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10/07/2017

Usha Jivan, Managing Director, Beescore (Pty) Ltd – SA Mining Recovery To Be Short-Lived

Amidst the turbulence and distractions of the past few months, including the capture of the state and the legalized private use of cannabis, a couple of documents have come across my
desk that deserve a review.

On 15th June, Minister Zwane signed the Mining Charter 2017 into law. Rarely, since 1994 has a new piece of South African legislation been so controversial. The Chamber of Mines immediately announced that they would approach the courts to have it struck down whilst the media sought to link its provisions to the interests of the Zupta Premier League.

This note is designed to provide a brief overview of the Charter, to identify its place within the BEE firmament of legislation and to highlight its contentious aspects.

Overview of the Mining Charter

The Charter introduces a scorecard as follows:

To be compliant a mine requires to meet the full requirements of the ringfenced elements and to achieve 60% or more from the other three elements. There are no sub-minimums.

A holder of mining or prospecting rights must report its level of compliance with this Mining Charter of 2017 annually. The Department of Mineral Resources shall monitor and evaluate the holder’s implementation of this Mining Charter of 2017, taking into account the impact of material constraints which may result in not achieving the set target.

Elements

Briefly the elements are as follows:

Ownership - Yes/No

The holder of new mining rights must have a minimum 30% Black Ownership split as follows:
• .8% Employee Share Ownership Plans
• .8% Mine Communities in the form of a trust
• 14% to BEE Entrepreneurs.

This structure must be maintained even if new shares are issued and other shareholders see their holdings diluted. Shares must be vested within 10 years. There is a transitional period of 12 months for the holders of existing mining rights to top up their black shareholding to this level. The holder of new prospecting rights must have a shareholding of 50%+ 1 black person.
A holder of mining rights may offset a maximum of 11% of Black ownership by investing in further and approved beneficiation.

Human Resources Development - Yes/No

Development of requisite core and critical skills, literacy and numeracy intended to develop solutions in exploration, mining, processing, technology efficiency, beneficiation as well as environmental conservation.

There are three targets that have to be met based on the Leviable Amount:
• 2% on essential skills development activities
• 2% contributed to the Mining, Transformation and Development Agency
• 1% contributed to historically black South African Academic Institutions

Mine Community Development - Yes/No

Implement locally approved community projects, which are aligned to the district, metropolitan
and local municipality’s integrated development plans.

The contribution towards mine community development must be proportionate to the size of the investment?

Procurement - 30%
Goods Procurement (15%)

A minimum of 70% of the spend on mining goods must be on South African manufactured goods from BEE compliant manufacturers (Minimum BEE level 4 of the dti Codes and 26% black ownership). Excludes spend on buildings, roads and utilities. This 70% target is further broken down as follows:
• 21% with 51% Black owned organisations for 5%
• 5% with 51% Black women or Youth owned organisations for 1%
• 44% with BEE Level 4 organisations. with 26% Black Ownership for 9%

Services Procurement (10%)

A minimum of 80% of the spend on services must be sourced from South African based companies. This target is further broken down as follows:
• 65% with 51% Black owned organisations for 5%
• 10% with 51% Black Women owned organisations for 2%
• 5% with 51% Black Youth owned organisations for 2%

Sample Analysis (3%)

100% using South African facilities for 3%

Foreign Suppliers (3%)

1% of annual turnover contributed towards the Mining Transformation and Development Agency for 3%.

Employment Equity - 35%
• Board: 50% Black representation for 3%; 25% Black Women representation for 3%
• Top Management: 50% Black representation for 3%; 25% Black Women representation for 3%
• Senior Management: 60% Black representation for 4%; 30% Black Women representation for 4%
• Middle Management: 75% Black representation for 3%; 38% Black Women representation for 3%
• Junior Management: 88% Black representation for 1%; 44% Black Women representation for 3%
• Disabled Employees: 3% Black disabled employees for 2%

Core and Critical Skills: 60%
Black representation for 3%
Sustainable Development - 35%

• 100% Compliance with
Environmental Management
Plans for 10%
• 70% of R&D budget spent in South Africa for 3%

50% of R&D budget spent at historically Black Academic Institutions for 2% Controversial Aspects

1. Affected Mining Entities only have 12 months to top up their black ownership.

2. If black shareholders sell their shares to a foreign or white owned person or organisation, the holder of the mining rights has to find a new black shareholder and have their own shareholding diluted accordingly.

3. A holder of a new mining right must pay a minimum 1% of its annual turnover to the Black shareholders, prior to and over and above any dividend distributions to the shareholders of the holder.

4. The recognition of historical BEE transactions (Once empowered, always empowered) shall not apply to applications for a new mining or prospecting rights or for their renewal.

5. A holder of mining rights who wishes to sell its mining assets must give Black Owned company/s a preferential option to purchase.

6. The targets for procurement from 51% black and black women owned companies are said to be impossible to meet.

7. The targets for middle and junior management are considered unrealistic.

8. Statements such as a Holder must develop and implement career progression plans consistent with the demographics of the Republic are unclear.

9. Generally, the drafting is poor and leaves many loopholes.

Media Based Comments

David van Rooyen in Fin24 reports that “although it seems clear that the new proposals will not be implemented soon as the proposed charter will be tied up in court for a long time to come, the uncertainty about the consequences of such measures has made a huge dent in investor confidence, particularly relating to mining interests.”

Moody’s said “new regulations seeking to accelerate black ownership in South Africa’s mining industry would deter investment, raise costs and diminish cash flow generation” Chamber of Mines CEO Roger Baxter said “We need to continue on the industry’s transformation journey that has been going on in earnest since the original charter came into effect more than 13 years ago. But it needs to be based on workable targets and guidelines that enable an effective transformation process proceeding in a competitive and growing industry. As we have previously indicated, the DMR charter fails in this respect.”

Daily Maverick: Mineral Resources Minister Mosebenzi Zwane has been summoned by the ANC’s economic transformation committee to explain the new charter: “The ANC is very concerned about the impact legislation could have in terms of employment, given that the mining sector lost 60,000 jobs over the last five years,” said the ANC’s Zizi Kodwa. “So, if there’s 30% black ownership it mustn’t lead to a jobs bloodbath.”

Final Word

This new “legislation” sits parallel with the dti Codes of Good Practice and their associated Sector Codes. The Mining Charter is to be read and interpreted in conjunction with the B-BBEE Act of 2003 in respect of undefined words and meanings. However, it is not clear whether the Commissioner’s role or its penalties for offences apply to the DMR sector.

The Mining Charter has NOT been gazetted as a BEE Sector Code – the B-BBEE Act authorizes the relevant minister to sign the legislation into law as prescribed – this Charter has not been approved by parliament.

There are no independent verification procedures as we know it, so the auditing of the submissions will be the role of the Department of Mineral Resources.

The Mining Charter and its many drafting obscurities will be held up to the light by the courts in the days ahead. Some of the negativity and findings may well slide across into the rest of the BEE world!

There are two strong unions in the Mining Sector. The Association of Mineworkers and Construction Union (AMCU) who broke away from COSATU affiliated National Union of Mineworkers (NUM), and is growing rapidly at their expense. The NUM has welcomed the Mining Charter but AMCU’s approach is that NUM has lost touch with the workers and is too close to the Government and management. We can expect the Mining Charter to become a playing field in the fierce rivalry between AMCU and NUM. AMCU has already expressed grave concerns regarding the real beneficiaries the Charter.

This is what happens when the push for Radical Economic Transformation by Government short circuits consultation and cooperation with industry – endless courtroom battles and delayed transformation.

T: 031 583 0640; 011 234 5454 /
011 234 4041
C: 083 783 2436
E: usha@beescore.co.za
www.beescore.co.za

 Usha Jivan SA Mining Recovery To Be Short-Lived.JPG
 Usha Jivan SA Mining Recovery To Be Short-Lived.pdf


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