Mining companies face more anxiety over the development of the third iteration of the Mining Charter as haggling and horse-trading continue over the next 60 days on creating guidelines for the document.
To give mineral resources minister Gwede Mantashe his due, he beat his target of October or November for a finalised charter, a document that has consumed his time and that of his key officials since he took office in February, replacing the disastrous Mosebenzi Zwane, and trying to mend the deep divisions and bitter mistrust between the regulator and the Minerals Council SA, the former Chamber of Mines.
While the responses to the charter gazetted on September 27 have been generally positive, albeit with some reservations, it is clear that Mantashe, caught between an electorate demanding a radical overhaul of the charter and the business imperatives of attracting and retaining investment in mining, has delivered a compromise document that is workable.
While the fact that we at last have a greater degree of certainty in regard to the policy framework, it is regrettable that the concept of ‘implementation guidelines’ has been introduced. It is not known what these guidelines will cover or what their legal status will be
— Allan Reid
Cliffe Dekker Hofmeyr.
"We believe the new charter significantly addresses key investor concerns, particularly on ownership requirements. A compromise is required for a country and sector with unique legacy issues. On balance we believe the 2018 charter may have found the necessary common ground," Investec analysts Nkateko Mathonsi and Hunter Hillcoat say in a note.
However, the next phase is to develop the guidelines of what is expected from mining companies in their compliance with the third version of the charter to govern transformation of the sector since 2004, as the evolution of the document has delivered increasing layers of complexity and demands.
"While the fact that we at last have a greater degree of certainty in regard to the policy framework, it is regrettable that the concept of ‘implementation guidelines’ has been introduced. It is not known what these guidelines will cover or what their legal status will be," says Allan Reid, a director at Cliffe Dekker Hofmeyr.
Compared with the shambolic document thrust on the industry by Zwane in June 2017 and promptly challenged in court by the Mineral Council, the Mantashe charter is better formulated and draws on intensive negotiations among the department and the council and labour and communities.
It’s not likely this charter will be dragged into court, despite the industry’s concerns that the renewal of mining rights under the new charter will have to comply with the 30% ownership target and other elements of the document.
Investec estimates that for nearly all of SA’s listed mining companies the average life of their mining rights ranges between 17 and 22 years "providing long-term stability". One notable exception is Sibanye-Stillwater’s gold division, which has an average of nine years at its three mines.
The industry won a declaratory order in court on the continuing consequences for mining rights awarded under the first two versions of the charter, a concept known as "once empowered always empowered". This has filtered through in large part to the third charter, which recognises past deals bringing ownership to the 26% of the first two charters even if the empowerment partner has left. It falls away on renewals and right transfers, meaning the need to bring ownership up to 30%.
The department has indicated its flexibility in bending to requests from industry to change the draft charter’s 10% free carry share component for employees and communities and to remove a 1% trickle dividend from operating profit to these groups.
One of the key changes is the concept of the "carried interest" by employees and "host communities" in shares of a mining company.
According to the definition of this concept, these are shares "issued … at no cost to them and free of any encumbrance".
However, the definition goes on to say that the value of these shares can be recouped by the company, meaning the other shareholders are not overly disadvantaged. "The cost for the carried interest shall be recovered by a right holder from development of the asset."
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