What the mines told Zwane...

My way: Mosebenzi Zwane
My way: Mosebenzi Zwane

Chamber and minister at loggerheads over principle that could skew BEE ownership.

The Chamber of Mines early this year agreed to a 29% black-ownership target for the industry – as long as the “once-empowered” principle was put into the mining charter.

Among a trove of documents Mineral Resources Minister Mosebenzi Zwane has dumped into the court record are several confidential letters and minutes of meetings between the chamber and the department of mineral resources (DMR).

A document setting out their positions as of January this year reflects that both sides supported a 29% target to be reached in three years – with the once-empowered principle included.

They also apparently agreed that a mine’s black ownership could afterwards dilute to 18% if a black partner wanted to exit.

This is radically different from the mining charter that was actually published in June, which completely eradicates the “once-empowered” principle and sets a 30% target to be reached in only one year.

According to the document, Zwane agreed to “use his best endeavours to ensure” these principals made it into the charter.

The minister last week belatedly filed his response to the chamber’s application to review his mining charter.

Zwane’s affidavit alone was 204 pages long, but he then included about 900 pages of annexures – including “confidential” letters from the chamber.

The charter is being reviewed in court, but Zwane this week said at a Black Business Council event that it had brought the industry “the much-sought policy certainty”.

“We believe it is realistic and achievable,” he said.

“We engaged with stakeholders for over a year.”

“Only one stakeholder has voiced opposition,” said Zwane, referring to the chamber.

The chamber on Friday filed its new response to Zwane in court, tackling the minister on more technical legal points.

Zwane's argument

Zwane’s lengthy affidavit in response to the chamber essentially argues that the chamber had been extensively consulted and that consultation did not mean he had to compromise.

In response to the chamber’s claim that much of the charter was unreasonable because it simply could not be done, Zwane repeatedly invokes the same catch-all defence: don’t worry, trust me.

The DMR “has always applied the provisions of the charter with a measure of common sense and flexibility and an appreciation of practical reality”, he said.

In the affidavit, Zwane dismisses the chamber’s distress over the 30% target without really addressing the problem with it – that it discounts all previous BEE deals.

The once-empowered conflict is not straightforward.

There are two interpretations of what the charter calls “continuing consequences”.

One is that all deals putting mining assets in black hands before the first charter in 2004 should count indefinitely, even if those assets were sold later.

The other, which the chamber favours, also counts deals since the 2004 charter, where the black owners have since sold out.

The distinction matters especially for AngloGold Ashanti owing to much of its BEE score stemming from deals in the 1990s with, among others, Patrice Motsepe.

In his affidavit, Zwane again unequivocally disavows “once empowered”, saying that “true transformation of the industry can only occur if the required level of black shareholding is always maintained.

The chamber’s logic would allow the industry to hypothetically revert to zero black ownership, he pointed out. He then ridiculed the chamber’s claim that 30% was unattainable in a year, saying it only involved “a top-up of 4%” from the old target of 26%.

Not 4%

Among the letters Zwane has put into the court record is a “strictly confidential” letter from the chamber spelling out how large the top-up would actually be for major mining companies.

This letter dates from March 2015 and shows that almost all major groups already had 30% black ownership – using the once-empowered method.

Only Kumba Iron Ore, Impala Platinum, AngloGold Ashanti, Sibanye Gold and Aquarius Platinum (which has since been taken over by Sibanye) were below 30% at that point.

If you strip out past deals where the black shareholders have since left, the picture changes dramatically – especially for gold mines.

Anglo American Coal and what was then called BHP Billiton Energy Coal, now part of South32, would see their ownership scores of 52% and 53%, respectively, fall down to 27% and 10%.

AngloGold would see its 27% score fall to 6%.

Gold Fields claims 35% BEE ownership, but this would fall to 20%.

Harmony’s 37% score would fall to 24.5% and Sibanye’s 26% to 11%.

The top-ups to 30% would then amount to as much as 24% of the value of AngloGold’s local assets – in one year.

“The chamber is clamouring to avoid black ownership in the mining industry,” alleges Zwane.

He makes several versions of this accusation throughout the affidavit.

Black management target

Another “private and confidential” letter from March this year makes a similar argument about the employment-equity targets in the new charter.

In it, the chamber forecasts the level of black leadership it thinks it could reasonably attain by 2022 and by 2027, assuming different rates of growth.

Under a “normal growth” scenario defined as a fairly unlikely 2% to 8% annual growth rate, the chamber said the industry would probably raise black representation at “top management” to 28.9% by 2022 and to 36.2% by 2027. It is currently at 21.7%. If growth is lower, the industry would probably reach only 23.8% black top management a decade from now, it said. This is according to a calculation taking into account natural attrition of older white people and the rate at which jobs will expand.

Under a low-growth scenario, the chamber predicts that black representation at all levels from middle management upwards will be almost unchanged 10 years from now.

Apart from ownership and employment equity, one of the industry’s major gripes with the 2017 charter is the high local procurement target of 70%.

In the same letter, the chamber said that this was impossible for mines that use large rear-dump trucks because the local manufacturer, Bell Equipment, only produced sizes up to 55 tons.

Big, open-pit mines require 170-ton trucks and these can only be imported, said the chamber.

ZAR/USD
17.46
(-0.81)
ZAR/GBP
23.00
(-1.19)
ZAR/EUR
20.69
(-0.67)
ZAR/AUD
12.59
(-0.95)
ZAR/JPY
0.17
(-1.00)
Gold
2061.26
(+1.26)
Silver
28.26
(+5.32)
Platinum
987.00
(+2.40)
Brent Crude
45.33
(+1.67)
Palladium
2241.50
(+3.09)
All Share
57788.46
(+0.28)
Top 40
53485.37
(+0.39)
Financial 15
9849.62
(-0.80)
Industrial 25
76272.63
(+0.14)
Resource 10
60445.77
(+1.10)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 903 votes
It depends on how the funds are used.
74% - 6017 votes
No. We should have gotten the loan elsewhere.
15% - 1221 votes
Vote