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:
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.
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%.
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.
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.