The government is well placed to develop the junior mining sector over the next decade — but is likely to be forced to rethink key aspects of its proposals for empowerment in the mining industry.
This is according to industry players, who were reacting to the Department of Mineral and Energy Affairs’s draft empowerment charter. Leaked last week, this sent tremors through local and foreign stock markets.
The Broad Based Socio-economic Empowerment Charter is an important product of the recently passed Minerals and Petroleum Resources Development Bill. The charter, intended to be in place six months after the Bill becomes law, will define how mineral rights will be transferred to boost empowerment.
The charter proposes that 51% of mining assets be transferred into black hands in the next decade. It also provides that applicants for new or renewed mining licences should have a 51% empowerment partner for new ventures and 30% for existing operations.
The proposals stipulate improvements in the living and working conditions of mine workers, the transfer of technical and managerial skills and preferential procurement.
This week the department moved into damage-control mode with an urgently convened gathering of the sector partnership committee, which includes the government, employers, unions, small black mining and a mysterious “foreign investors’ and prospectors’ forum”.
Suggesting the leaked document was no more than a “draft to stimulate discussion”, the meeting announced the formation of a task team to look into the proper formulation of a charter. The department refused to comment after the statement was released.
The department’s move helped mining stocks recover some of the losses of up to 12% they suffered last Friday.
But an SG Securities analyst in London warned: “The damage is done. This will just not go away.” Fund managers who walked away from South African mining stocks were unlikely to return in the immediate future.
A range of pitfalls remains, with the potential to spark conflict between the government, labour and the industry.
According to a source close to the process, the 51% proposed target accommodates suggestions received during the submission phase. These ranged from between 15% and 20% (from the mining houses) to as high as 80% (from labour and black business representatives).
The rapid transfer of half the industry’s wealth remains the most difficult aspect of the mooted changes.
Alan Fine, spokesperson for Anglo Gold, illustrates this difficulty. He said his company was 51% owned by Anglo American, with 30% of the stock in the hands of foreigners and the balance owned by local institutional investors, some with a significant black empowerment component.
The difficulty would lie in identifying parties to give up their financial interest to accommodate the charter’s 30% requirement on current operations.
“Government will have to engage on these issues. Something they could also do is to consider the portion held by black people through institutional investors [before setting targets].”
Anglo Gold has supported empowerment through R8-billion worth of deals in the past decade.
Part of the problem of having to relinquish a lucrative stake is that it comes at a high premium, which raises the financing requirement.
A suggested strategy for raising capital has been to use the Industrial Development Corporation (IDC), the National Empowerment Forum and the Development Bank of Southern Africa to help finance, through loans or by warehousing, shares for empowerment players. Funding of up to R27-billion has been set aside for this.
But this represents 3% of an industry valued at R750-billion. The financing requirement for empowerment players is currently valued at between R350-billion and R550-billion.
BHP Billiton’s vice-president for investor relations, Michael Campbell, said the warehousing of shares by government institutions such as the IDC would effectively amount to nationalisation. “Once the shares get into the warehouse, they are unlikely to come out,” he added.
The labour movement was also unmoved by the events of the past week. Gwede Mantashe, general secretary of the National Union of Mine-workers, this week branded the big mining houses racist and accused them of leaking the draft charter to cause panic and ensure the government began talks with its back to the wall.
A Johannesburg-based mining analyst, who asked not to be named, said that empowerment players would have to refine the art of deal-making.
In terms of the new mineral rights legislation, they would be able to bring exploration permits to the table, while established companies provided finance. The shareholder agreement would reflect the value of each partner’s contribution.
Between 1998 and 2000 the department successfully formulated a White Paper for the liquid fields industry and adopted a negotiated industry charter that will transfer 25% of its assets to blacks within the next decade.
However, there are significant differences in mining. Relations between the government and the mining houses have been marked by suspicion and acrimony. It is no accident that the leaked charter is dated June 18 — when conflict over the minerals Bill in Parliament was at its height. Mining interests expressed fears that the government would impose a charter by regulation.
However, the meeting of the “tripartite sector partnership” this week indicates the government is sensitive to private sector sentiment and intends negotiating the charter. “The matter should be handled with the necessary sensitivity it deserves,” said the sector partnership’s joint statement.
Billiton’s Campbell said the government had shifted a long way since the 1994 White Paper on mineral rights, from 10-year unrenewable leases to the current 30-year renewable ones, and from centralised marketing to unrestricted marketing under the present Bill.
“We believe government will shift its thinking on the charter,” he said.