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Latest mining charter: What’s new and who wins

Five key takeaways from the latest mining charter.
The latest mining charter seeks to reduce uncertainty and boost investment in the sector. Picture: Naashon Zalk, Bloomberg

South African Mineral Resources Minister Gwede Mantashe issued a new Mining Charter last week, seeking to reduce uncertainty and boost investment in the sector.

The background:

The set of rules, aimed at distributing the industry’s mineral wealth more equally among citizens after the injustices of apartheid, was first issued in 2004 and updated in 2010.

Previous Minister Mosebenzi Zwane published his own version last year, which was challenged in court by the industry. Following his appointment in February, Mantashe promised to consult everyone involved and issued an initial draft for comment in June. The Minerals Council South Africa, which represents most producers, says it’s studying the latest version.

Here are five key takeaways from the latest Mining Charter:

1. Minimum black ownership (Existing mine rights)

What happened before? The first two charters set it at 26%. Zwane wanted a top-up to 30% within one year, while Mantashe’s first draft said 30% in 5 years. 
 
New charter says: The minimum stays at 26% for the duration of existing mine right. (New mining right holders will need 30%.) This means mining companies that met the original requirements get to avoid diluting existing shareholders by being forced to add more black ownership.
 
2. ‘Once empowered, always empowered’
What happened before? There’s been an ongoing debate on whether previous black-empowerment transactions should be recognised even after the black shareholders exited. 
 
New charter says: The “recognition of continuing consequences” is clearly spelled out. This means that companies which met the requirements previously won’t be forced to issue or sell new shares to black investors.
 
3. Mine right renewal/sale
What happened before? Mantashe’s earlier draft said ‘once empowered, always empowered’ won’t apply if the mining right changes ownership or needs to be renewed. 
 
New charter says: That hasn’t changed. This means that most companies won’t need to worry about renewal for several years. However, the ownership-change clause may restrict consolidation in the industry.
 
4. Carried interests (New mining rights)
What happened before? Mantashe’s first draft required “free-carried interests” of 5% each for workers and community groups, which meant the respective groups wouldn’t have to buy their shares or pay their way.
 
New charter says:  The language has been changed to “carried interest,” and the charter says that the cost for the holding will be recovered by a right holder from development of the asset. Companies also have an option to pay an ‘equity-equivalent’ benefit to communities instead.  The details are still unclear, but analysts and lawyers have speculated mining companies can recover the value of the worker and employee stakes from the project’s profits, once it’s developed. That would make the requirement a lot easier to swallow. 
 
5. Dividends
What happened before?  Mantashe’s first version included a dividend equal to 1% of Ebitda for employees and communities. 
 
New charter says: The requirement appears to have disappeared. Which is  good news for mining companies, which have one less obligation to meet.
 
© 2018 Bloomberg L.P
 

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Crazy that once empowered always empowered is not universally applied, I could maybe understand broad based employee schemes being incentivized but forcing companies to give a cut to a BEE shareholder if they want to do a transaction will just lead to less transactions being done, stupid.

The president sends his special envoys all over the globe to beg/ persuade investors to invest. Those who decide to invest are then told that they have to finance the sale of 30% of their assets to people who are not qualified to be investors, and also pay them 30% of the profits.

If you are forced to fund people to purchase your shares, and the beneficiaries are not required put down security for the loan, it is called a donation (ask Lonmin). After donating 30% of their investment in an effort to support the ANC, they receive the comforting assurance that they won’t need to make another donation until their mining license is revoked or renewed. This will only happen when the ANC needs to buy more votes, which means it will happen every 5 years.

These investors who were invited/ begged/ persuaded to invest in SA are then told that they won’t have much control over their capital because they have to appoint a board that represents the demographics of the country. The investor who brings the capital will immediately lose 30% of it. Then he will have to pay for social upliftment, housing and taxes. He will also be forced to pay preferential dividends on the “donated” shares. The investor/ donor will lose control of his assets because half the board members want to cash in all of the time.

Eventually when it dawns on this investor that he has been the victim of a misrepresentation / fraud / extortion, 5 years have past. The next election is due and the ANC pulls his mining license, forcing him to start the whole process from scratch. He won’t be able to sell his investment because the new owner will have to BEE again. This means his 70% is worthless.

This investor will realize that his whole investment was in fact expropriated without compensation.

Who want to donate hard-earned money to this crowd of socialist lunatics? Only the Chinese, because they realize that the ANC will default on the repayment of loans. This is part of their 100 year plan, because they have security in the form of construction projects, mineral rights, harbours, airports and Luthuli House.

I think your last paragraph is an insight into the future. There is a good chance whole charter is an elaborate (Cyril’s cooking frog style) Gupta/Glencore scam where mining is made progressively more difficult until the developed mine is handed over to the Chinese with none of the regulations being enforced. The money will be in an offshore bank account in US$ for the ANC’s upper echelons.

Dutch and British should have signed a First nations treaty with indigenous South Africans as per Canada and New Zealand who don’t have BEE like schemes.

For decades to come the non indigenous South African’s and their companies will pick up the ever increasing tab.

Also the current empowerment program is still skewed towards enriching BEE elites less than local communities who are much poorer.

The law should be.. once BEE elites have been empowered, no more participation in further BEE schemes for them. Why is this loophole not covered??

Edit: Also the current empowerment program is still skewed towards enriching BEE elites MORE than local communities who are much poorer.

End of comments.

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