The implications of the new look South African Mining Charter
Off the back of the recent Johannesburg Mining Indaba, speakers still despair at the state of the South African mining industry. Once the leading economic sector in South Africa, mining revenues have tumbled in recent years as global commodity prices have suffered with the downturn in Chinese demand, coupled with labour problems and the wider macro-economic problems in South Africa. All this has led analysts to predict that up to 50,000 jobs will be lost in the South African mining industry in this year alone.
Against this backdrop, the Minister of Mineral Resources is pushing to finalise revisions to the country's Mining Charter; focussing on restructuring Broad Based Black Economic Empowerment ("BBBEE") transactions in the South African mining industry.
The original Broad Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (the "Mining Charter"), published in August 2004, sought to address the issue of the participation of historically disadvantaged South Africans in the mining sector. But it is not as clear in its requirements as the subsequent BBBEE legislation and codes which were introduced in 2007 and which set out the various targets that have to be met by businesses operating in South Africa.
So-called "Trumping Provisions" have more recently been enacted that stipulate that in the event of any conflict between BBBEE legislation and any legislation already enacted, the BBBEE legislation should prevail. However, the mining and minerals industry was given an exemption from the Trumping Provisions to allow the sector more time align with the provisions of the BBBEE legislation. This exemption runs out towards the end of October 2016. Hence the need for action.
Revisions to the Mining Charter were published for public comment in April 2016 and commentators have focussed on the new requirement, which applies retrospectively, for each mining operation to have at least 26% ownership by an empowerment partner in perpetuity. This would mean that where a black empowerment shareholder sells its shares, the company must replace that shareholder with other black empowerment shareholders within three years, to ensure the ratio of 26% is maintained. This contrasts with the principle of "once empowered always empowered" – a principle followed in the industry which is currently being considered by the High Court in South Africa.
The draft Mining Charter also looks to formalise the structure of black participants via a single special purpose vehicle, develops requirements in respect of housing and living conditions for mine employees and increases "local content" requirements in the procurement of capital and consumable goods.
No-one questions the importance of advancing black participation in the South African mining industry and the value of harmonising legislation on this topic, but there is concern that the draft Mining Charter may have other implications for the mining sector at a time when it is already struggling. Key amongst these are the following:
- the proposed changes have created further uncertainty and unpredictability around the ongoing debate on BBBEE in the mining sector;
- there are potential costs arising from the proposed restructuring of black empowerment shareholders via a SPV structure;
- there are complex tax implications associated with the BBBEE which will need to be considered carefully;
- existing empowerment transactions are likely to need to be refinanced to comply with the structural requirements and there may be difficulties in obtaining this funding in the future;
- companies could be forced to tighten the lock-in provisions for BBBEE participants and generally the transfer of shares is likely to become more illiquid;
- clearly there will be costs of complying with the much needed improvement in housing and living conditions which fall on the mining companies again with complex tax implications; and
- failure to meet the required targets could results in automatic non-compliance with the draft Mining Charter and the risk of suspension or cancellation of rights or even criminal prosecution,
All of this is likely to further challenge investor confidence in an already depressed sector. The much needed positive signals for the mining industry in South Africa still seem to be missing at this point.
The mining sector in other African countries is facing similar constraints caused by the downward trend in commodity prices – how have their governments reacted to the challenges? It is fair to say that the reaction is mixed – which is to be expected from a continent comprising 54 different countries. Botswana continues to be a highly attractive location for international investment in the mining industry – with a stable, well understood and defined licensing system. Namibia also has an attractive story to tell to international investors with a positive approach to the regulation of the mining industry – although recent BBBEE legislation will mean that ownership structures may need to be adjusted going forward.
In contrast, mining in countries such as Zambia has struggled with a government flip-flopping around increasing royalty rates. This echoes the trend in other African jurisdictions where populist governments need to demonstrate to their electorate that citizens are benefitting appropriately from the mining sector. This trend has seen a variety of jurisdictions attempt to bolster their revenues from the mining sector in the face of falling commodity prices by looking to increase royalty rates (for example in Zambia and Tanzania) or demand an increase in ownership in mining companies (for example, this has been on the agenda in Guinea, Mali and Zimbabwe) – all of which again has the inevitable negative impact on investor confidence – although the governments of Zambia and DRC, for example, recognising the pressure the industry is under have adopted a more realistic approach to regulatory changes. The trend in resource nationalisation is not unique to the African continent and has also been seen in places such as Australia.
The depressed nature of the South African mining sector looks set to continue with the proposed Mining Charter likely to add to costs and uncertainty in the short term compounded by the macro-economic factors affecting South Africa. Whilst many jurisdictions are facing similar challenges due to the fall in commodity prices – it seems clear that countries in Africa can encourage investment in mining through the policies of their governments. Integrated government policies linking resource development to infrastructure and power availability can have a significant impact on the sector and governments looking to encourage investors will aim for a transparent, clear and stable regulatory framework and efficient bureaucracy, free of inconsistencies and ambiguity.
The October issue of Mining Global Magazine is live!
Get in touch with our editor Dale Benton at [email protected]
AngloGold Ashanti establishes BG Umoja JV in Tanzania
AngloGold Ashanti, in line with it s strategy to ensure a sustainable contribution to the economies of host countries, has established the BG Umoja joint venture (JV), in Tanzania.
Awarded a $186m two-year mining contract for the Nyankanga and Geita Hill underground mining projects, the 80/20 joint venture is a partnership between Africa Underground Mining Services (AUMS) Tanzania, a subsidiary of Australia’s Perenti Group, and local drilling services and mining- supply company, Geofields Tanzania Limited.
The partnership is modelled on a similar underground mining joint venture at the Company’s Obuasi Redevelopment Project in Ghana between AUMS Ghana and Accra-based, wholly Ghanaian-owned Rocksure and will help build local specialised mining capacity.
“We’re working with our experienced mining contractors to assist in establishing local joint ventures for long-term transfer of sustainable skills, and to continue building on our sustainable local procurement programmes,” commented Sicelo Ntuli, AngloGold Ashanti’s Chief Operating Officer: Africa.
“AngloGold Ashanti is building sustainable local procurement programmes that will allow it to stimulate economic and social development at all of its operations, evidenced by the significant contribution Geita has made to the fiscus and people of Tanzania.”
AngloGold Ashanti’s annual expenditure with indigenous Tanzanian suppliers has almost tripled to $162mn since 2016. The company’s local team in Tanzania has set itself an ambitious target of 60% to 70% of all expenditures with indigenous Tanzanian companies, by 2025.
Scope 3 Emissions
In addition, AngloGold Ashanti’s Geita Gold Mine has awarded a two-year fuel transportation contract, worth approximately $10.8m a year, to two local contractors - one of which is originally from Geita. This is in line with the mine’s commitment to contribute to the economies of host communities. The Geita-based company was part of Geita Mine’s supply chain capacity building initiative for host community suppliers, a partnership between the Mine and the National Economic Empowerment Council.
To influence Scope 3 emissions, trucks are to be compliant with EURO IV emissions standards, tankers are to be made of an aluminium alloy material to reduce weight and the age of the fleet will be maintained at less than six years.
Diversity & Inclusion
The contractors already employ women fuel tanker drivers, fulfilling the Mine’s requirements for diversity and inclusion. The two contractors both own workshop facilities in Geita town and participate in social initiatives aimed at uplifting the lives of host community residents.
AngloGold Ashanti has been operating at Geita Gold Mine for more than 20 years, with the project initially a single pit mine, evolving now to a predominantly underground operation, employing 5,700 employees and contractors.
Earlier this year, the Government of Tanzania recognized AngloGold Ashanti’s contribution to the economy of the country, awarding it for its outstanding performance in a number of areas, including environmental and safety performance, corporate social investment, the best taxpayer in the mining sector, the runners up in local business content and overall best performer in the mining sector in Tanzania in 2019/2020.
Geita Gold Mine
Geita, one of AngloGold Ashanti’s flagship mines, is located in north-western Tanzania in the Lake Victoria goldfields of Mwanza region, about 120km from Mwanza and 4km west of the town of Geita. It has been in operation as a large-scale mine since 2000.