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SA govt must save mine empowerment
Jan de Lange and Dewald van Rensburg
Posted: Wed, 11 Feb 2009
[miningmx.com] -- On Tuesday the SA banking industry drew a line in the sand for black economic empowerment (BEE) in the mining industry because BEE has been financed with debt that the banks could no longer support.
The government will have to buy out these mining companies or the mines will need to sell their production forward to repay their BEE loans, said Cliff Zephyrine, head of investment banking at Absa Capital and Barclays Capital, at the annual Mining Indaba.
He was speaking on behalf of Absa and Barclays, but said frankly that the other three large commercial banks - Standard, Nedbank and First National Bank (FNB) - as well as Investec and Rand Merchant Bank, found themselves in a similar position.
The credit crunch and accompanying collapse of resource prices had wiped out the possibility of returns within the terms of the loans.
"This year will be the year of truth for BEE in the mining industry. The South African banking sector, which includes the four major banks, as well as Investec and Rand Merchant Bank, is in a delicate position. We are unable to accommodate these transactions," Zephyrine explained.
Zephyrine said he didn't want to use the term "toxic assets", but others "are welcome to do so".
These deals have
involved enormous amounts. It was unwise to do these deals at fair value when the resource supercycle was at its height, he continued.
Many are marginal mines that cannot operate profitably during low points in the cycle.
Moreover, these transactions frequently involve a division between shareholding with voting rights and economic shareholding. "In reality the banks that advanced the loans now control these assets," he pointed out.
One solution is that the "same old" BEE players take up these stakes.
The other possibility is hedging contracts with which mining companies sell their production forward - a problematic practice that gold mining companies, in particular, adopted in the 1990s, and from which they have only now extricated themselves.
A third possibility is that the partner with whom the BEE deals were concluded renegotiates the transaction, or that a new BEE partner is found.
Sake24.com
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