Getting real and lasting benefits to flow from community trusts that are often used as the vehicle for BEE transaction deals between mining companies and communities that live on mining land has long been a thorny issue for miners in SA.
Poor governance that threatens the financial sustainability of these trusts, and instances where a large share of the benefits would go directly to traditional leaders and their families instead of the whole community, have been some of the issues undermining the success of these structures.
A new benchmarking study of community trusts, by investment fund manager Tshikululu Social Investments and commissioned by Richards Bay Minerals (RBM), recommends that best practice is “to have no direct or preferential benefit for any special interest group, including government and traditional leaders”.
“Mechanisms can be explored where the Amakhosi (and their families) could still get a share of the dividend, but there is a separation between the interests of the Amakhosi and that of the community trust itself,” the study said.
This would however require further engagements and legal advice, it adds.
RBM, a subsidiary of Rio Tinto in SA, produces ilmenite, rutile and zircon from mineral sand deposits in the area north of Richards Bay.
In November RBM approached the KwaZulu-Natal High Court seeking an order to amend the trust deeds of community trusts that were established in 2009 as part of its BEE deal with host communities.
The communities, Mbonambi, Sokhulu, Mkhwanazi and Dube, own a 24% stake in RBM and they have earned more than R530m in dividends since 2009.
In papers filed as part of its application to the high court in Pietermaritzburg, RBM asked the court, among other things, to remove the Amakhosi from the four communities and their families as trustees and beneficiaries saying that without such intervention “there is a reasonable prospect that the trust income flowing through the dividends paid ... will not be utilised to promote and protect the interests of the host communities who are the intended beneficiaries of those dividends”.
In a statement announcing the move, the miner said that it has for several years, had “serious concerns about the governance and management of the community trusts and trusts’ assets”.
“The trusts have not appeared to be consistently delivering meaningful and sustainable benefit to community members, and in August 2021 all parties committed to reforming the trusts in a manner consistent with broad-based community empowerment,” RBM said.
Little, however, came of this commitment after the Amakhosi pulled out of the process, moving RBM to initiate litigation “as a last resort to change the trust deeds in such a way that it supports “long-term, broad-based empowerment”.
Werner Duvenhage, MD of RBM, said at the launch of the benchmarking study on Thursday “we have for several years been looking for ways to improve the governance of our community trusts and unfortunately these efforts have not been successful, leaving us with no other choice than to go the legal route to try to resolve these issues”.
He said that while this legal process remained under way, RBM commissioned the research as a parallel action to build a better understanding of the various challenges faced across the industry with community trusts, and the best practices.
“With our trusts deeds we have allocated 10% of the dividends received from RBM to be allocated to the chiefs in their personal capacity — if you look at the research report a key finding is that that is not appropriate. [Through litigation] we are looking to remove or adjust that part of the trust deed. We are not saying it should be removed completely, but the allocation should be appropriate. We do respect the traditional leadership and the role it has in the standing of the community,” Duvenhage said.
The researchers interviewed trustees and managers from 11 community trusts or non-profit companies.
“Ultimately, community trusts may be a problematic structure, but they remain a viable model for broad-based community ownership as long as they have good governance and the ability to operate effectively in a community context,” the report said.
Tracey Henry, CEO of Tshikululu Social Investments, said some of their key findings and recommendations include that good governance of such trusts was critical from the outset and when setting up governance structures it was important to consider who the trustees are and ensuring they have the right skills. Trustees should ideally serve for a fixed term and should consist of at least 50% independent trustees including the chairperson. Trustees had to be accountable to communities in terms of how the trusts are governed.
When setting up trusts, companies had to make sure they understood who the beneficiaries and the communities are, “ensuring that everything you do is focused on empowering those communities to ultimately achieve a broad social effect”.
Another problem was that many of the community trusts did not have financial sustainability plans beyond the life of mines, said Henry.
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