ArcelorMittal South Africa’s (Amsa) proposed BEE transaction with controversial company Imperial Crown Trading (ICT) has been called many things.
It has been hailed as an astute manoeuvre in the company’s battle over a defunct supply agreement, with mining giant Kumba Iron Ore, for ore from the Sishen Mine. It has been seen by others as a political gambit to outwit certain portions of government, namely the department of trade and industry, in attempts to keep local steel prices low.
But can it be called transformation?
It could certainly make the rich and politically connected much richer. But the average Amsa worker and as yet unnamed groups of women and young people also touted as beneficiaries of the deal stand to get a fraction of what ICT’s shareholders stand to make.
A recent report by PricewaterhouseCoopers put the earnings of the lowest paid workers at an average of R42Â 000, while company directors and executives earn 200 to 300 times that.
Amsa’s deal reflects this trend.
The BEE deal itself will see ICT shareholders who form the “strategic BEE partners” in the Ayigobi Consortium — the BEE vehicle — potentially get “money for jam” as leader of the consortium, Sandile Zungu, has openly stated.
These include the likes of the Gupta family, with close links to the president, their associate Jagdish Parekh, and Duduzane Zuma, the president’s son.
The Mail & Guardian has calculated previously that Jagdish Parekh, who owns half of ICT, will earn a minimum of R 182-million, and maximum of R 418-million. Not to mention the R400-million he will be paid out if ICT can convert its prospecting right into a mining right.
This is based on the economic value of the deal to participants, which is limited, depending on Amsa’s share price performance.
This is in stark contrast to what the 8Â 500 Amsa workers and broad-based participants stand to earn
Together, at 10,25%, they will make up about a two-fifths of the 26% portion of Amsa transferred to BEE participants.
At the floor of the deal they stand to earn about R350-million, and about R790-million at the top end.
Even if everything goes smoothly and Amsa’s share price continues to rise, the 8Â 500 workers and unnamed broad-based participants will not earn together what one man alone stands to make out of the deal.
Or to put it another way, the average worker at Amsa will earn an estimated maximum of R46Â 000 out of the deal or a minimum of about R20Â 900, versus Parekh’s potential R858-million.
Caveats
Amsa has defended its position, and openly stated that the deal is still subject to a number of caveats — not least of which is its own investigation into how ICT came to hold the prospecting rights over a portion of Sishen. The rights formerly belonged to Amsa and were key to its preferential pricing agreement with Kumba.
The company is also reportedly doing its own BEE assessment of the deal.
But at its most basic level, the transaction was motivated by the necessity, not of empowering black South Africans, but of bringing lost mining rights — which once ensured preferential ore prices for Amsa — back in house. A poor starting point to undertake a deal of this nature perhaps?
It should be stated at this point that while ArcelorMittal has taken much of the heat in the fallout around the deal, in its defence every player involved has come away from this matter sullied, including Kumba and the department of mineral resources (DMR).
Kumba, it appears, chafed under the terms of the preferential price agreement, of cost plus 3%, to supply ore to Amsa.
The miner, as Amsa argues, allowed the steel giant’s share of the rights to lapse, acting in bad faith.
Kumba denies this but it did apply for Amsa’s share of the rights to the Sishen mine. The attempt backfired as the rights went to ICT. Nevertheless, Kumba used the event to get out of the supply agreement and ensure it got better prices for its ore.
The DMR has decided to stick to its decision to award prospecting rights to ICT. But sufficient questions remain for Kumba to continue pursuing the matter in the high court. Not least of which is how a prospecting right (the precursor to a mining right) can be awarded over an area that has known mineral reserves and active mining operations on it?
The DMR has, however, admitted that the application of mineral rights legislation in the recent past has created huge economic uncertainty, and so instituted a six-month moratorium on the issuing of prospecting licences.
As a result of both this corporate battle and government’s failure in its oversight role, it could be argued that a hasty deal had to be struck and Amsa had little choice in the matter.
But it has done little to change perceptions that BEE is only for the rich and well-connected, a tool to be used for the cynical and opportunistic.
Transformation in this case seems a manifestation of that old adage, “The more things change, the more they stay the same.”