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Deloitte unpacks Mining Charter ahead of High Court hearing into Chamber’s application to halt its implementation

Mineral Resources Minister Mosebenzi Zwane

Mineral Resources Minister Mosebenzi Zwane

5th July 2017

By: Mia Breytenbach

Creamer Media Deputy Editor: Features

     

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JOHANNESBURG (miningweekly.com) – Ahead of the High Court of South Africa’s hearing, on July 18, to decide on an interdict to halt the implementation of the revised Mining Charter, Deloitte Africa Energy and Resources leader Andrew Lane on Wednesday said the mining industry had to take a broader view of the charter, focus and improve the quality of the dialogue and ensure that the money spent in the industry makes a meaningful impact.

The Chamber of Mines on Wednesday confirmed that a court date had been set for July 18. The chamber is seeking to halt the implementation of the charter, which was released by Mineral Resources Minister Mosebenzi Zwane last month.

Speaking at a presentation outlining the changes and strategic implications of the newly published charter, in Sandton, on Wednesday, Lane highlighted several options for the industry in its approach to the charter.

He raised the concern that industry was “looking at a point in the system where [industry digs minerals] out of the ground and is making decisions around how that value gets divvied up, which is potentially not benefiting the whole”.

“We are shooting ourselves in the foot by looking too narrowly,” he argued, noting that he was not convinced that South Africa has a joined-up, or win-win strategy as to how to promote economic development, industrialise the country and drive the desired outcomes.

Lane, therefore, urged business to apply a more holistic and innovative outlook and embrace shared values to drive inclusive growth that achieves both economic and social progress.

CHARTER ELEMENTS UNPACKED
Webber Wentzel corporate practice partner Jonathan Veeran and Monitor Deloitte manager Stelio Zakkas examined the policy certainty and uncertainty aspects of the Mining Charter, covering the seven elements - ownership, preferential procurement and supplier enterprise development, employment equity, human resources development, mine community development, sustainable development and growth, and housing and living conditions.

Deloitte has published an infographic that presents a summary and scorecard for each of these elements, offering an “at a glance” guide for mining sector decision-makers and stakeholders.

Substantial changes to the charter include the ring-fencing of elements. Of the six compliance areas from among the seven elements of the gazetted charter ownership, human resources development and mine community development are ring-fenced elements - a new concept - each of which require 100% compliance, Zakkas highlighted.

A company that fails to attain 100% compliance for each of the ring-fenced elements is automatically deemed noncompliant, irrespective of their score in the remaining elements. These, in turn, are weighted as follows: preferential procurement and supplier enterprise development (30%), employment equity (35%) and sustainable development and growth (35%), he pointed out.

Certain areas in the charter remain open to interpretation.

While housing and living conditions are listed as one of the key elements in the charter, it is unrated in terms of the Mining Charter III scorecard and is, therefore, at the companies’ discretion.

Veeran and Zakkas questioned the charter’s approach to this element, which requires mining companies to submit a housing and living conditions plan and consult with organised labour and the Department of Human Settlements. The DMR will approve the plans. “However, there is no clarity as to whether there is any capacity or if there is an application procedure to assess these plans,” said Veeran.

Veeran and Zakkas, nevertheless, highlighted the laudable goals of the charter.

“The charter does endeavour to share value and share socioeconomic impact across mine ecosystems and communities [surrounding] the mines. It wants to reverse inequalities, maximise developmental impact . . . it has a strong focus on accelerating transformation and sharing value and, at its core, each of these elements endeavours to do that,” Zakkas said.
 
COST VERSUS IMPACT
Lane, however, questioned the balance of the Mining Charter and equitability in terms of contributions and returns to the different parties.

“Each element in the charter (old and new), has a cost associated with it – primarily for the rights holders – and an associated shared value impact,” he said, noting that the cost of compliance certainly increases with the new charter, which many argue is unaffordable and will reduce investment returns to a level that may no longer be globally competitive.

While there appears to be an intent to create shared value, the question is whether the shared-value impact justifies the cost, he explained. “It is important to understand the cost-to-shared-value impact of each element of the charter, ensure that the outcomes justify the costs, and that money is not wasted.”  

He unpacked key elements of the charter, weighing up the costs of the new and amended elements against the shared-value impacts.

“Ownership feels like it is a high cost; it is a reasonably low impact part of the scorecard, which doesn’t impact many people,” he argued. “While the broadening of ownership is potentially good, this element will drive up costs”.

While employment equity comes at a cost, this element is viewed as making a considerable impact.

However, the drive for employment equity, while good, will be expensive. “There is cost to accelerate transformation . . . because the timeframes are short, companies have to spend money on recruitment, training, job shadowing, space creation. . .,” Lane said.

While Lane acknowledged the increasing cost of human resources development, he highlighted the potential for a greater impact. A key concern is the pooling of funds and the administration thereof, he said.

Notably, preferential procurement, in its current form, is not making the impact that it could make. “This is an area in which the industry could do better,” Lane suggested, emphasising opportunities to create considerable impact if large original-equipment manufacturers, contractors and partners in the ecosystem collaborate.

Further, mine community development – a reasonably low cost in the current environment – is perceived as not making a significant impact. Lane added that this element, being ring-fenced and requiring 100% compliance on the scorecard, will drive up costs.

Lane suggested collaborations in mine community development could potentially create substantial shared-value impact; however, he worried about its restriction to the bolstering of local government integrated development plans. “I’m not convinced that the integrated development plans are a fair reflection of the real needs in communities, nor do they join up district and local municipalities. They don’t represent a comprehensive view on how you will develop a community,” he pointed out.

Sustainable development and growth, although a new element, is regarded as positive, with less of a cost impact, as companies are already investing in this element, he said.

Lane also argued that the housing and living conditions element provided a reasonably high impact, but that it also bore substantial cost.

“The business of business is no longer business, we do have a role in society, as do other players in society . . . we have to get to a point where we understand the system, and we all contribute and benefit,” Lane concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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