MARK Cutifani, CEO of Anglo American, one of South Africa’s most important companies, once commented that empowerment deals ought to be allowed to fail, just as in any sector or walk of commerce, businesses fail.
There are examples of this having happened. Afripalm Resources was forced to close its offices after it handed shares in Northam Platinum to lenders because the dividend flow used to finance them had dried up. Countless other empowerment deals were refinanced as mineral prices corrected on the back of a reduction in Chinese economic growth.
For reasons one assumes are ideological, and perhaps even pernicious, the redraft of South Africa’s Mining Charter on June 15 would appear at heart to seek indemnity against failure of black economic empowerment through a subversion of the normal rules of business. Moreover, it wants local and international shareholders, including pension funds and retail investors, to provide guarantees for this politically- and ideologically-driven diktat.
Take Section 2 of the redrafted Mining Charter which deals with ownership. Its clause numbered, 2.1.1.5 makes the point that in the event of a rights issue, the holder of the mining right “… shall not reduce the Black Person shareholding distribution …”. This interprets as a free-carry for the black economic stake – now increased to 30% from 26% – in the event of a public fund-raising. It’s a you-before-me without the altruism.
Another clause – 2.1.1.6 – requires that after a ten-year lock-in period for the empowerment partner, the right-holder (company) must write-off the balance of the debt if it hasn’t been fully repaid through dividend flow. In addition, that dividend flow will be supplemented with 1% of revenue paid in the event of a distribution before either lenders or other shareholders.
There’s also a clause – numbered 2.1.2.8 – which seems to pave the way for state-owned beneficiation at the expense of shareholders. This is the item which says that the empowerment partner must also be allowed the right to the “… transportation as well as trading and marketing of the proportionate share of the production”; that is, 30%.
The mind boggles as to how Anglo American Platinum (Amplats) or Impala Platinum would countenance a situation where 30% of their production could be smelted in, say, a government-owned facility. The fact that beneficiation creeps into a section dealing with ownership also supports the suspicion that the Mining Charter is a mish-mash of its design, which was to court more than 60 stakeholders, looking for different ideas – all compiled without the oversight of the industry required to implement it.
It’s hard to know exactly how this marries with commercial law, specifically South Africa’s Companies Act, but one can hear the shattering and splintering of trade deals from here. As a piece of industry regulation, the latest version of the Mining Charter is so far out of control, it’s hard to absorb.
It now falls to the Chamber of Mines to take the matter to court. Ostensibly, the industry’s beef is to win a declaratory order in the High Court in its favour which says the Mining Charter recognises the standing of empowerment transactions even if the counter party has ‘sold out’ or the deal collapsed under commercial pressure. Practically, however, winning such a declaratory order puts a spoke in the wheels of the Department of Mineral Resources and returns it to the negotiating table.
But it may take time, and while the Mining Charter is also subject to an interim interdict, there’s the slow drip as confidence ebbs from an already trampled sector. As Steve Phiri, CEO of the black-owned Royal Bafokeng Platinum said, the mining sector in South Africa has been in crisis for at least the last five years.
“We believe South Africa will become less attractive as a destination for capital investment as a result of the revised Mining Charter,” said Andrew Snowdowne, an analyst for Investec Securities. In its current form, the Charter would “act as a powerful re-rating catalyst in our view”, he said.
Evidence of this is apparent in the share prices of some of the country’s best known mining stocks. The Mining Charter in its current form makes no sense. Crimping profits to make new empowerment targets inviolably successful only hurts the ability of the mining sector to sustain itself, much less grow. And that will mean jobs. Some 70,000 jobs have been shed in the sector in the last five years, according to Roger Baxter, CEO of the Chamber of Mines. Expect that figure to grow even whilst lawyers, courts, governmental departments and mining companies haggle over this latest ideological impost.
If the CoM was honest, then maybe South African society will take them seriously. Its still cannot break with its racist foundation by ideological bankrupt Lionel Phillips!
CoM proclaims that its members have 38% BEE ownership….why then challenge 30% BEE ownership requirement?
CoM claims that its pro transformation… why then challenge the 60% senior management & 50% board representation?
CoM claims to support BEE firms via procurement….why the dispute the stipulations proposed by the charter?
I think the CoM pays lip service to transformation and DOES NOT genuinely believe it! Its an organisation foundered to exploit black South Africans, just like its first meeting headed by Lionel Phillips!!!!
It is clear that your interpretation of ‘transformation’ has zero merit – as in it is absolutely devoid of MERIT. Your clearly have not evolved to grasp that unless you can compete globally – then you are history, as eg dead as Marx and Lenin are.
Unless transformation follows merit – there will be NOTHING to ‘transform’, viz your favourite failed states such as Zimbabwe, Cuba, Venezuela, North Korea, DRC, CAR, well basically the rest of Africa.
It is irrelevant if the CoM members have 38% at the moment, or if they have 8%, or even 88% – what matters is that unless such ownership makes absolute business sense it is doomed to go down the same ‘longdrop’ as you favourite failed states.
This why your kind remains the ‘bottom billion’ (read: nobody with an IQ above sea-level takes you serious) – you are convinced the is a MONEY TREE in the gardens at the Union Buildings.
As long as you spew delusional claptrap as you do above – your future will be as secure as that of the Berlin Wall.
Dear Schultz,
Your response is the one devoid of Merit , and full of rants and spewing insults. A sure sign of a bigoted empty head.
I posed facts , and you respond with diatribe and racists innuendos. Transformation will follow Merit as all true transformation has always done!! Furthermore, what did NOT follow merit is your inhumane apartheid policies of your forbearers! That policies destroyed the industry in that it failed to adopt methods and best practices for human working conditions. If RSA was a developed country like Canada, this human-killing industry will be dead by now, like the scores of miners it kills yearly.
For the record, my favourite state is Chile and Indonesia.
I can with confidence conclude that from your response, my IQ is a high than yours!My future is certainly brighter than yours.
who is john galt?
“The new charter will also not acknowledge historic empowerment deals”. How on earth do you sell that to a company investing billions in SA? Hi, remember that 30% stake you gave away for nothing, and it was then later sold by the greedy fatcats? Well, now you have to give away another 30%, until they also decide to sell, and you will just keep ’empowering’ until eternity.
More job losses coming up in the sector. Less investment and MUCH more skills drainage. The charter in it’s current form will simply teach the beneficiaries ALL the wrong principals of business. I can imagine the response by government when the workers flood the streets in protest to force their “WMC” bogy man to leave his capital in companies. What a bunch of corrupt idiots. We are the laughing stock of the industry around the world! Thanks JZ and SZ!
Dear Chamber of Mines,
The are going to dilute the shares, a stock market investment concept this minister is clearly not aware of, many companies will collapse. Investors won’t invest. Investment funds are about to leave with trillions of Rands of investment, the stock market will collapse and the Rand too. It’s called share holder dilution. Google it.
Here’s links to this investment concept:
http://www.investopedia.com/terms/d/dilution.asp
https://www.fool.com/investing/high-growth/2006/04/28/foolish-fundamentals-stock-dilution.aspxb
https://seekingalpha.com/article/234695-the-dangers-and-benefits-of-share-dilution
https://www.capshare.com/blog/dilution-101-startup-guide-equity-dilution/
http://www.investinganswers.com/financial-dictionary/stock-valuation/dilution-2026
http://www.nbcnews.com/id/7477469/ns/business-answer_desk/t/what-are-diluted-shares/
http://finance.zacks.com/dilution-affects-stock-price-6875.html
Good luck there.
Wow, somebody forgot that this was not a fairy tales. Politicians cannot simply wave around some garbage that was supposed to be a “Charter” and now want the charter to have legislative teeth that will kill the Gold Mining industry quicker than those with their snouts in the feeding trough can kill the golden goose, pluck and eat it. Remember, it is always easier to retain an existing industry (mining in this case) than it is to resurrect it once it either closes or goes to “Care and Maintenance”. As has already happened due to higher wages demands coupled with lower productivity which has already resulted in a large number of areas no longer being considered viable due to labour costs.
How much more so will the millstone of government interference ensure the demise of viable mining in this country. We should be looking at either Botswana or Peru if we want appropriate examples of the way forward for the mining industry
Why NOT Indonesia & Chile … Dont be selective to suit your agenda. Name one diamond/Copper company owned by Batswana or Peruans? NONE…Yet we must emulate them, please get real!