The final shape of South Africa’s new mining charter
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The final shape of South Africa’s new mining charter

17 Dec 2018 (Last Updated December 14th, 2018 12:20)

The South African Government has finally approved its much-delayed mining charter. While it is designed to boost black ownership of projects, some observers have argued that it could leave local communities even further out of the loop than before. So will it be an effective instrument?

The final shape of South Africa’s new mining charter
The final draft of the charter shows a clear “recognition of continuing consequences” of previous empowerment transactions. Credit: Courtesy of FIFTY

It has taken two years, multiple drafts, and a court case, but the South African mining charter has finally been approved by both the government and industry.

To get here, the final charter had to lose some of the major components from the original draft, such as the government taking a 20% stake in all new projects and mandated increases in back ownership. These ideas were met with anger from both the mining industry and local communities when the first draft was published in 2017.

“The initial version was not very well received by the investment community, it was not very well received by mining companies and we lost ZAR52bn off of mining stocks in a period of just a week or two,” says senior executive of public affairs and transformation at the Chamber of Mines Tebello Chabana. “As an industry we decided to take the Department of Mineral Resources (DMR) to court, we got it indicted and we notified them of the fact that we were going to get this charter reviewed.”

In September, South African Communications Minister Nomvula Mokonyane announced that the charter had finally been approved by the cabinet, and in October Mineral Resources Minister Gwede Mantashe issued the final charter itself, entitled ‘Broad-Based Socio- Economic Empowerment Charter for the Mining and Minerals Industry’.

It is the third edition of the policy document, with two previous versions in 2004 and 2010, both of which were created to help redistribute mineral wealth following apartheid and drive growth in a sector that contributes ZAR312bn to national GDP and employs hundreds of thousands of workers.

What does the finished charter look like though, and will it be effective in its final form?

Final outcomes: black empowerment and economic incentives

There are several major outcomes of the mining charter, predominantly surrounding the proposed black-empowerment alterations and economic incentives.

One of the major criticisms to previous drafts circled around the concept of ‘once empowered, always empowered’. This was the concept that previous black-empowerment transactions should be recognised even if those shareholders were no longer working with the mining company in question. The final draft of the charter shows a clear “recognition of continuing consequences” of previous empowerment transactions. This means that companies will not have to issue shares to black investors now, in order to meet the policy’s criteria, if they have previously met it.

“There’s been a conditional recognition of the continuing consequences of historical or past transactions for existing mines,” explains Chabana. “This has been a very vexed issue, so while it is conditional, this recognition is a step in the right direction in terms of acknowledging the key commitments that mining companies have already made.”

A key aspect of this is the level of required black ownership, which was set to be raised in the previous iteration of the charter. Following complaints from the mining industry about the feasibility of such a move within the prescribed timeframe, this has been altered. In the first draft of the current charter it called for a top-up of black ownership to 30% in a year, while the later draft in 2017 gave mining companies five years to increase the levels. For existing mines however, there is no required increase in the final draft.

“The removal of the top-up from 26%-30% is important,” says Chabana. “In the original draft, it said that at an existing mine you’d have to top up your black ownership to 30%. If you think about it though, these are existing mines where transactions have already been done so moving that target up, it just could be seen as government moving the goal posts, which could be seen negatively by the investment community.”

This will apply to all pending transactions as well as those already in place; however, it will not cover future projects or renewals. As such, while a fully established mining operation that has met the previous black-empowerment metrics laid out in the 2010 mining charter will not have to increase or alter its operations, a mining project that was launched following the publication of the 2018 charter must meet new, higher standards.

The 2017 charter required “free-carried interests” of 5% for all workers groups. In the reworking of the document, the “free” has been removed, and the option of paying “equity-equivalent” benefits to local communities has been added.

Finally, the trickle dividend equal to 1% of earnings before interest, tax, depreciation and amortization (EBITDA) has been removed. This means that mining companies will have one less obligation to meet, as part of a larger move to reduce demands on the industry to make it more attractive.

“That is key, because what we’re realising, certainly in a South African context a bit now, we really do need an exploration boom, so putting more red-tape on it is not going to be stimulating exploration,” says Chabana. “We need to resuscitate exploration in South Africa.”

Has the new charter been welcomed?

The final charter has been welcomed by the mining industry, as it eases investment, which, it is hoped, will enable greater exploration. However, criticisms have been raised by groups such as the Bench Marks Foundation, an independent social justice think tank.

As an example, the foundation highlighted Xolobeni, a titanium-rich area on the Eastern Cape’s Wild Coast that has a stand-off between police and mineworkers that has seen the use of tear gas and accusations that the community’s lawyer was falsely arrested.

“I expect the release of the charter to be more of the same, with less community voices,” said policy manager at the Bench Marks Foundation Hassan Lorgat in an interview with The Citizen. “For 12 years, the people of Xolobeni have waged a struggle against mining in Pondoland. The DMR has shown lack of proper consultation with communities; lack of cost benefit analysis… What the rising tensions between communities, DMR and a local pro-mining group have illustrated, is that mining is being pushed at all costs, with disregard for severe consequences.”

The breakdown of relations between communities and the government has led to a lack of trust, with the government’s strong focus on economic development being seen in some cases as taking priority over citizen welfare.

Chabana disagrees, however: “When policy instruments like this are published you’ll always hear one or two negative comments, but if the majority of community members are silent, you kind of just assume that they’ve accepted it. They haven’t been as vocally negative about this iteration as they were about the 2017 one.”

Sharing the benefits with community members

This final iteration has moved away from the big push towards increased black ownership seen in previous versions, however, and lessened economic strains on the industry. Such shifts could be seen as prioritising industry, but these are more nuanced, Chabana explains.

“I think one must have a debate about the efficacy, or the effectiveness, of transformation through a tool like the charter. I think to some extent it has been successful in increasing black ownership in the sector, it has certainly produced a substantial amount of black investors which I think is quite important. Those black industrialists then acquire other businesses and employ more people and so forth. Where it has not been that effective, is in eradicating poverty by broadening the base of ownership.”

“In the negotiations on the charter, we questioned whether ownership of mines by communities in particular is really the right way to go when trying to eradicate poverty,” Chabana continues. “Your average community member is not an equity investor, so should we not rather be looking at more sharing the benefits with them, so they’re getting direct benefits from mining infrastructure, schools and the like, more of those as opposed to equity ownership.”

The mining charter will bring policy certainty to the mining industry, encouraging investment and exploration that will help to build the industry in the coming years. Industry must now work to ensure that the benefits are shared by local communities by working closely with them.