SOUTH African mines minister Gwede Mantashe’s compromise Mining Charter, gazetted on September 27, has been viewed positively by analysts and lawyers.
In the view of one bank, there are enough concessions in the document to earn Mantashe a creditable pass; and there’s no particular malignity lurking in the fine-print, or as it described: “no devil in the detail” Two research papers seen by Miningmx conclude the Mining Charter is net positive for South African mining stocks.
The Minerals Council is yet to comment. It said in a brief statement earlier this week, however, that the engagement displayed by the Department of Mineral Resources (DMR) had been significant, and thorough-going.
In essence, the Mining Charter gets ticks next to its name for the removal of the 1% of pre-tax trickle dividend and the free carried interest for employees and host communities. The latter has been changed to a notion of carried interest which may allow mining companies to recoup from the development of the mining lease, although it’s here that attorneys and analysts raise questions and reserve final judgement.
“While it is unclear how they would be able to do so, it would be positive for mining companies to have an opportunity to recover some contribution for these shares,” said Peter Leon, an attorney for Herbert Smith Freehills, who is normally one of the more forthright in his criticism of government regulation of the sector.
Perhaps most promisingly, a requirement to top-up black ownership by 4% to 30% on existing mining rights has been abandoned, but retained for new mining right applications, a development that JP Morgan Cazenove said in a note would be a disincentive for South Africa’s mining industry, in the long-term.
The option to offset the 30% of procurement budget on mining goods with spend on supplier development is viewed as another key concession. And there even instances where attorneys have afforded the DMR the benefit of the doubt: Webber Wentzel attorney, Jonathan Veeran noted that as the Charter did not make any reference of prospecting rights “… it may be seen as a measure to encourage exploration and stimulate international investment in the industry”.
He added: “There are, however, some issues in the new Mining Charter that need clarification which may be addressed in a set of Implementation Guidelines that is to be published within two months”. This is viewed as a negative by Leon:
“It seems regrettable that the DMR is now required to develop and publish guidelines on how the Charter should be implemented. Ideally the requirements imposed under the Charter should have be clear to understand as much as meet. This is another lost opportunity for the Department to promote the regulatory certainty which South Africa’s mining sector needs,” he said.
“We believe this legislation is still a better outcome for South African mining risk premia than is currently reflected in South African mining share prices,” said JP Morgan Cazenove analyst, Dominic O’Kane in a note. “We therefore believe Anglo American (Overweight), AngloGold (Overweight), Gold Fields (Overweight), and Harmony Gold (Underweight) can outperform international peers over the short term,” he said.
“An improvement from the draft Charter and we believe the new Charter significantly addresses key investor concerns, particularly on ownership requirements,” said Investec Securities in a morning note.
“Compromise was required for a country and sector with unique legacy issues and, on balance, we believe the 2018 Charter may have found the necessary common ground,” it said. “We continue to worry, however, about South Africa’s attractiveness for new mining investment from global players.”
