Why South Africa Is Ripping Up Its Mining Rules Again

JOHANNESBURG (Capital Markets in Africa) – South Africa’s mining industry is a prime example of the nation’s stark imbalances. Its highly paid, mainly white male executives oversee hundreds of thousands of mostly black workers labouring in deep and dangerous operations. To spread the nation’s wealth more equally, in 2017 the government revised its mining charter to require that companies give more ownership to black shareholders. The industry lobby group sued to stop this, saying that the changes were illegal and would deter future investment. Now, corporations, labour unions and mining communities are pinning their hopes on President Cyril Ramaphosa and his new mines minister to find a solution that everyone can live with

Why were the rules changed in the first place?
Despite earlier versions of the mining charter designed to increase black ownership and benefits, the ruling African National Congress has said companies have still been too slow to share South Africa’s mineral treasures. Former Mineral Resources Minister Mosebenzi Zwane, an ally of then-President Jacob Zuma, argued that more stringent regulations were needed to ensure “radical economic transformation,” a loosely defined concept championed by Zuma aimed at speeding up the redistribution of wealth. Zwane published his new Mining Charter on June 15.

What were the changes?
While some parts of the new rules were murky, it didn’t appear to include the “once empowered, always empowered” principle, which companies had relied on to count previous sales to black investors to reach a 26 percent black-ownership requirement, even if those investors later sold their shares to whites or foreigners. (There was disagreement about whether the principle applied in the previous versions.) Zwane’s new rules also raised the ownership mandate to 30 percent. The chamber considers other contentious changes to include a requirement for holders of new mining rights to pay at least 1 percent of annual turnover to black shareholders, before and in addition to distributions to all shareholders.

What did the industry do?
The Chamber of Mines, which represents producers and was in the dark about the specifics of the changes until right up to Zwane’s announcement, sought an injunction against the charter and a judicial review of the regulations. The chamber outlined a number of the requirements it said were unconstitutional and illegal. It also revived an earlier case seeking judgment on whether “once empowered, always empowered” should apply. The chamber warned that the changes would cripple investment, a claim bolstered by the fact that shares in South Africa-focused mining companies dropped the day the new rules were published.

Have the revised rules gone into effect?
Zwane said in June the rules were effective immediately but later agreed not to implement the new charter until a judgement was made in the chamber’s case seeking its review. In November, a South African court reserved judgment on the chamber’s application for an order on “once empowered, always empowered.” In February, the group agreed to postpone its challenge to the charter following Ramaphosa’s appointment as president.

How might the new president change things?
Ramaphosa, who is seen as more business-friendly than Zuma, says he wants a charter that both accelerates transformation and contributes to growth in South Africa’s mining sector. The president, one of the wealthiest black South Africans, was a founder of the country’s biggest mineworkers’ union. He quit full-time politics in 1996 and later founded investment company Shanduka Group, which had investments from a mining venture with Glencore Plc to the McDonald’s Corp. franchise in South Africa. Ramaphosa’s appointment of ANC chairman Gwede Mantashe as mines minister seems to have gone down well so far with both labour and mining companies. Mantashe started his career as a miner, joined the National Union of Mineworkers and rose through its ranks to become its secretary-general.

Which companies are affected?
South Africa has the world’s biggest reserves of platinum and manganese, and its mineral deposits also include gold, iron-ore, coal, chrome and zinc. Anglo American Plc, Glencore, South32 Ltd. and Sibanye Gold Ltd. are among companies operating in the country.

What’s likely to happen next?
Mantashe said he’s given himself three months to complete the mining charter, which suggests things should move fairly quickly. However, any discussions will need to include community groups after the High Court classified them as core stakeholders in February. A new charter needs agreement from all parties, should set realistic and achievable timeframes and must be clear, concise and unambiguous, according to Peter Leon, the Africa co-chair at law firm Herbert Smith Freehills LLP. Security of tenure is of “paramount importance” to mining companies and investors, which means the charter should fully recognize historic empowerment transactions, he said.

Source: Bloomberg Business News