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Harmony, rivals urged to stop linking social plans to prices

More mining companies failing to meet social and labour plans.

South African mining companies should face tighter legislation to ensure their operations benefit local communities even when commodity prices fall, according to a group that’s lobbying the government to strengthen regulation.

While companies including Harmony Gold Mining Company say they will need to reassess community and labour development programmes when commodity prices drop below a minimum level, South Africa’s Chamber of Mines says they must meet their obligations to surrounding communities regardless of market conditions for their metals. The Centre for Applied Legal Studies, based at Johannesburg’s University of the Witwatersrand and known as CALS, says a fifth of the 50 company strategies it studied tied the implementation of their plans to commodity prices.

The government is currently reviewing the Mining Charter, which includes the social and labour plans, known as SLPs, that are a legal requirement for their license to operate. The Department of Mineral Resources didn’t immediately respond to e-mailed requests for comment.

Community Opposition

“There is a growing opposition among communities and workers throughout South Africa to the manner in which benefits resulting from mining are shared,” CALS’s Louis Snyman, who authored the report together with Robert Krause, said in an interview. “A number of concrete interventions need to be made to ensure gaps are closed and the system is accountable to its intended beneficiaries, namely workers and communities.”

The government’s review comes at a time when investor returns from commodities are near their lowest since at least 1991 as slowing Chinese growth dents demand for metals ranging from iron ore to platinum and as mining companies in South Africa face demands for above inflation wage increases. While the 42% drop in the value of the rand against the dollar over the past three years has boosted profits for gold miners such as Harmony, many of the country’s iron-ore and platinum producers are struggling to make a profit.

“Low commodity prices do not exempt companies from meeting SLP obligations,” the Chamber of Mines, which represents most mining companies operating in South Africa including Harmony, said in an e-mailed response to questions.

Harmony’s social and labour plans for its mines including Bambanani, Target and Joel, which were obtained by Bloomberg, covering the period of 2013 until 2017 say that if the gold price falls below R340 000 ($22 077) a kilogram, its development projects “may require reassessment.” While the current gold price is equivalent to about R593 000 per kilogram, it dipped to about R384 000 a kilogram in 2013.

Profits Needed

“If you don’t have a profitable company you simply can’t meet your social commitments,” Harmony spokeswoman Marian van der Walt said by phone. “A company like Harmony will continue to meet its responsibilities irrespective of the rand gold price.”

Operating and capital costs between the seven operations differed by about 74% in the fourth quarter of Harmony’s financial year, according to a company presentation.

“Harmony has common planning parameters for all its operations,” the company said in an e-mailed response to questions.

Harmony climbed 4.98% to R41.98 a share at the close in Johannesburg.

The failure of the legislation to ensure that the fulfillment of plans isn’t tied to commodity prices is one of a number of weaknesses in the legislation that CALS says it has identified.

Legal Action

Many of the plans were only disclosed after the organisation filed legal processes to force their release. Only 4% of those reviewed were developed in consultation with the communities they are supposed to benefit and none laid out a clear grievance process for communities that disagreed with them, it said.

“There is no obligation on mining companies to publish them and there should be,” said Peter Leon, a mining lawyer at Herbert Smith Freehills, said in an interview. “The most serious weakness is that the communities don’t have to be consulted as a matter of hard law and are often unaware of an SLP’s contents.”

Recommendations made by CALS include requiring community approval before the plans are accepted by government, more clarity on the accessibility of the plans and sanctions for under-spending on the plans.

In 2004 mining legislation was introduced requiring mines to establish and implement social and labour plans in order to be granted a mining license. It was intended to try and redress the negative impacts of mining during the apartheid era when many companies employed cheap black labour, often housed in single-sex hostels.

“The model is basically good but 12 years after its introduction needs to be updated and reworked,” Leon said. “If you don’t have a social license to operate its very difficult to obtain community buy-in. That’s just common sense.”

© 2016 Bloomberg

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