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Mining charter minefield

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THE one sure thing that can be said about the South African mining industry - apart from taxes and death - is that executives in this critical sector of the economy never have a dull moment as regards the operating environment.

This is not a reference to the gut-churning rollercoaster ride commodity prices are providing, but the legislative environment in which executives have to feel their way.

Arguably the single biggest change to the sector in the past 50 years or more is the agreement to put in place legal requirements for black equity participation, among a host of other obligations to secure new-order mining rights.

A leaked government draft of the mining charter on empowerment in 2002, proposing half of mining companies' equity should be held in black hands, spooked the market and caused a stampede of R54bn out of mining stocks.

The precipitous decline in mining shares was eventually soothed by an agreement between the state and private sector that 26% of equity should be held by black South Africans by 2014, with the process to be reviewed after five years.

The new Minerals and Petroleum Resources Development Act (MPRDA) was enacted in 2004, which means this is the year for review.

Concerns are regularly raised that the government might look to increase the black ownership component or make changes that will make operating in the country - already perceived as investor-unfriendly - more difficult.

Charter leak damage

Given that this is an election year in which the left-leaning, labour-friendly faction of the African National Congress has taken the upper hand in the ruling party, it will be interesting to see what comes out of the review process.

While much progress has been made in redressing the ills wrought on society under apartheid rule, the vast majority of the country's population still lives in poverty.

Jacinto Rocha, the deputy director-general of the department of minerals and energy (DME), has said the government has to take cognisance that the majority of the country's population is black and agitating for reform. At the same time, government wants to attract and retain mining investment.

"We have informed them (the government) of our international reputation. We constantly remind them of how much value was destroyed with the last charter leak," says Sipho Nkosi, president of the Chamber of Mines.

The problem with black economic empowerment is that it started with a bang, enriching a few. Criticisms quickly rose from within and outside government that the same old faces kept cropping up in these multi-billion rand deals.

There have been stinging rebukes from high-powered government officials, notably DME director general Sandile Nogxina, about those empowered individuals who turned over their stake or newly-acquired rights for a quick profit.

BEE in a commodities slump

There is a drive to broaden the base of beneficiaries, which brings its own complications with finding suitable partners and implementing funding mechanisms as well as the time it takes for benefits to trickle down to those involved.

A further unwelcome twist is the downturn in commodity markets and the subsequent fall in share prices, which have left the majority of empowerment deals under water.

If empowerment deals haven't really worked for the majority of intended beneficiaries in the good times, how are they going to work now with the markets on their knees?

This is something that's going to have to be very carefully thought out during the review process.

Just how pragmatic parties, including organised labour, will be during the process remains to be seen. It bodes well that the government decided to hold off on imposing a royalty on the sector this year because of the state of the markets.

"I was made more comfortable with the review two weeks ago when we met with the DME to look at the review process," says Nkosi.

"The first point is that South Africa did not really benefit during the last commodity boom and we as a country had to focus on taking advantage of the next upswing," he says.

"Secondly, in that meeting we agreed on a process to be followed. The mining charter was the result of a group effort involving business and unions, and we agreed that during the process of review all parties had to be involved. It won't just go government."

- Fin24.com

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