The resources sector is an oddity in terms of the overall black economic empowerment (BEE) landscape: while mining companies adhere to the mining charter, the rest follow the BEE codes of good practice.
In the table above we show how the companies that agreed to provide BEE ratings agency Empowerdex with data, stack up according to the BEE codes. The charter elevates two factors — ownership and housing for employees — above all else, and works on a yes or no system. Either you cut it or you don't and therefore stand to lose mining rights.
By next year, mining companies must be at least 26% black-owned and must have converted or upgraded hostels into family units or ensure an occupancy rate of one person a room. All other categories, such as employment equity and community development, are given percentage weightings towards an overall score.
Revised charter
The revised 2010 mining charter stipulates that non-compliance can result in a mining or prospecting licence being revoked. However, it also refers to financial penalties that may be imposed. There has been little indication from the government on what it might do.
Most industry representatives expect the mining companies to meet the 26% ownership target, although Steven Hawes, Empowerdex's manager for research and advisory services, says the problem is that some shares are still encumbered.
Such shares are held as security against loans made to enable black shareholders to buy them. This might cause problems in that the charter scorecard stipulates ownership must include "meaningful economic participation" and come with full shareholder rights.
It is not yet clear how the government will interpret the "meaningful" term. If shares are still encumbered by debt, it is possible that they will not be considered to qualify in proving ownership.
Vusi Mabena, the Chamber of Mines's senior executive for transformation, says it is too early for any indication on whether most mines will meet the 26% ownership target. He says the mining companies are in the process of finalising their submissions, in conjunction with the chamber.
Black ownership
However, in a 2011 presentation to Parliament's portfolio committee on mineral resources, the chamber stated that average black ownership among its member mines was already at 28% and that no member mine had less than 15% black ownership.
It is not just the mining industry that is affected by the charter. Mining companies need to procure at least half of the consumable goods they require — 70% of services and 40% of capital goods — from suppliers who are BEE-compliant in terms of the charter. This means that any supplier company to a mine also needs to be 26% black-owned. That is often in conflict with the BEE codes.
"That has been causing big problems," says Empowerdex managing director Lerato Ratsoma. "Most suppliers to mining are not in mining, but they have to comply with the BEE codes as well.
"So you often have a situation where a supplier is rated a level 3 contributor in terms of the BEE codes but does not qualify under the charter because it does not meet the 26% ownership requirement. Certainly, many suppliers are in danger of losing contracts as a result."
Problems
There are other problems with the charter. One is that it does not cater for mines that may have attained 26% black ownership, but whose black shareholders subsequently sold their stakes.
"Now those mines have to do another deal to achieve the target," Ratsoma says.
Another huge problem, she says, is that the charter's ownership element encourages fronting among suppliers, rather than fighting it. "The charter does not address fronting at all."
She emphasises that mining companies are not ignoring other aspects of transformation — they know how they would score under the codes, and have implemented substantial socioeconomic development programmes, for example.
"It's just that with the charter, ownership becomes the be all and end all of everything."