Mineral Resources

Mining Charter III: A compromise, Mantashe style

By Greg Nicolson 28 September 2018

The new Mining Charter, released by Minister Gwede Mantashe on Thursday, has been sold as a compromise document. It might plug the holes in the sinking mining ship, but the industry is far from staying afloat.

Hours after then-mineral resources minister Mosebenzi Zwane released the third Mining Charter in June 2017, the Chamber of Mines issued a stern response. Its president, Mxolisi Mgojo, criticised the lack of engagement in the drafting of the document, called it seriously flawed, and announced a legal challenge.

Mineral Resources Minister Gwede Mantashe struck a different tone when he released the revised document on Thursday. Following President Cyril Ramaphosa’s call for all sectors of society to unite behind development, Mantashe emphasised intensive engagements and collective interests.

The third Mining Charter, published in the Government Gazette on Thursday afternoon, includes the foundations established by Zwane’s document. But the most controversial regulations were either scrapped or watered down in line with some of the critiques from the Chamber, now called the Mineral Resources Council.

Mantashe was appointed mineral resources minister in February and on Thursday said the new Charter, a the result of seven months of discussions, represented a consensus among stakeholders.

When we talk of a consensus we talk of a product that we can all live with. It doesn’t make everybody happy,” he said in Tshwane.

Mining Charter III seeks to strike a balance between improving transformation and ensuring the industry’s viability in a volatile environment. Regarding ownership, it differentiates between new and existing mining rights holders.

Existing rights holders can continue to have 26% black ownership for the duration of their rights, which isn’t applicable for licence renewals and transfers. They will remain compliant even if a BEE shareholder withdraws its stake, a sticking point for the companies in negotiations following the legal battle over the “once empowered, always empowered” principle.

Companies that applied for mining rights before the introduction of the 2018 Charter require 26% black ownership, but have to increase that to 30% within five years.

The system significantly changes when it comes to new mining rights holders. They need 30% black ownership and unlike the 2010 Charter the new regulations break down ownership categories. Of the 30%, black entrepreneurs must have at least a 20% stake, employees 5% and host communities, 5%.

Zwane’s version stipulated higher stakes for communities and employees and a 14% minimum ownership for black entrepreneurs.

Community and employee ownership will come through non-transferable interest, meaning the companies and their other shareholders must fund the 10% stakes at no cost. In the past black ownership was often funded through loan agreements. Communities can also choose to take 5% equity-equivalent benefit to give them options on exercising their rights of ownership.

The Mineral Resources Council was still studying the Charter on Friday, but mining and labour analyst Mamokgethi Molopyane said companies may contest the 10% ownership it must give to communities and employees for free, claiming it could be too costly as they already have employee and community benefit schemes.

For me, Gwede Mantashe played it well,” she said. He can tell the companies the department has provided the stability they’ve longed for and that disagreeing with the requirements is anti-transformation.

Companies can offset up to 5% of their BEE entrepreneurship ownership requirement through local beneficiation. The 2010 Charter allowed them to offset 11%.

The new Charter also increases and further defines employment equity requirements. The 2010 Charter said 40% of positions from board to management levels must be filled by historically disadvantaged South Africans (HDSA). That has risen to between 50% and 60% and the positions must be filled by black South Africans in line with provincial and national demographics.

Mantashe said the definition changed from HDSAs to black South Africans as white women were often filling the HDSA positions.

New procurement requirements could help transform the economy through supporting black businesses. Companies must get 70% of goods and 80% of services from BEE entities. “Obviously this means companies are going to have to look at black-owned companies that are BEE compliant,” said Molopyane.

The Charter ensures companies will progressively have to do more to improve transformation, but they will be encouraged by what the new regulations exclude.

Zwane’s Charter and the draft document released in June both stipulated how companies must pay a trickle down dividend of 1% of earnings before interest, tax, depreciation and amortisation to communities and employee empowerment partners. The Mineral Resources Council opposed the regulation and it was dropped in the final version.

The Charter was released after Ramaphosa said last Friday that growing the mining sector was imperative for the economy.

The document’s finalisation and the executive’s request to withdraw the Mineral and Petroleum Resources Development Act Amendment Bill (MPRDA) are aimed at providing policy certainty and increasing investment.

DA shadow minister of mineral resources James Lorimer said the Charter includes welcome proposals that established mining companies can probably stomach.

The more important question though is, will it create conditions for significant investment in the new mines that South Africa needs to be able to create jobs? The answer is regrettably, no,” said Lorimer.

Molopyane said that in the short term the new regulations will do little to stop retrenchments and increase investments in the industry, which sees many companies restructuring in line with decreased commodity prices.

For me this Charter has plugged the hole in the sinking ship. Now they have to remove the water,” she said. It could help grow the industry in the medium to long term, Molopyane added, depending on industry variables.

The EFF rejected the new Mining Charter. In a statement, spokesperson Mbuyiseni Ndlozi said Ramaphosa’s administration wants to keep the status quo to benefit white-owned mining companies.

It is therefore misleading, disingenuous and dishonest to claim that the released Mining Charter represents consensus by all stakeholders when the only stakeholder who will benefit is white-owned mining companies at the expense of mine workers, affected mining communities and South Africans in general,” he said.

The EFF said the department of mineral resources has failed to hold companies to their empowerment obligations and most empowerment partners do not derive economic benefits from their deals. It slammed the retention of the “once empowered, always empowered” principle.

Mining stakeholders such as unions and business associations said they were still studying the details of the Charter on Friday.

A number of insiders have taken to various platforms echoing Mantashe’s claim that the document is a result of the compromise between different stakeholders. Community representatives continue to feel marginalised by their level of input into the final Charter.

Compliance will be a key issue going forward. Mantashe noted criticism of the department of mineral resources’ ability to monitor and enforce the regulations. He said key posts within the department are being filled and he is cutting down on corruption.

I can tell you that we are going to implement this charter and people will feel it,” he said on Thursday. DM

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