Who stands to hurt most if ‘new’ mining charter prevails?

SIBANYE Gold is one of the companies thought to be most at risk by the South African government’s surprise ‘third’ mining charter, a document gazetted by the Department of Mineral Resources (DMR) in Parliament on April 15.

But the potential damage to the country’s mining sector would extend far beyond just a single company, according to a report by Morgan Stanley which calculated that the net present value of all companies in the whole industry would be reduced by a quarter.

That’s assuming the new charter is passed into law in its current format, or even passed into law at all. Arguing the principle of separation of powers, attorney Peter Leon, of Herbert Smith Freehills, said in an editorial in Business Day that ministers and departments apply laws but don’t promulgate them.

“We see this draft charter as an opening gambit in the discussions with the industry and we would expect the DMR to make certain concessions to the requirements,” said Morgan Stanley analysts, Brian Morgan, Christopher Nicolson and Leory Mnguni in a report dated April 20.

Srinivasan Venkatakrishnan, CEO of AngloGold Ashanti, agrees with that summation. He told Miningmx earlier this week that he had high expectations a modified charter would result of discussions with the DMR and the Chamber of Mines, currently underway to subject to strict terms of non-disclosure.

The requirements of the new charter include perpetual empowerment equal to 26% of mining firm equity, as well as increased employment equity and procurement targets. It’s the equity part that’s most important though.

That’s because the DMR and the industry is already at loggerheads over the principle of ‘once-empowered, always-empowered’. The industry has taken the matter to the High Court in Pretoria where it hopes to be on the right side of a declaratory order over whether firms are required to re-empower themselves in the event their BEE holding falls below 26%.

By gazetting a draft mining charter insisting on perpetual BEE of 26%, the DMR has short-circuited the debate. This is onerous for companies such as Sibanye Gold which saw its empowerment holding in the former Gold Fields gold mines sold down before 2014 following the dissolution of Mvelaphanda Resources.

Perhaps worse still for Sibanye is that the draft charter muddies the waters of its proposed purchase of Rustenburg Platinum Mines from Anglo Platinum which helped it claim to have fulfilled its BEE targets. By selling the mines, Amplats now technically fails the 26% target in the new charter.

Ditto the maturation of the Exxaro Resources/Kumba Iron Ore empowerment deal in November this year which may leave both of these companies having to find new empowerment partners (Exxaro has already undertaken to do so as it was always a black-controlled company).

Here’s a summary of some of the companies most exposed by the new draft mining charter were it to be promulgated by Parliament:

Sibanye Gold:

If the once-empowered, always-empowered principle does not apply, as per the potential declaratory order by the High Court, Sibanye will not be able to claim BEE deals conducted by Gold Fields which owned its mines prior to the 2012 de-merger that resulted in the creation of Sibanye.

A similar principle applies to Aquarius Platinum which Sibanye took over last month in a R4bn transaction. Sibanye said it is seeking new empowerment partners for Rustenburg Platinum Mines.

Impala Platinum:

One of the innovations of the draft mining charter is that of the 26% BEE target, no less than 5% has to sit either with employees or through formal employee share ownership programme (Esop).

Impala Platinum (Implats) has only a 4% in an ESOP through the Royal Bafokeng Holdings (RBH), but there are other problems. RBH recently sold down its holding in Implats to 6.3% from 13.2%.

Anglo Platinum:

Some empowerment deals involving the Anglo American listed subsidiary were before 2004 and were based on units of production rather than 26% equity in the company.

Furthermore, the financial restructuring of Bokoni Platinum Mines, Anglo Platinum’s (Amplats) 49%-owned empowerment vehicle, raises questions about the number of empowerment credits it can claim. Amplats intends to sell Bokoni Mines although the DMR may look favourably on the deal if it’s too another black-owned company.

South32:

It’s coal assets in South Africa could potentially fall foul of the draft minnig charter because, as with Amplats, it is claiming empowerment points from before the mining charter was created in 2004. Its assets are 8% owned by Pembani Group, and 2% owned by employees which falls below the 5% ESOP stipulated by the new draft mining charter.

8 COMMENTS

  1. The mining companies will ultimately survive. The investors will also survive (most of them anyway) and will find other countries and even industries to invest their money…
    The real victims will be the tens of thousands of direct employees of these companies that will lose their jobs and then the hundreds of thousands dependents as well as millions of ordinary South Africans when these mines are shut down. This is really the end game.
    Capital and capitalists will always thrive… Remember maths 101, 100% of 0 = 0…
    Such a shame, really. SA could have been such a success story but I fear it is already too late to stop the inevitable.

    • I am not so sure of the yard stick used to determine the 26% ownership and who ever came with it may have to live with it. The principle of community empowerment should be harnessed and the whole thing of searching for empowerment groups at the expense of the local communities and where mines source their labour should be discouraged. I am not so sure if Mining Industry should not take advantage of the new draft to look at possibility of locking ownership which of course by law is not feasible especially if those who own have the right to sell. I am again not so sure if the local communities would want to do away with their ownership willy nilly.

      I also believe in the principle of engagement on areas where answers seem slim. Could there be a notice to sell determined and communicated in advance so that the Mine can stay on track on ownership? Could the Mine buy the stake so sold so that it is made available to the next buyer? Could this whole revised Mining Charter be an indication that as Mining Houses let us fix the issue of ownership once and for all instead of talking about it bit by bit? Unless the target says be used to the pain bit by bit but Capitalism is not friendly to any target set by democratic and transformational forces as a dog eats a dog where resources are short and scarce.

      As for employment equity I believe that the government has put its trust on the Employers to set their own targets and achieve their own targets so this one is certainly not for government.

      The real answer for all these is actually on procurement. Immediately procurement targets are met the more empowered the communities will be and they should then be able to buy their own shares from within the industry

  2. Brinkmanship has a binary outcome.
    An unemployed worker has no voice.
    Hence, a perpetual process of brinkmanship until the last worker is fired.

  3. This topic’ heading is disturbing. It seem to suggest that changing the status quo of business ownership in the mining sector will cause ‘hurt’. It is really disconcerting because this thought pattern purports that when the current empowerment portion (26%) of BLACK people increases there will be HURT and huge potential damage to the country’s mining sector. Further suggests that when the current empowerment deal portion is perpetuated, there will still be hurt. Ohh really? Is ARM hurting?
    How about we turn the table once and ask this question? Who stands to be ‘unhurt’ most if ‘new’ mining charter prevails? – The poor communities that are hosting the mining companies. – The children of the Marikana victims and the widows of the massacred men. – The mining workers who are subjected to institutionalized racism. – All South Africans citizens. – The skilled, qualified competent black mining engineers, managers and many others who are being pushed out of the boardrooms for political reasons. – Ordinary citizens will finally have the chance for empowerment opportunities that the mining companies used to reserve for the elite individuals. – It will be business as usual for the mining companies and investors as they will continue to benefit.
    The DMR has learned from their mistakes. Our intelligence as South Africans was insulted to the highest order with the 26% empowerment target. The target did not talk to the demographics of South Africa. The ‘once empowered-always-empowered’ principle is an economic suicide and should be shredded and thrown in the rubbish bin of history.

    • Howdy – Many good points but hurt and harm will flow from the new charter in its current format in my view. Persuasive as you are on transformation, the foreign capital that has long been an important part of our industry doesn’t give a flying hoot about the national interest; not a hoot. Without it, it’s harder for all shareholders to see the business grow; subsist even. Secondly, there’s only 100% of the cake. Asking Sibanye to sell another slug of shares and then ask remaining shareholders to stand by while the process potentially gets repeated in a couple of years is not a very appetising prospect. Thirdly, some of the executive of these companies have made representation to shareholders regarding the initial 26%. Back-tracking on that leaves them vulnerable to class action litigation. And that’s not to bring in the constitutionality of redrafting the mining charter. What it all boils down to is a broader philosophical question about whether redistribution can solely ‘fix’ injustices of the past. I’d rather see a new mining charter set down a blue print for improved social pact that sees encouragement of black entreprenuers for instance.

      • Money has NO colour and if threatened will leave, and if their is a chance of been stolen will leave etc

        If the people have no religion then the money will leave!

    • My friend, I am not talking about race here AT ALL. The issue really is that, if a company is forced to sell part of the business to a specific demographic for the purposes of empowerment, the only way they can guarantee that level of ownership by said specific race group is if the empowerment partner is only allowed to sell his shares to black people??? Now how in hell (excuse the pun) are you going to police that? So then, if your partner sells his shares, as he is rightfully intended to do, the company has to keep a second, racially segregated share register which will “tell” the company secretary when the shareholding falls below the threshold. At this time the company then again has to “give away” or sell more shares to HDSA people. If we have no company shares on register we then have to dilute the current shareholding etc etc. Can you see that this is not a sustainable solution? Can you see that the “non wanted” shareholder will dump their shares in such a scenario? I am sure you appreciate that mining is a heavily capital intensive business. Capital comes from shareholders and they want returns on investment. The mines WILL die… And please do not confuse employment equity and shareholding. The black managers and engineers do not need you to fight for their cause, thereby insulting their ability to take care of themselves…. You say they are good enough, maybe you should start to believe that, everyone else does..

    • Moleko .. you are clueless. So a company is forced to sell assets to black investors for a discounted (not market price) price .. the black investors can then sell whenever they want to whomever they want. And then the company must go look for more black investors ??? the company has got better things to do, like MINE and try be profitable !!! The ONUS should be on the BEE guys to sell to other black guys if you want to play it that way. Lets say the company is 100% black owned, and the black guys decide to sell completely to white guys, then its a 100% white owned company and would by this new charter be in complete dereliction and failing miserably by new BEE … which means this transaction would not have been possible, and the BEE guys would not have been able to sell .. and certainly the white owned company would never entertain buying this dump either.

Comments are closed.