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Chamber going to court to halt devastating charter blow to already battered mining sector

JOHANNESBURG – The Chamber of Mines of South Africa will be applying at the earliest opportunity for a court date for a declaratory order on continuing empowerment consequences, as well as immediately seeking an interim court interdict to suspend the implementation of Mining Charter Three, the devastating set of new legal requirements that Minerals Minister Mosebenzi Zwane on Thursday unleashed on the already battered local mining industry.

An initial reading of Mining Charter Three, which has been gazetted unilaterally by the Department of Mineral Resources(DMR), brings out an ominous range of brightly flashing red lights, including new black ownership provisions and the establishment of the Mining Transformation and Development Agency without a substantive view of governance structures.

“We do believe that we have no choice but to apply for a court interdict to suspend the implementation of the charter and take the DMR charter on review.

“Our goal is not to avoid transformation. It’s to engage properly with government and other stakeholders to find agreement on a rational, pragmatic, effective new charter that will take us further along the road to transformation,” new chamber president Mxolisi Mgojo told a media conference attended by Mining Weekly Online.

Mgojo, who is CEO of Exxaro Resources, one of South Africa’s most successful black-controlled mining companies, described as “most disappointing” the need to get court support to try to resolve a crucial matter for what is already South Africa’s most transformed industry, with:

• effective 38% black ownership compared with the new charter’s requirement of 30%;

• empowerment transactions since 2000 worth R205-billion;

• meaningful economic transfer worth R159-billion; and

• more than 50% of management positions occupied by historically disadvantaged South Africans.

“We live in a democracy and it is within our rights to protect and defend the mining industry and we are going to do exactly that,” Mgojo stated.

What the Minister has enforced with immediate effect is:

• A minimum of 30% black ownership, made up 8% by an employee shareholding, 8% for mine communities and 14% for black entrepreneurs;

• A minimum of 50% black ownership, plus one black person shareholding, all with voting rights, for all new exploration licences;

• A board made up 50% by black directors, 25% of them women;

• Top management made up of 50% black management, 25% of them women;

• Middle management of 75% black management, with 38% of them women;

• Junior management of 88% black management, with 44% of them women;

• 70% of all mining goods bought must be procured from black economically empowered entities;

• 80% of all services must be procured from black economically empowered entities;

• 100% of all mineral samples must be analysed by South African-based firms;

• 1% of the yearly turnover of foreign suppliers must be paid to the Mining Transformation and Development Agency;

• 11% of the ownership provision can be offset against black economic empowerment requirements for companies that have been invested in mineral beneficiation since 2004;

• mining companies must provide decent housing, home ownership, social human settlements, affordable, equitable and sustainable health facilities and proper nutrition;

• 2% of the 5% skills levy must go on artisan training, bursaries, literacy and numeracy skills for employees and community members;

• 1% of the 5% skills levy must go to black academic institutions; and

• the remaining 2% of the 5% skills levy must be given to the Mining Transformation and Development Agency.

But new charter provisions may prove to be unconstitutional, law firm Fasken Martineau partner Nicola Jackson said in a release.

“It’s highly arguable that this new ‘top-up’ provision is unconstitutional as it attempts to impose retrospective obligations on already existing mining right holders,” the law firm said.

Mgojo said the Minister’s lack of collective engagement with all stakeholders had been most disappointing.

“We’re exceedingly disappointed that the Minister has chosen not to use the traditional forums, which have been in place for over a decade, to engage meaningfully,” Mgojo added.

Prior to its publication in the government gazette on Thursday, the chamber and its members had not had sight of the actual reviewed charter since the April draft was published in 2016.

Mgojo reiterated that the chamber subscribed fully to the notion of inclusive growth, which required an enabling regulatory environment that facilitates:

  • economic growth;
  • attracts investment;
  • creates jobs; and
  • enables the entry of new entrepreneurs.

But the reality now was a damaging regulatory environment that was shrinking the entire South African economy, frightening away investment, shedding jobs and providing negligible scope for the entrepreneurship demanded.

“If you introduce new elements that take 1% from the revenue line, not even from the profit line, but from the revenue line, you’re beginning to kill the goose that is supposed to be laying the golden eggs,” Mgojo warned.

The average 38% black economically empowered average ownership that chamber members already have includes what it refers to as “continuing consequences”, a reference to the “once empowered, always empowered” aspiration on which a declaratory order is once again being sought through the courts.

Chamber vice president Steve Phiri said the miningindustry had opted to go to court because it was confident that this charter was destructive of the entire miningeconomy.

“If government wants to have open discussions with us, by all means we’ll always be prepared to discuss, but we’re not doing this to twist their arm towards the negotiating table, so please don’t misquote me,” Phiri explained in response to questions posed by the Gupta television station ANN7.

Phiri, who is the CEO of the black-controlled mining company Royal Bafokeng Platinum, drew attention to the significant level of transformation that the South African mining industry has already attained, despite the fact that mining had been under severe financial strain for several years.

The industry was continuing to fund transformation in all respects, in spite of its revenue declining and its costs rising.

“To grow, you need capital, but you’ve got to make that capital, and to make that capital, you’ve got to be profitable. So, growth needs capital and you’ve got to fund that growth. But how do you fund that growth when the legislative framework is destroying investor confidence, the confidence of the very people who must give you money to ensure that there is that inclusive growth – or, if you like, radical economic transformation – that we’re all striving to achieve.

“You need to generate that capital through profitability and competitiveness. As we stand here now, margins are narrowing very badly and this industry is bleeding, bleeding very, very profusely, and this latest charter is now the final nail in the coffin,” Phiri said.

Regarding jobs, Mgojo said many jobs were shed during the commodity price slump of two years ago and many more stood to be shed now as a result of the unilateral gazetting of charter three.

“If there’s no growth, and as businesses suffer further as this new charter imposition is placed on them, more jobs will be lost because companies are not going to be profitable and they’ll have to lay people off, as happens when companies are in distress.

“This industry depends on well thought-out policies that are going to make it viable for the long term. We are joined at the hip with the DMR, which regulates this industry, and we need one another, but we need to work in a very constructive way, and we’re very open to that. We want that to happen.

“Where there are two willing parties with a common vision of what is in the best interests of the country, workable outcomes will result. Relationships will be repaired when we arrive at a common vision and a common purpose.” Mgojo said.

“It’s our real hope that sense will ultimately prevail and that we can get around the table to do the right thing, to ensure that we create a very sustainable future, not only for ourselves, but for upcoming generations of South Africans.

“That’s very important. We’ll hopefully be meeting with the Minister very soon to try and reason with him that it’s imperative that the correct process is entered into, so that subsequent to the negotiations, we can have something that makes sense.

“South Africans have done it before. It’s not that we’ve had easy times. All negotiations have been very tough, but as always, South Africans have a way of coming up with solutions.

“We’ve done it before and it’s really our wish that we can do it again, very soon, before we see further destruction in the markets right now, where the confidence has hit rock bottom.

“What happens to mining will invariably impact quite a lot of sectors of the economy and quite a lot of people and therefore we really hope that we can get around the table quite soon,” Mgojo urged.

Chamber vice president Andile Sangqu, who heads Anglo American in South Africa, said the industry had taken meaningful strides with the first two charters and it was still the industry’s belief that, if the third charter had adopted the negotiation approach of the previous two, there could have been full ownership of the third charter, and it would have been defended by all.

Recalling the signing of the first two charters by government, labour and business, chamber CEO Roger Baxter drew attention to negotiation being completely different to consultation.

“We’re not going to sign this charter, because it’s not our charter, and it very difficult to claim something that’s not yours. We should have been through a proper process of engagement and negotiation to arrive at an outcome that is workable.

“Not every person that came out of the first and second iterations of the mining charter had everything that they wanted. That’s what negotiation is about. It results in a workable compromise where all the stakeholders are equally unhappy or equally happy.

“This process that the DMR embarked on is their own unilateral process. Nobody had seen even the first version that they published in April last year, it was their ideas and the charter that came out today is again their ideas and not a negotiated outcome.

“Whether it has legal status or not is a question I’m not going to answer, but we’re not going to sign a document that we’re not committed to.

“The 1% of turnover is a totally new idea, we’ve never seen it before. This is the first time we’ve been exposed to the 1% – of turnover, think about that. What happens when miningcompanies are in significant loss-making positions. Without getting into technical details, 1% of turnover is at least R4-billion a year, so it’s kind of like a preferential share that’s given to a grouping upfront and all other shareholders have to take a second seat,” Baxter added.

The new 1% of turnover tax comes in addition to mineral royalty taxes, which are also revenue rather than profit based, meaning that they have to be paid whether or not profits are being made.

The expanded quotas for buying goods and services from black-owned companies could have a major stalling effect on operational requirements.

Thirty per cent black ownership of mines, with 8% to mineworkers, 8% to communities and 14% to black entrepreneurs, in 12 months is a stretch target second to none, resulting in analysts and legal commentators viewing the entire gazetting with a pinch of salt.

“This charter i not going to see the light of day anytime soon. We’re looking at years of protracted litigation,” Herbert Smith Freehills law firm co-chairperson Peter Leon told Bloomberg, which reported that the ruling African National Congress (ANC) will be seeking an urgent meeting with Zwane.

“Given the fact that the mining industry has shed 60 000 jobs in the last five years, we don’t want legislation that will add to that bloodbath,” it quoted  ANC spokesperson Zizi Kodwa as saying.

Source : Mining Weekly