BEE miners hamstrung by exit rules
’Law must clarify if 26% black shareholding applies in perpetuity’
SINCE the adoption of the Mining Charter, mining companies have struck some ambitious empowerment deals.
And many have run aground for reasons ranging from poor stock price performance to opportunistic investors.
Now, more than a decade after the first draft of the charter — the first attempt by a South African government to transfer some of the ownership of the major industries to black shareholders — there are still major mining houses that are nowhere close to the 26% black shareholding required.
The industry believes “once empowered, always empowered” should apply to mining houses that entered into transformation deals in the early years, arguing that blame for the poor performance of markets or black swan events such as the global recession cannot be laid at the door of these companies.
Over the past 15 years, R205-billion has been spent, primarily on equity ownership deals in mining.
However, the Department of Mineral Resources insists that mining companies maintain the stipulated black ownership — regardless of whether black shareholders choose to move their investment elsewhere.
Companies such as Gold Fields and Northam Platinum signed empowerment deals with Tokyo Sexwale’s one-time mining vehicle Mvelaphanda Resources that have collapsed in the aftermath of the crash in 2008 of the financial sector.
In 2004 Gold Fields entered into a BEE deal in which Mvelaphanda Resources acquired 15% of the mining company’s assets. The agreement was for five years but in 2007 it collapsed due to market conditions.
The mining house undertook another BEE deal three years later, this time a controversial one, with ex-con Gayton McKenzie forming a consortium that included some senior ANC members including Baleka Mbete.
The deal was scrutinised by New York’s Securities Exchange Commission, where Gold Fields securities are listed, because of potential corruption. Last year, however, the company was cleared.
Sipho Nkosi, whose stint as Exxaro CEO ends this month, sympathises with mining houses over the court dispute.
The man who for the past 10 years has run perhaps the country’s most successful empowerment project believes the requirements of the char- ter need to be clarified in court.
The problem with black empowerment deals and the stipulation that black ownership remain at a minimum of 26% was that companies needed to hand out a new stake every time they lost it, leaving the company’s owners with nothing because their shares had been “eaten up” by black shareholders who had left the business, Nkosi told Business Times.
“I used to be president of the chamber and I know that the majority if not all [mines] have complied with the law,” said Nkosi, who was vice-president of the Chamber of Mines in 2007, and president in 2008 and 2009.
“[But] what happens to the owners of the business? The guys who funded the whole thing? It just doesn’t make sense,” he said.
“I understand where the white people are coming from — I also think it is the wrong model.”
It would be equally unfair to prevent a shareholder from disinvesting because of the transformation policy.
If sustaining black ownership at a minimum of 26% was a cornerstone of the attempts to redress the wrongs of the past, then a clear policy in this regard had to be developed and implemented .
The law needed to clearly state whether the requirement applied in perpetuity.
“If you want those people to be there in perpetuity you are discriminating against that shareholder,” said Nkosi. White shareholders were not similarly constrained.
Chamber CEO Roger Baxter said the issue required clarification, especially since “regulatory concern is a major concern for investors”.
Because of uncertainty regarding the issuance of empowerment credentials, investors were choosing less favourable jurisdictions such as Zimbabwe, where mining rules simply state that the government owns 51% of all projects.
Unless the government’s empowerment model was changed, there would always be a problem.
It was also necessary for the government to provide some form of funding for black investors who did not have the funds to buy the shares that would provide them with the 26% ownership of a company.
“A mechanism needs to be created whereby you have this funding that is more favourable to you,” said Nkosi.
Exxaro, which has more than 50% black shareholding, has been headed by a black CEO since its birth with a market capitalisation of about R19billion. Despite its ownership credentials, it has been largely criticised for being a black-owned but whiterun company.
“People have their own perceptions, but I think we have done exceptionally well . . . I’m honestly not sure why people feel like we are not transforming,” said Nkosi.
Although people perceived Exxaro as “white-managed” because they saw white faces in critical jobs, he did not regret having white employees running some of the more complex operations because of the experience they brought to the company.
I understand where the white people are coming from — I also think it’s the wrong model