Mining Charter Back To Square 26
FORBES AFRICA / 17 APRIL 2018 - 11.55 / CHRIS BISHOP
Years of squabbling and court cases came to a halt when South Africa’s new president put the controversial Mining Charter on hold. It could mean many more months of waiting for regulatory certainty, with a complicated negotiation in prospect, at a time when the industry can ill afford it.
The new amended Mining Charter – the agreement that governs black ownership in the mines – has been a festering sore for more than four years. The employers and unions have disputed it, lawyers have argued over it and yet no one seems to be able to agree on one of the most important documents in Africa’s most lucrative industry.
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Love it or loathe it, the mining industry in South Africa employed more than 450,000 people, with a trickle down that supports an estimated 4.5 million people, contributing 7.1% to GDP, in 2016. In the same year, it racked up sales of more than $30 billion. It may be a far cry from the industry’s heyday in the 1980s, when it employed a million people, but it is still too big to ignore.
Cars run on South African-mined platinum, in their catalytic convertors, from New York to Paris; around half of all the gold on the fingers and locked in the bank vaults across the world was unearthed and refined in and around Johannesburg in more than a century of mining.
This treasure trove of wealth is the main reason why the fight over the Mining Charter has been so intense and emotive. It is an agreement, not legislation, agreed by employers and government to foster black empowerment.
It came into force in in 2004 amid a blaze of publicity claiming the industry was going to be swiftly transformed, towards more black ownership, in a decade. Instead, when 2014 came around there was uncertainty, a lack of direction, and questions in the corridors of power whether the Mining Charter had achieved anything at all.
The mining employers fear the Mining Charter has scared off foreign investors and is part of a severe decline in this industry. In 2016, according to Statistics South Africa, the South African mining industry’s real GDP was 2.6% smaller than in 1994. The thriving financial services sector grew by 168% over the same period.
The Chamber of Mines – that represents 90% of South African mining companies – called the amendments the last nail in the coffin when they came out last year. The former mining minister Mosebenzi Zwane called the amended Mining Charter the key to changes in the industry that will benefit the black majority – for so many decades seen as mere cheap labor in the mines
The zealots in the government – who were pushing the amendments – want radical change in mining. They see it as a pillar of the establishment in apartheid days where black sweated labor was used to create the wealth to keep the status quo.
When the amendments were released they were dramatic and controversial. An increase in black ownership from 26% to 30% with a rider that this be maintained at all times. The mining employers bridled at this clause because they argue for a “once empowered, always empowered” rule that stipulates that once they have borne the cost of transferring ownership to new black owners they are deemed to have done their job. One of the bugbears of the black empowerment game is dilution.
That is, after the lock-in period, black shareholders often cash in their stakes, which dilutes the overall black owned percentage, leaving the employers with the arduous task of starting again. If the “once empowered, always empowered” principle was upheld by the courts it would mean most of the major mining companies could claim they had done their job.
On top of this were a raft of amendments that the Chamber of Mines objected to and one or two the lawyers called illegal. Among them, a stipulation that 1% of the revenue be paid to black shareholders before any others are considered. Mining lawyers consider this to be an illegal flaw – in contravention of the Companies Act – in a Mining Charter that was rushed and poorly written.
“It is open to discretion, with very unclear rules that make it very difficult to invest with that level of uncertainty and that is the long and short of it,” says Peter Leon, mining law expert with Herbert Smith Freehills in Johannesburg. He also considers another clause about the writing off of dividends, to be repaid by black shareholders in fees for shares, to be tantamount to expropriation.
The Chamber of Mines claims the Mining Charter is unconstitutional and written without proper consultation. Its lawyers were ready to argue this in a three-day judicial review of the Mining Charter by a powerful bench of three judges, at the High Court in Pretoria, on February 9, 10 and 11.
At the eleventh hour, South Africa’s new president Cyril Ramaphosa – a mining man to his boots – made good on a promise in January at the World Economic Forum in Davos to intervene. His officials persuaded the Chamber of Mines to hold off with its legal challenge to give negotiation another chance.
It means the regulation of the industry will fall back on the previous charter, with its 26% black ownership target, that most companies had priced in and come to terms with.
Outside the court on the day was a throng of singing and dancing protestors who could prove a fly in the ointment. These were the people who live with the mines and their dust and disruption.
They had traveled for hundreds of kilometers, with their lawyers in tow, from tiny villages across South Africa to make their point in Pretoria. They wanted a seat at the negotiating table and the court ruled that they should get one.
The mining communities making their debut in the Mining Charter talks, alongside government, unions and mining employers, could add more time and dimensions to what is already likely to be a complex debate.
The Chamber of Mines has flagged this as a difficulty in negotiations. Mining companies often struggle to deal with power shifts and conflicting leadership claims in communities around mining – especially when the money starts flowing.
This puts the prediction of wrapping it all up by June, made by the new mining minister Gwede Mantashe, in severe doubt.
“We will finish it within three months, I am putting that timeframe for myself,” says Mantashe.
“A new Mining Charter that is well designed and reached through an inclusive negotiation process needs to be finalized as soon as possible,” says the Chamber of Mines in response.
In many ways, a crumb of comfort for the employers is that the new man Mantashe is also a mining man down to his boots and a world away from his disliked predecessor Zwane. Mantashe, the former leader of the biggest union in Africa, the National Union of Mineworkers (NUM), is known in the industry as an honest broker and skilled negotiator.
“You could say Gwede has mining in his blood,” says Elize Strydom, a former legal head and chief negotiator at the Chamber of Mines, who sat across the table from Mantashe in wage talks for nearly a decade.
“The good thing always was when Gwede said you had a deal, you had a deal, and you could go home and sleep soundly.”
Mantashe, who is also the chairman of the ruling African National Congress, will have his work cut out for him over the next three months to make good on his promise and sort out what is probably the most tricky and crucial set of regulations in one of Africa’s biggest economies. It is not going to be easy reconciling the wishes of a multi-million-dollar investor and a poor villager living in the shadow and dust of a mine.
Any foreign investor or any African business connected to mining will hope Mantashe does so.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER