A report on transformation in the mining industry, released last week, has found the sector wanting when it comes to empowerment.
The report, conducted by BEE KIO Advisory Services, says the gross value of black shareholdings — or BEE market cap — of the JSE-listed top 25 mining houses was 5.27% of their combined market cap of a total R1.8-trillion. This is far below the 26% ownership target to be achieved by 2014, set out in the mining charter. A review of the charter is due to be completed by the end of June.
Duma Gqubule of KIO Advisory Services says that ownership was the primary measurement used, as it was the only pillar in the mining charter that gave clear, measurable targets. ‘The sector clearly needs a better charter,” he said. ‘As it was the first sector to create a charter, it is historic. But the country has had time to develop and put better measurement systems in place.”
The report says that one of the biggest weaknesses of the mining charter is its ‘lack of a rigorous measurement system to significantly reduce the possibility of different interpretations by companies”. ‘Our research has found that most mining companies confused the signing of a BEE transaction with the achievement of the ownership targets,” the report says.
The report notes that the codes of good practice published by the former department of minerals and energy (now mineral resources) in April last year, which includes general principles for measuring ownership and a scorecard, do not include the level of detail needed to eliminate confusion.
Gqubule argues that the department’s codes ‘are a very advanced form of social accounting” and that the mining sector needs to justify why its charter should remain as it is and not align more closely to those codes. ‘[But] the government must also have better capacity to monitor transformation,” he says.
Transformation could not take place in an environment of low economic growth, as has been experienced by the sector, which, aside from the recession, was not able to take full advantage of the preceding commodities boom, he says.
The report distinguishes between three kinds of black ownership: ‘gross value of black ownership”, which does not account for debts incurred by black investors; ‘effective value of black ownership” — or ownership after excluding shareholders who are not black; and ‘net value of black ownership” — or ownership after accounting for the debts incurred by black investors.
But it notes that because many deals have been struck at mine level, it is not possible in most cases to determine the net value of black ownership. The report examined subsectors of the mining industry, including gold, platinum group metals, iron ore, coal and manganese — all of which accounted for more that 80% of South Africa’s commodity sales as of 2008.
The report finds that the BEE market cap within the top 25 mining companies was R97-billion or 5.27% of the total market capitalisation. It notes that seven companies had implemented employee share ownership programmes to a value of R12-billion or 0.53% of the total market capitalisation of the top 25 companies.
When it comes to platinum group metals, the report says that the BEE market cap in the listed platinum companies was R30.7-billion or 7.95% of the sector’s total market capitalisation. The report says that the value of the black shareholding in Impala Platinum (R19.9-billion) accounted for 65% of the total black shareholding in this area, whereas the black shareholding of three companies — Implats, Northam and Aquarius — accounted for 89% of the gross value of black shareholdings in the sector.
Findings in the gold sector show that the BEE market cap in the sector was R6.4-billion, or around 3% of the sector’s market capitalisation. The market capitalisation of gold companies listed on the JSE was R210-billion. It says the top three producers — Anglogold Ashanti, Goldfields and Harmony Gold — accounted for 92% of the sector’s total market capitalisation.
Transformation is falling short of targets, but a reports says its results are open to interpretation because of a flawed system In the case of coal producers only Exxaro and Optimum coal were listed so the level of black shareholding
cannot be determined, the report says.
So it measured production attributable to BEE vehicles in the sector, as against total production of the commodity in 2008. It says that the BEE-attributable production was 47.2-million tons, or about 22.8% of total production. Of this Exxaro accounted for 54% of BEE-attributable production.
Similarly the iron ore and manganese sub-sectors were measured through BEE-attributable production. This was 10.1-million tons, equivalent to 19.8% of total production, from the country’s four iron ore mines, whereas the BEE-attributable production for the country’s three manganese mines was 1.3-million tons, or 24.4% of total production.