Business

Mines win this round

2018-09-30 13:05

The latest version of the Mining Charter, which was published on Thursday, has made some further concessions to the mining industry, especially around ownership, but retained procurement targets that the mines have called “impossible”.

It has also caused widespread confusion by introducing the concept of a “carried interest” for workers and communities totalling 10% – which is not free, but must cost nothing to the beneficiaries and not be debt-financed.

At a briefing in Pretoria this week, Mineral Resources Minister Gwede Mantashe and deputy director-general for mineral policy Mmadikeledi Malebe struggled to explain how this works.

Henk Smith, a lawyer representing mine community groups, said this only applied to new mining rights and did nothing for communities affected by the existing industry.

Another major departure from the previous charter is that the shares given to workers and communities are permanently “nontransferable”, meaning that famous employee share schemes set up in the past that paid out billions to workers when they “vested” are now impossible.

Another tweak to the ownership rules is that 20% of the 30% BEE target must go to BEE entrepreneurs, compared with 14% under the previous version of the charter.

This means reducing the 8% that both employees and communities were meant to get under the previous version – from 16% to 10%, collectively.

The new charter follows a draft version in June that had already scrapped many of the most contentious parts of a version that was produced by former mineral resources minister Mosebenzi Zwane last year.

This new charter has further entrenched the “once empowered, always empowered” rule the mines have insisted on, backed up by a declaratory order by the Pretoria High Court to the effect that changing the rules after issuing a right would be illegal.

In June, the charter gave existing mining rights holders – all current mining operations in the country – five years to increase their BEE ownership from the old target of 26% to 30%.

This charter now allows existing mining right holders to stay at 26% until their mining rights expire.

This includes the once empowered, always empowered rule, meaning that they have no new obligations even if their black shareholders have
sold out.

Mining rights can be granted for a maximum of 30 years, but also for shorter periods, making it uncertain how soon the bulk of the industry will fall under the new 30% target that applies for new mining rights.

Tebello Chabane, senior executive for public affairs and transformation at the Minerals Council SA, said the industry lobby group would only comment on the new charter next week after canvassing its members.

Chabane had previously told City Press that it was “neither here nor there” that the June charter made concessions around the once empowered, always empowered rule as this was simply due to a court order.

‘Carried’ interest

This week’s charter calls for 5% stakes to be allocated to employees and to communities.

Where this had previously been called “free carried interests”, it is now just called “carried interests”.

The difference, according to the charter, is that the cost of the interests can be “recovered from development of the asset”.

This sounds like the vendor-financed arrangements that have been standard for BEE deals in the mining industry, where debt is paid by dividends.

However, the charter also says the carried interests have to be “free of any encumbrance”, which indicates that they may not be debt funded.

These shares for employees and communities are nontransferable.

“It is the dividend, not the shareholding, that is distributed,” said Mantashe.

He added that these shares should also not be diluted, indicating that mining companies would have to give these schemes more shares whenever it did a rights issue.

Mining lawyer Peter Leon of Herbert Smith Freehills said it “remains to be seen” how the carried interests work.

“While it is unclear how they would be able to do so, it would be positive for mining companies to have an opportunity to recover some contribution for these shares,” he said.

Communities 

The new charter is a big disappointment, said Smith, adding that it was “a small plaster for a huge wound”.

There was still no clear provision for who managed the 5% given to communities and it seemed that it would, in practice, be controlled by traditional leaders, mining companies and municipalities, he told City Press.

Even this concession only applied to new mining rights, meaning that even this limited benefit would be deferred to some future date, he said.

The new charter does say that when a mining right is transferred, the new rules, including the 5% for workers and communities, become applicable.

This can probably be evaded by structuring sales in ways that the owner of the right does not change, but parts of companies are instead sold, Smith said.

Community campaigns will now reorientate to push for provisions in the Mineral and Petroleum Resources Development Bill.

A 2013 version of this bill is now being recalled and it is expected that there will be a new one.

Fundamental demands include community rights to refuse mining, negotiate the terms of mining and be compensated for the damage historically done by mining, said Smith.

Buy local

Apart from the ownership targets, the mining industry had vociferously challenged the procurement rules of the June charter.

The main one is that 70% of mining goods must be procured from South African manufacturers.

The Mineral Council SA previously said this would be impossible for certain categories of mining equipment.

The new charter makes one big concession on this by now allowing mining companies to “offset” 30% of the 70% by funding supplier development instead. In the June version, this offset was only 5%.

Other concessions 

  • The new charter has removed a new designation of beneficiaries of transformation as “black people” in the June version and reverted to the conventional language of “historically disadvantaged South Africans”. The effect is that the employment and ownership targets will now again count white women as legitimate beneficiaries.
  • A controversial “trickle dividend” mines were meant to pay communities under the June charter was completely removed.
  • Mandatory community and worker representation on boards was also removed.
  • The new charter has jettisoned some of the rules for how BEE partners are treated. They are allowed to sell their shares and will not be expected to reinvest a portion of the proceeds in mining, as the June charter had called for.

They will, however, only be able to sell out after a third of the duration of the mining right.

BEE share sales will, however, be regulated and the mining company involved will have to disclose to government the financing agreements in place and demonstrate that the BEE partner is leaving with real net value.

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June 16 2019