New Mining Charter sows more investor uncertainty - law firm

Cape Town – The new Mining Charter fails miserably in bringing policy and regulatory certainty in an industry where investor confidence has been rocked.

This was the view of Cliffe Dekker Hofmeyr on the third Mining Charter that was revealed by Mines Minister Mosebenzi Zwane in Pretoria on Thursday.

GAZETTE: Read the full Mining Charter 

The new Charter – the third version since the first one saw the light in 2002 – has caused considerable uproar among industry stakeholders, while share prices of mining companies plummeted within the hour of Zwane’s address to the media.

Most notably, the new Charter requires mining companies to increase black ownership to 30% - up from 26% previously -  and future prospecting rights may only be granted in instances where applicants have a minimum of 50% plus one black person shareholding, which must include voting rights.

Employment equity targets have also been increased and mining companies are required to allocate 8% of their shareholding to workers, while another 8% of shareholding is allocated to mine communities that will be held through a trust.

READ: Markets bloodbath as Zwane shocks mining sector

"The Mining Charter’s formulation," said Cliffe Dekker Hofmeyr, "like previous charters, is poorly worded and often ambiguous."

The most "salient points" according to the law firm are the new ownership requirements, procurement and beneficiation targets, employment equity stipulations and new standards for housing and living conditions as well as human resource development.

Cliffe Dekker Hofmeyr points out that there are a few improvements from the draft Charter that was gazetted in April 2016, such as that distributions of shares are subject to a mining company’s liquidity and the removal of the requirement for a ministerial skills development fund and a social development fund.

"However, changes to accommodate the comments of the mining industry on the  April 2016 Charter have not been far-reaching enough and will have major implications for the sector in an already fragile economy, particularly as it follows the third credit ratings downgrade in recent months."

READ: Zuma's 'damaging' Cabinet move to blame for downgrade - mines body 

Soria Hay, head of corporate finance at independent investment bank Bravura, remarked that government followed a flawed process in the drafting of the new Charter, which will curtail mining development.

“Government seems to have been wanting to create the biggest shock possible in the industry with the newly released Mining Charter,” she said in a statement.

“This raises questions about the true agenda. With limited consultation with the Chamber of Mines or other industry investors prior to the release of the Charter, the interests of key industry stakeholders are clearly not the main driver here,” she noted.

The increase in black shareholding to 30% is not the “end of the world,” Hay said, as other industry charters such as ICT for example also requires 30% and certain beneficiation programmes can be offset against 11% of the black economic empowerment (BEE) shareholding.

“However, the devil is in the detail,” Hay said. Within the 30% ownership target is a requirement that 8% is owned by employees, another 8% by mining communities and 14% by black entrepreneurs.

READ: 12-month deadline to meet 30% black mine ownership 

She also pointed out that the new employment equity targets – specifically with regard to representation of women at board, senior, middle management and junior management level are “simply unrealistic”, as there are not enough female technical professionals in South Africa to meet these targets.

“The new Charter is certainly revolutionary as (the Minister during his budget speech in May) promised, but not in a positive way,” Hay said. “It will stifle further private investment – the last thing the already challenged industry now needs.”