One of the companies to have benefitted most from a recent High Court ruling on the principle of “once empowered, always empowered” is DRDGOLD, followed by Sibanye-Stillwater and, in the pure-play platinum sector, Impala Platinum (Implats).
According to a report by Nedbank Corporate and Investment Bank analysts Leon Esterhuizen and Arnold van Graan, DRDGOLD has current direct black economic empowerment (BEE) of 11% – although the bank hastens to add that its calculation is based on “ ‘readily direct shareholdings’ as well as employee share ownership schemes”.
Had the High Court decided that past empowerment deals were not relevant – which would have forced mining firms to continually top up black ownership to 26% (which is the stipulated transfer-of-equity target in terms of the Mining Charter, which DRDGOLD says it has achieved) – the dilution to DRDGOLD’s shareholders would have been 16%.
Similarly, Sibanye-Stillwater’s current identifiable BEE count is some 9%. Had the High Court supported the government’s contention that mining firms had to top up their BEE shareholdings, even in the event of a black-owned partner selling its shares, the dilution to Sibanye-Stillwater would have been 13%.
The same applies for Implats: 13% on a 9% direct holding.
Interpreting more than a decade of empowerment is a complicated matter, however.
There are many types of transactions, some of which have failed, while other BEE partners have since sold their shares.
This is why, one suspects, the approach of mines minister Gwede Mantashe to the issue of accounting for BEE is to avoid a one-size-fits-all model.
At a round-table session with the media at a platinum conference this month, he said his department would not appeal the High Court’s April decision.
His preference is to see BEE on a case-by-case basis, even if that meant testing the legality of individual mining company compliance in court.
In other words, Mantashe is picking up where former mines minister Ngoako Ramatlhodi left off.
When, in 2014, the audit of 10 years of Mining Charter compliance was conducted, the department of mineral resources (DMR) and the Chamber of Mines disagreed on whether the 26% equity target set in the charter had been achieved.
Ramatlhodi’s view was that the matter should be taken out of the meeting room – where opinions and discretions abound – in favour of a legal ruling.
Mantashe appears to have adopted a similar pragmatism.
Even were the department to have appealed this decision, the prospects of success would have been doubtful, said Fasken partner Nic Roodt.
“The DMR would have had to satisfy the Supreme Court of Appeal that its request had a reasonable chance of success.”
The High Court ruling was pretty emphatic, however, and a full bench of three judges had ruled in the matter, which reduced the likelihood of an appeal succeeding, he added.
It’s also worth considering that while the April ruling is positive for mining companies, it’s also positive for BEE resource-sector investors.
In the view of Jonathan Veeran, a partner at Webber Wentzel, the judgment “removes the shackles” on historically disadvantaged South Africans who are now able to “monetise their investments”.
But this is by no means the end of equity-based empowerment. Mining Charter negotiations – which Mantashe insists will be completed by the end of May – may see the equity portion target rise to 30%.
And it’s also worth remembering that if an asset is sold, the BEE partners can cash out, making it obligatory for the buyer to conduct a new BEE deal, either with the existing BEE ownership, or new ones.
But the message of the High Court ruling is that relations between the government and mining sector are now forward-looking, rather than focusing on the past.
Said Esterhuizen and Van Graan: “We believe this is a superb windfall for the SA mining industry – something that should go a long way to reducing the substantial valuation gaps to the international peer group and that should also make it easier to invest capital in our industry again.”