Empowerment policy holds mining back
DAILY FRIEND - OPINIONS / 13 NOVEMBER 2020 - 07.30 / TERENECE CORRIGAN
Mining’s future was once again on the table last week. Or should that perhaps be on the chopping block?
The Junior Indaba, known – according to its website – ‘for its straight-talking and frank discussions, will take a critical view of both the state of play in South Africa and the exploration and junior mining “hot spots” in the rest of Africa’.
When Mineral Resources and Energy Minister Gwede Mantashe stepped up to the mike (in a strictly online sense), it was clear that he took a critical view of what can only be described as a policy hot spot.
The issue, unsurprisingly, was racial empowerment policy. More specifically, it was about Sibanye-Stillwater’s BEE credentials. ‘Sibanye stole their rating in terms of BEE compliance’, he inveighed. His grievance here was that the company’s rating drew on empowerment deals concluded previously when Gold Fields had sold a stake to Mvelaphanda Resources (under businessman and ANC leader Tokyo Sexwale) – Gold Fields having subsequently been bought by Sibanye-Stillwater.
‘Gold Fields had a 15% shareholding in Tokyo’s company [he may have meant it the other way around…] and Sibanye got it by succession when Tokyo was no longer there, that thing is abnormal,’ said the minister.
His remarks took on a personal inflection when he took a swipe at the company’s CEO by name, saying that ‘Sibanye and Neal Froneman expect us to accept that as normal’.
More than most industries – which is saying something – government has long fixed its attention on the mining economy. This probably arises from the chequered socio-political history (real and imagined) of mining in South Africa. There is undoubtedly also a sense that as it is an industry built on natural resources, society as a whole has a claim on its benefits.
Lens of racial transformation
In practice, much of this has been seen through the lens of racial transformation. The nationalisation of mineral resources was followed by a Mining Charter which sought to bring participation by historically disadvantaged South Africans to 26% ownership – among many other things. With the introduction of the third iteration of the Mining Charter in 2017, this was ramped up further, with a requirement for 30% black ownership, to be achieved within a year. More onerous demands were envisaged for employment and procurement too.
Although some of these provisions were negotiated down, the thrust of it remained. So, current empowerment requirements are set at 26%, but new or renewed projects will require 30%.
Ironically, all of this took place as mining was in deepening trouble, a ‘crisis point’, as a spokesperson for the Minerals Council of South Africa put it. This was seen in its falling contribution to GDP, declining employment numbers and, perhaps most importantly, inadequate investment. Peter Baxter, CEO of the MCSA, pointed out in 2018 that real net capital formation fell by more than 50% between 2013 and 2017. Even when nominal upticks on investment happened (as they did between 2018 and 2019), these needed to be seen in light of the declining value of the rand and the escalating cost structure of the industry.
Meanwhile, as the mining industry took strain, investment in exploration was disappointingly low. At last year’s Mining Indaba, John Paul Hunt of SRK Exploration Services, pointed out: ‘Globally, around 10% of all capital expenditure in mining goes towards exploration. In South Africa, it’s around 2%. We are not really replacing the minerals that we are mining.’
The regulatory system that the government had introduced to champion its vision of ‘transformation’ carried much of the responsibility for this. Industry insiders repeatedly voiced concern about ‘policy uncertainty’. Even the National Development Plan acknowledged this.
Yet the drift of policy continues, with the government apparently oblivious to the impact it is having – and will likely to continue to have in future – on the prospects for the mining industry.
In a detailed analysis of the revised third iteration of the Mining Charter, veteran journalist Peter Fabricius commented that even though the empowerment demands had been moderated, they were still onerous, and not well aligned with the requirements of sustainability:
The new BEE demands will inevitably push some over the edge and force others to close shafts and lay off workers. Gold miners seem particularly vulnerable as their remaining seams mostly lie very deep, requiring full-scale mechanisation and round-the-clock operation to extract. This will require large investment and the best skills and equipment, at the very time when the Mining Charter will be diverting profits into BEE deals and forcing hard-pressed mining executives to buy machinery and services from Historically Disadvantaged Person-compliant companies rather than on the open market.
One hot spot remains the question of ‘continuing consequences’. After having gone the distance on empowerment, but seeing an empowerment partner leave the deal, is a company still empowered? A declaratory order by the Pretoria High Court ruled that this is the case, and companies need not repeatedly empower themselves.
This was a sound ruling; the need to perpetually renew empowerment deals would have been an ongoing drain on resources and would have ensured a fatal uncertainty to any sort of planning.
Yet this is at the core of the minister’s complaints. His hot spot, perhaps. It also speaks to probably the largest concern that the mining industry has had vis-à-vis the Charter: that it was susceptible to change by the minister. His remarks show that the issue is – in the government’s view – not settled.
The consequences for mining are not likely to be happy ones.
Essence of the problem
Last year, Minister Mantashe said that the Mining Charter should not be seen in ‘isolation’. Rather, it was ‘part of the broader South African transformation agenda’. This is the essence of the problem. The Mining Charter and its devotion to race-based policy represent the triumph of ideology over pragmatism. In this sense, it has its formal and informal counterparts throughout the economy.
Without growth, South Africa’s prospects are bleak indeed. The fate of mining, and its current travails, are a stark warning to the country as a whole.
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