[miningmx.com] — KUMBA Iron Ore’s windfall BEE payout has restored confidence, if not raised the bar on empowerment transactions.
BEE deals have often been criticised for the limited material impact they have on the majority of beneficiaries while enriching a few.
To recap, Kumba – a subsidiary of global miner Anglo American – plans to pay about R500,000 to each of more than 6,000 employees who bought shares in the company as part of an employee share option scheme initiated in 2006 when Kumba listed.
The news came as AccelorMittal SA “collapsed’ its controversial R9.1bn empowerment deal with the Ayigobi Consortium.
The deal was announced last year and led by politically connected businessman Sandile Zungu, and featuring President Jacob Zuma’s son Duduzane.
“The Kumba Envision Trust for employees is the kind of BEE deals we would like to see more of in future,’ says Ajay Lalu, MD of Black Lite Consulting.
The generous payout by Kumba may herald a new era for BEE transactions, some of which have been labelled by critics as mere “window dressing exercises’.
Jimmy Manyi, president of the Black Management Forum – who also doubles up as Government spokesperson – has previously criticised the “distribution of a few rands to black employees’.
He says black empowerment transactions must be about a company’s “balance sheet, not an income statement’.
“With a R500,000 expected payout to each employee, you are really empowering people to change their lives as you can do a lot with so much money like buy a house or pay for education.
“It’s a pity that a large chunk of this will end up with the taxman. This aspect of tax legislation needs to be revisited,’ says Lalu.
However, Duma Gqubule, founder of KIO Advisory Services, says the Kumba employee scheme was aided by factors beyond the company’s control and had very little to do with the way it was structured.
He says the company benefited from commodity prices and strong exchange rates.
“Kumba is a very profitable company. Its share price has gone through the roof.
“I knew as early as last year that they were going to make a big payment,’ says Gqubule.
The AccelorMittal SA deal drew heavy criticism because of the individuals involved in the Ayigobi Consortium and also because it was considered an attempt by ArcelorMittal SA to buy political clout in pursuit of its lost mining rights in the Sishen mine.
Gqubule says the deal was badly structured and seemed to have been concocted by people who didn’t know the rules of BEE, hence it eventually collapsed.
Of late, BEE deals have also been criticised for their significant debt portion, where often about 10% of the total value of the transaction goes to funders.
Gqubule says SA’s high cost of capital plus a slow economic growth are some of the reasons why many of these BEE transactions haven’t returned much.
Meanwhile, the role of black empowerment partners in blue chip companies in terms of advancing transformation has also come under scrutiny.
Most BEE partner companies have tended to be silent partners or have their voices muted where it matters most, such as in the composition of the board and management, and the operations of the company.
– The article first appeared in Finweek. If you want to subscribe to the digital format of Finweek visit www.zinio.com.
