One of the most important things about South African mining is that it provides good jobs to thousands of people, many of them unskilled or semi-skilled people who would struggle to find similar salaries in any other sector. That is why the latest version of the mining Charter, version three, attacks the heart of the value of South African mining. By JAMES LORIMER.
There are so many things wrong with the Mining Charter, it’s difficult to know where to start.
There’s the way it was brought in, with a minimum of consultation in contrast to the painstaking negotiations over the previous two versions of the document. This time there were major provisions in the charter that the mining industry, 90% of which is represented by the Chamber of Mines, knew nothing about. That will be one of the first things on the table when the Chamber takes the charter to court, which it has said it is going to do.
Then there’s ownership. Charter 3 has a stipulation that current mandated levels of 26% BEE ownership be topped up to 30% within the next 12 months. A few companies are over the 26% mark and some stand at less than that as a result of previous empowerment shareholders selling their stakes to non-BEE shareholders. Take the rough value of the mining industry at over R1.2-trillion and that means there will have to be nearly R50-billion in BEE mining deals over the next year. That’s an awful lot of money to find to finance the deals, probably not enough to go around. The fire-sale vultures are already circling.
This will inevitably mean the destruction of shareholder value which will make South African mining shares even less attractive. That means fewer of the investment injections the mining industry constantly needs to keep going.
The result will be an industry whose decline will gather speed. In turn, that means jobs will be lost at an even faster pace than the roughly 70,000 over the past four years. For each direct job that goes there’s probably another one lost in an industry associated with mining like engineering, logistics, construction or transport.
Sometimes people who should know better point to the inevitable decline of South Africa’s mining industry. Some deposits are mined out, others have had the best parts mined out. But fabulous riches remain. We have arguably the world’s greatest mineral endowment, worth $2.5-trillion. We still have 40% of the world’s gold reserves, although much of that is deeper and more expensive to get out. We have mineral overlaying mineral and yet we are only the 74th most desirable place for mining investors to put their money. The detailed and widely regarded Fraser Institute annual survey shows only South Sudan and Zimbabwe are seen as worse places in Africa to invest in mining. We are beaten not just by Botswana, which one might expect, but also by Congo and Zambia.
It also should be comparatively easy to mine in South Africa. We have transport and power, we have banking and accounting systems and we have skilled personnel. But all these advantages are negated by a dysfunctional labour dispensation and by strangling regulation that increasingly is seen as serving crooked officials and political cronies.
That is writ large in Mining Charter 3. On the face of it, it promises big giveaways to three important constituencies of the ANC. First are mining unions, increasingly disaffected as they see worker numbers decline and rampant elite enrichment; then there are communities who’ve suffered the sharp end of an ANC at municipal level which is unable to deliver the essentials. Each of these constituencies is down to receive 8% of any new mining right. Then there are “BEE entrepreneurs” – read cronies – who are to receive 14%.
This is taken to absurd levels in the new charter rule that says 50% plus one of any mine prospecting operation has to be BEE. But BEE mining is notoriously short of capital. To make one of the riskiest parts of mining dependent on BEE is absurd. In practice, non BEE funders would have to come up with all of the money and give away control. So say goodbye to already low levels of prospecting.
The hard fact is that mining investment will dry up almost completely. Who wants to spend a billion dollars when $300-million will disappear before you even get started?
Then there’s the stipulation that 1% of turnover should go to BEE shareholders every year. That effectively means the creation of a special class of shareholders. This would seem to go against the Companies Act, which says all shareholders should be treated equally.
The reality is that while you are building a mining project, which could take 10 years, you have to pay 1% of revenue to your BEE shareholders and then, if there has not been enough dividend flow in the first 10 years to cover the cost of their shares, you simply have to give the balance to your BEE partners for mahala.
So the rules of the new charter will result in no conventional investment. That doesn’t mean that there will be no investment. Deals will still be done. But something will have to change in the normal equation to enable them to make sense. Something will have to give. Most likely, instead of the usual 20-year life-of-deposit mine, there will be a four- or five- year operation that will high grade – that is, strip out – the best parts of the deposit, and then go. That type of mining leaves behind the rest of the deposit which may no longer be viable to mine, sustains jobs for only five years instead of half a career, and, one suspects, some ducking and diving over environmental rehabilitation. Let’s just say that those companies that do come in won’t have reputations to preserve.
But what about all the goodies now promised to workers and the community and, of course, BEE entrepreneurs? Well, if there’s no investment and current shareholdings remain unchanged then there is nothing. A paper promise, that’s all.
Eight or even 14% of nothing is still nothing. Expect even more frustration and anger at unmet promises.
A striking thing about Charter 3 is the short termism. One year to top up the R50-billion. Then there’s the 1% of turnover. Then there’s the adjustment of who qualifies for BEE, now taking in citizens by naturalisation, even those who were short-cut through the process. Then there’s the lack of clarity and thought applied to any of the clauses and one gets the feeling Charter 3 was not drawn up by mining officials.
Perhaps it was drawn up by somebody else, in a shebeen somewhere? It has grab-and-run written all over it. One imagines that by the time the jobless, disappointed and angry mobs get to the gates to protest the broken mining industry the elite who authored this document will be safely in Dubai. DM
James Lorimer is DA Shadow Minister of Mineral Resources.
Photo: President Jacob Zuma during the swearing-in ceremony of the new Minister of Mineral Resources, Mosebenzi Joseph Zwane, Pretoria, 23 September 2015 (GCIS)
"Take a chance, won't you? Knock down the fences which divide. Tear apart the walls that imprison you. Reach out. Freedom lies just on the other side." ~ Thurgood Marshall