SA mines spat deepens: Charter process flawed, industry concerns dismissed.

by Kevin Crowley and Paul Burkhardt

(Bloomberg) — South African mining companies warned of “dire consequences” for the industry if a revised Mining Charter is implemented next month as planned, deepening a long-running spat with the government.

Proposed new taxes on company revenue to fund a Mining Transformation and Development Agency would place additional burdens on producers that lost a combined 37 billion rand ($2.6 billion) last year, the Chamber of Mines said Thursday in an e-mailed statement. Anglo American Plc and Glencore Plc are among members of the lobby group, which said it was consulted only briefly and is concerned about what may be in the new charter.

Targets in the document may be ill-considered or unachievable, said Roger Baxter, the group’s chief executive officer. “Its implementation in its current form will have dire consequences for the mining industry and the entire South African economy at a time when both are facing significant challenges,” he said in the statement.

Mining accounted for about 8 percent of South Africa’s economy in 2015 and about half of the country’s exports, employing some 462,000 people, according to industry figures. The government wants to introduce policies that will speed a fairer distribution of benefits from the nation’s mineral wealth, skewed toward the white minority under apartheid, which ended 22 years ago.

The Department of Mineral Resources said Wednesday it plans to finalize the charter next month having made “substantive changes” since the draft it published in April and going through a “thorough consultation process.” The industry lobby group called for urgent discussions.

Among the department’s objectives is to increase black ownership of mining companies, and it proposed in April that mines must retain a minimum of 26 percent black ownership, even if that initial group of investors later sells out. Mining executives have said this will lead to existing investors’ shareholdings being continually diluted.

Court Dispute

The chamber took the department to court earlier this year, arguing that previous so-called black economic empowerment deals should still apply even after shares had been sold. The parties are progressing toward an out-of-court settlement on this issue, the department said Wednesday. The chamber has said it will consider reviving the case if necessary.

The proposed taxes will be overseen by the transformation agency, which would use the funds for skills development and to assist local suppliers, the department said. Foreign suppliers would be charged a 1 percent levy on revenue.

Also read: Mines nationalisation: no answer to flames of anarchy – expert analysis

The chamber said it’s concerned about the agency’s “purpose, cost, and oversight” and that its creation would divert funding from skills and education programs the companies have in place. The lobby group instead proposed a 2 percent tax on profits.

The department has also increased appointment targets for historically disadvantaged South Africans in companies, which, while desirable, are in some aspects “currently unachievable,” the mining lobby group said.

The draft charter calls for blacks to hold a minimum of 50 percent of seats on company boards, with 20 percent required to be black females, the department said in a presentation Wednesday. Senior management should consist of at least 60 percent of black employees, also with 20 percent being black females. The proportion should be higher at middle and junior management levels.

Statement from Chamber of Mines

The Chamber of Mines notes the points made by the Deputy Director General of the Department of Mineral Resources in Parliament Wednesday 16 November regarding the DMR version of a draft reviewed Mining Charter. Unlike previous Charters, where stakeholders in the Mining Industry Growth Development and Employment Task Team (MIGDETT) worked together to produce a stakeholder-agreed proposal, the DMR chose this time to produce its own draft without properly engaging any stakeholder other than their receiving submissions.

The Chamber has met the DMR on two occasions following the publication of the DMR draft for bilateral discussions. In both meetings the Chamber raised specific areas of concern. As far as we can tell, the DMR has taken none of these issues on board and clearly the meetings were limited ‘consultations’ with the DMR having little appetite to hear the industry’s concerns.
Given that the mining companies are the actual implementers of the Charter, it will be difficult to accede to an outcome based on a flawed process and a DMR that does not want to take on board the substantive issues that the industry is concerned about.

While the Chamber has also been engaged in discussions with the DMR on the black economic empowerment (BEE) ownership issue in the reviewed Mining Charter, pending proceeding with the declaratory order application, the last meeting of the principals took place in July 2016. This is despite the Chamber having providing detailed inputs on the issue in September.