Companies in the mining sector will need to respond quickly to avoid the risks resulting from the impact of the revised Mining Charter on South Africa’s Broad-Based Black Economic-Empowerment (BBBEE) Codes of Good Practice.

Therefore, they will need not only the services of black economic-empowerment (BEE) consultants but also conventional management consultants, asserts BEE certifications provider BEE Verification Agency (BVA).

Conventional management consultants should understand the risks stemming from the revised charter and implement sound business architecture methods to facilitate rapid business transformation.

BVA highlights that, although there are currently opportunities for the local mining industry suppliers with valid BEE certificates and a 26% black shareholding, when the revised Mining Charter is promulgated, black-owned suppliers with a turnover of less than R50-million a year will have the advantage.

BVA MD Dr Willem Mostert comments that each entity subject to risk, as a result of the revised Mining Charter, needs to determine the nature and extent of the risk they face and develop an appropriate risk mitigation strategy.

“Their . . . strategy will require reconsidering their key performance indicators, business model, business strategy, business processes, capabilities and business development funding strategy. If they do not come to terms with the risk they will face, owing to the revised BBBEE codes, they will most probably experience a multitude of business constraints in the near future,” he asserts.

Risks Explained
Mostert says four entities are at risk as a result of the strategy underpinning the revised BBBEE codes.

The first is the measured entity that requires a BEE certificate. He adds that the cost of BEE compliance will increase and the status level of the measured entity will be discounted by one level if it does not achieve 3.2 out of 8 points for net value of ownership, 8 out of 20 for skills development, 10 out of 25 for preferential procurement, four out of ten for supplier development and two out of five for enterprise development.

He comments that, if the subminimum of 40% in terms of the scores is not achieved, the measured entity will struggle to compete for tenders, especially when 100% black-owned companies with a turnover of less than R50-million are also competing.

“The risk for measured entities, excluding those with a black shareholding of more than 51% and a turnover of less than R50-million, is that it would be difficult to achieve a good enough score because of the more stringent standards.”

The second entity impacted on is the supplier with a turnover of more than R10-million, a black shareholding of less than 51% or a black female shareholding of less than 30%, owing to the shift in the supplier profile possibly being less reliable, consistent and more expensive.

He highlights that the emphasis of the revised BBBEE codes/Mining Charter is to encourage procurement from companies with a turnover of less than R10-million, accounting for a score of 4 out of 25; a 51% or more black shareholding, accounting for 9 out of 25; and companies with a 30% or more black female shareholding, equating to a score of 4 out of 25.

The risk is that measured entities will be exposed to new suppliers that might not be able to handle the sudden demand for their services or goods and who might, subsequently, not be as reliable as their current suppliers and deliver the same quality.

“Their supply chain could, therefore, become less sophisticated and the suppliers who have a more than 51% black shareholding, for which there is now a higher demand, will ask a premium for their services and goods, making procurement more expensive.”

Moreover, the third entity affected is the supplier with a less than 51% black shareholding and a turnover of more than R50-million. Mostert notes that the demand for the services and goods from these suppliers will decrease, as a result of the points allocation dedicated to procurement from suppliers with a black shareholding of more than 51%, consequently, resulting in less revenue, forcing suppliers to reconsider their business model to survive.

Lastly, Mostert says suppliers who have a black shareholding of more than 51% or a black female shareholding of more than 30% are also at risk, owing to massively increased demand for their goods and services.

“For some of these suppliers, the demand for their services or goods could grow exponentially, which might put them at risk, owing to the inability to cater for increased demand. Exponential growth without sufficient capacity and business acumen has been the downfall of many a business,” he comments.

Current Status
Mineral Resources Minister Mosebenzi Zwane published the draft review of the BBBEE Charter for the South African Mining and Minerals Industry in the Government Gazette for public comment on April 15.

The statement noted that the draft review includes strengthening the efficacy of the Mining Charter, developed in terms of Section 100 of the Mineral and Petroleum Resources Development Act, No 28 of 2002, as one of the tools for effecting meaningful transformation of the South African mining and minerals industry.

Moreover, as stated in the release, the draft review also seeks to integrate government’s transformation policies and legislation to enhance the ease of doing business, as well as create regulatory clarity, predictability and certainty. In this regard, the reviewed Mining Charter is aligned to the provisions of the BBBEE Act, No 53 of 2003, and the Department of Trade and Industry’s (DTI’s) BBBEE Codes of Good Practice.

Mostert comments that, as a result of the revised Mining Charter, the mining industry will not have to comply with the revised DTI codes.

“The revised Mining Charter was aligned to the provisions of the BBBEE Codes of Good Practice, which will be promulgated as a sector code. “Consequently, the mining sector codes will follow the basic structure of the Codes of Good Practice and the current Mining Charter will become obsolete,” he concludes.