Gwede’s gambit on carry-through, topping up BEE ownership for miners

JOHANNESBURG — While the latest amended Mining Charter looks like a vast improvement from the one that Mosebenzi ‘Zuptoid’ Zwane drew up last year, it still has several niggles that the mining sector seemingly plans to take on. Among these include requirements for carry-through (which come with extra costs for the industry) as well as existing rights holders topping up their ownership again to 30% within 5 years. Added to this, is the requirement for sharing a percentage of earnings with the community. It’s clear that Mineral Resources Minister Gwede Mantashe has tried to meet the industry halfway. However, he will be nudged again if the mining sector’s reaction is anything to go by. – Gareth van Zyl

By Donwald Pressly*

The industry is arguing that the free-carry – five percent for communities, with the same for workers in the mining company – was not sustainable, as those paying for these rights would land all the costs but receive none of the benefits.

Donwald Pressly

Gwede Mantashe, addressing a press briefing on the draft charter, said that some of the details of the free-carry could be negotiated further and benefits could be paid in kind. This is particularly envisaged for junior mining operations. It is suggested that a share in profits could be one of the ways that workers and communities could be paid in kind.

Discussions could be held if this took the form of a “profit-sharing scheme” year to year. “We will engage,” he said, noting that key elements of the draft mining charter – released on Friday – were unlikely to be altered much at the July mining summit.

Asked if communities – such as tribal or ancestral communities – could demand minerals rights on their land, Mantashe made it clear that all mining rights – and the rights to the extraction of minerals – was under the custodianship of the state.

It was envisaged that workers would receive their five percent carry-through in the form of workers’ trusts – where all workers on a mine received a benefit.

It is also envisaged that in five years, mining companies must have 30 percent black ownership, up from 26 percent. This is below the 51 percent envisaged under the Zuma administration. Mantashe acknowledged that some may say this is a low percentage, but it was a lot better than zero percent. He said in the longer term, it was expected that some mining companies would be 100 percent black-owned.

Gwede Mantashe pauses during a news conference during the ANC’s 54th national conference in Johannesburg. Photographer: Waldo Swiegers/Bloomberg

Mantashe said the free-carry was much like “free” education. “We call it free education because the students get the benefit… someone will pay for these (carry-through) shares.” But he believed that it was necessary for this form of investment in workers, so they could share in the wealth of the mining operation.

“Any company that is not left behind will appreciate the value of that five percent,” he said.

It is still not entirely clear how the free-carry for communities would work – how the communities would be defined. Mantashe was asked how this would work if a mine was next to a city; how was the community then defined?

Mantashe referred to four communities around Richards Bay which co-existed next to a mining operation. “Richards Bay Minerals is located within four communities in the area,” he explained.

A new addition in the draft mining charter is the stipulation that boards must comprise 50 percent black South Africans. A 20 percent portion must be composed of black women. This 50 percent black representation on the boards must be reflected in the executive and senior management as well.

Meanwhile, the Minerals Council – the former Chamber of Mines – has come out in support of the 30 percent ownership target on new mining rights for black empowerment in the mining industry, but opposes various other aspects of the draft Mining Charter. One of these include topping up existing mining right holders’ empowerment targets to 30 percent within five years.

The council, responding to minister’s media briefing, said it recognised that the Mining Charter 2018 was a material improvement on the 2017 Mining Charter.

However, it believed that much more work was required to create a charter that promoted competitiveness, investment, growth and transformation to achieve the prosperity of South Africa.

Flag map of South Africa

The new council – which was established in May to represent the mining industry employers and aims to promote the South African mining industry – said it supported the 30 percent black ownership target on new mining rights, with shares allocated for communities, organised labour and black entrepreneurs.

The council did not support the free carried interest of five percent allocated to each of labour and communities. “Given South Africa’s mature mining sector, a 10 percent total free carried interest on new mining rights will materially undermine investment, by pushing up investment hurdle rates and ensuring that many potentially new projects become unviable,” said the council.

“Imposition of a free carried interest is a public policy choice, which must be weighed against the critical need to attract investment for growth and employment creation,” the council said. It argued that there were other measures that could ensure benefits to communities and employees that would not undermine the viability of mining in the future. It would continue to engage with the department of mineral resources on potential measures.

The council said it was pleased that Mineral Resources Minister Gwede Mantashe recognised that the free carry was indeed not free and had costs associated with it.

The council said it also did not support the one percent EBITDA target to communities and labour proposed by the department of mineral resources. This had not been agreed as a recommendation in the Charter Task Team. As such it was a surprise addition to the draft charter, it stated.

“The issue of topping up existing right holders BEE ownership to 30% within five years was never agreed as a recommendation in the Charter Task Team, and so this is another surprise inclusion by the DMR. The Minerals Council does not support this top up, as it prejudices existing right holders that secured their rights on the basis of the 2004 and 2010 Charters. Despite a High Court declaratory order judgment and an agreement with the DMR, the issue of recognising the continuing consequences of previous BEE deals on existing rights, including for renewals, has not been properly captured in the Mining Charter.

“It is the Minerals Council’s view that the Mining Charter should involve all stakeholders in growing the competitiveness, investment and transformation in the sector. For mining companies in new rights applications to carry a 10% free-carried interest and an EBITDA based income stream for communities and labour, comes in addition to the industry’s Social and Labour Plan requirements, skills development requirements (R7 billion per annum), the existing royalties (R6 billion per annum) and corporate taxes.

“The lack of recognition of the need to phase-in or graduate the Charter’s requirements for junior and emerging mining companies is disappointing. While the Minerals Council supports transformation of all elements of the exploration and mining value chain, the application of a 30% black ownership target to new Greenfields prospecting rights will result in a continuation of limited exploration, the lifeblood of new projects for the industry.

“The Minerals Council will continue to engage the DMR and other stakeholders. It will make a comprehensive submission to the DMR (including at the Mining Summit) on the key issues that need to be changed or resolved in order to achieve competitiveness, growth and transformation.”

Overall the draft charter did not promote competitiveness. “Without competitiveness, investment in new exploration and mining would be limited and the current mining sector would continue to decline “to the detriment of all citizens.”

This is directly contrary to President Cyril Ramaphosa’s stated intention to raise US$100 billion in foreign investment into South Africa in the next five years. It believes that the charter contained elements that were unconstitutional “and contrary to South African company law”.

  • Donwald Pressly is editor of The Cape Messenger and Political Editor of The Messenger. 
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