Given South Africa’s mature mining sector, a 10% total free carried interest on new mining rights will materially undermine investment, by pushing up investment hurdle rates and ensuring that many potentially new projects become unviable.
The issue of topping up existing right holders BEE ownership to 30% within five years was never agreed as a recommendation in the Charter Task Team, and so this is another surprise inclusion by the DMR (Department of Mineral Resources).
Lameez Omarjee, Fin24
Although the newly released draft Mining Charter is materially different to Charter 2017, industry has raised concerns that it will not promote competitiveness, investment, growth and transformation.
The Minerals Council of South Africa, formerly the Chamber of Mines, which represents 90% of the industry, on Sunday issued a statement on the draft gazetted by Minerals Resources Minister Gwede Mantashe on Friday.
The public has 30 days to comment on the charter, which is meant to transform the industry and uplift mining communities. The latest version of the charter will be discussed at a mining summit set to take place on July 8 and 9, Mantashe told journalists at a briefing on Sunday. The minister said he hoped that the final charter would be referred to Cabinet after 30 days to be gazetted.
The minerals council supports the 30% black ownership target on new mining rights. However, it believes “much more work” needs to be done to the charter.
There are several elements with which the council does not agree. These include competitiveness. “Without competitiveness, investment in new exploration and mining will be limited and the current mining sector will continue to decline, to the detriment of all citizens.
“This is directly contrary to President Ramaphosa’s stated intention to attract $100bn in foreign investment into South Africa in the next five years,” the council said in its statement.
The council also believes that some elements are “unconstitutional and contrary to South African Company Law”. The council does not support a free carried interest of 5% allocated to each of the labour unions and communities.
“Given South Africa’s mature mining sector, a 10% total free carried interest on new mining rights will materially undermine investment, by pushing up investment hurdle rates and ensuring that many potentially new projects become unviable.”
A free carried interest is a public policy choice, which must be weighed against the critical need to attract investment for growth and employment creation, the council said. Other measures would be better suited to ensure benefits to communities and employees, that would not “undermine the viability of mining in the future”.
Further, the minerals council does not support the 1% EBITDA (earnings before interest, taxation, depreciation and amortisation) to target to communities and labour.
According to the council it is a “surprise addition” which was not agreed on by the Charter Task Team.
“The issue of topping up existing right holders BEE ownership to 30% within five years was never agreed as a recommendation in the Charter Task Team, and so this is another surprise inclusion by the DMR (Department of Mineral Resources).”
This top up would prejudice existing right holders which secured their rights based on the 2004 and 2010 charter, the council suggested.
“Despite a High Court declaratory order judgment and an agreement with the DMR, the issue of recognising the continuing consequences of previous BEE deals on existing rights, including for renewals, has not been properly captured in the Mining Charter.”
The council said that companies applying for new rights have to carry the 10% free-carried interest and an EBITDA-based income stream for communities and labour, and also have to consider additional costs. These include social and labour plan requirements and skills development requirements, which amount to R7bn per year; as well as existing royalties, amounting to R6bn per year; and corporate taxes.
The council also took issue with the charter’s 30% black ownership target on new Greenfields prospecting rights, as this will result in limited exploration. It further criticised the DMR for the “lack of recognition of the need to phase-in or graduate” charter requirements for junior and emerging mining companies.
The council said it would continue to engage with the DMR and other stakeholders on the issues, and provide its inputs to the DMR and the mining summit.
Read the draft Mining Charter HERE