher has a similar effect. How far have we moved as a society? The main problem with the target is the 12-month timeframe in which it has to be met. If you rush empowerment deals, everyone just runs in a mad scramble looking for a naturalised Indian to make an empowerment partner.
Mining companies must state what they expected from the charter as we continue on the long, hard road to normalising our society. Did mines think targets would be abandoned? Or lowered? Because they have stayed roughly the same.
On the “once empowered, always empowered” principle, Zwane played a neat trick. He told mines that their previous black empowerment deals would be recognised but then set June 15 as the date of measurement, a test that most mines would fail.
Mines argue that they have concluded deals in the past but that empowerment partners have often sold their stakes to unlock their economic value. Unless you have a partner like Royal Bafokeng or Patrice Motsepe, one with deep pockets, you are always going to run the risk that they will sell.
The chamber wants to be able to continue claiming credit for an empowerment deal long after the beneficiaries have exited. The parties should ask the minister of trade and industry to apply the empowerment codes to the matter.
At the very best, a mine should be allowed to claim credits on a sliding scale, eventually dissipating a certain number of years after the partners exit.
What do you do when you lose an empowerment partner? The same thing as when you lose a senior executive: go and look for another one. Unless, of course, you do not know whether that partner can help you to manage political risk without having to go through Saxonwold.
Mines, and white corporates in general, will buy time until the ANC’s December conference and again until after the 2019 elections to see whether the ANC retains power and whether there is a point in doing a deal at all. This is not what Mlambo-Ngcuka had in mind in 2004.
In one day last week, mining equities listed on the JSE lost R51-billion of the value of their market capitalisation in response to the department of mineral resources publishing its new mining charter. This in an environment in which share prices are already relatively low as companies and their shareholders struggle to regain strength after several years of extremely tough international economic conditions.
What went so horribly wrong? How did the department get it so wrong in judging market reaction to its reckless announcement of the charter?
The state of the industry today is undoubtedly a reflection of global financial markets and depressed commodity prices on the back of weak demand for many commodities. But make no mistake: international investors can choose where to invest their funds and they were already choosing not to invest in South Africa (unless it was at a huge discount).
We know that, even prior to the gazetting of this charter, mining equities had already priced in uncertainty about the charter and the Mineral and Petroleum Resources Development Act amendments. Is it surprising, then, that South Africa’s declining sovereign investment grade and the industry’s investment potential ratings in the renowned Fraser Institute annual survey place the country 13th in Africa, even behind the Democratic Republic of Congo and Ethiopia?
The effect of this ill-considered charter on investor confidence comes at a time when business and parts of government have been collaborating, trying to turn around a recession and avoid further ratings downgrades.
The charter in its current form will create further uncertainty. The mineral resources department has disregarded the Chamber of Mines and its members, which represent 90% of South Africa’s minerals production, and will implement this charter.
As we explained in a meeting with the ANC’s economic transformation committee earlier this week, the industry saw the department’s initial draft charter in April 2016 and then again on June 15 2017, when it was gazetted. We did not see any draft version in between and we never attended a single meeting where all the stakeholders could participate and air their differing views. That is not consultation and certainly not negotiation.
So, back to our question: How and why could the department get it this wrong? We have no idea. But we can hardly criticise those who assume that this was a deliberate — and successful — attempt to undermine the value and prospects for investment of every mining company in the country, in pursuit of certain individuals’ narrow and naked commercial self-interest.
Perhaps most concerning is the way that the department ignores the transformation journey by the industry since the first charter in 2004 and, indeed, even before that.
And it ignores the citizens of South Africa whose livelihoods and pensions depend on mining — from the 455000 employees and their millions of dependents to the hundreds of thousands of people employed in ancillary industries servicing this sector and their dependents, as well as the shareholders and asset managers on whose funds citizens are depending for security in retirement.
The Public Investment Corporation, which holds the pension funds of all government employees, for example, owns 10% of listed mining equities. In one day, those pension fund members lost R2.7-billion.
Let me be very clear: the Chamber of Mines and its members are unequivocally committed to the transformation of our industry and of our economy. We believe this is a national imperative.
But in respect of the charter, we would have expected to have been part of a discussion on finding an outcome that advances transformation on a basis that is practical and achievable and does not jeopardise the viability of the industry. The Chamber of Mines would have liked to have been part of developing a charter that is progressive, with realistic targets over time.
The 2004 charter was a product of intensive multistakeholder engagement and negotiation that began in 2002. The initial charter was reviewed, with further deep negotiation in the Mining Industry Growth Development and Employment Task Team prior to publication in September 2010.
By the end of 2014, ownership by chamber members had achieved empowerment levels of 38% on average (compared with the 26% target set out by the then mining charter). The value of empowerment transactions since 2000 amounts to R205-billion in 2014 money terms. The value of meaningful economic value transfer between 2000 and 2014 amounts to R159-billion. I am not aware of any other sector achieving a comparable level.
More than 50% of management and board positions are currently occupied by historically disadvantaged South Africans. More has been achieved than our toughest critics would like to acknowledge.
That being said, we are the first to acknowledge that the transformation journey is not over.
The industry wanted to negotiate new terms and targets for the period ahead with the government and other stakeholders.
As it is, we have no choice but to apply for an interdict to suspend the charter’s implementation and to take it on review, and to pursue the declaratory order in respect of continuing consequences, which we had put on hold.
Our goal is not to avoid transformation. It is to engage properly with the government and other stakeholders on the way ahead, and to agree on a rational, pragmatic, effective new charter that will take us further on the road to transformation.
It is most disappointing that we have to ask the courts to help us do so.
The chamber wants to be able to continue claiming credit for an empowerment deal long after the beneficiaries have exited