JOHANNESBURG - The second mandatory portion of black economic empowerment (BEE) in mining was poised to be more difficult than the first, which was currently being severely stress tested, Ernest & Young director Lance Tomlinson said on Monday.

Tomlinson told Mining Weekly Online, at a media lunch organised by the company's mining leader Adrian Macartney, that the second BEE wave could well also be done differently, possibly using vendor finance rather than bank finance.

He reminded that May 2009 was the deadline for South African mining companies to have fulfilled the first 15% tranche of the full 26% BEE requirement, and also heralded the start of the acquisition of the remaining 11% by 2014.

But, while the first 15% BEE wave was done against the backdrop of rising commodity prices and a mining boom, the second 11% would most likely be done against a backdrop of lower commodity prices and far tougher mining-sector conditions.

As the first wave of BEE transactions was about changing the balance of equity from people who had access to capital to those who did not have capital at all, the deals were generally highly leveraged and required dividend flow in order to service the debt and to start the repayment of bank loans.

"For merchant bankers, the first wave of BEE deals was a no-brainer. There was good growth from mining companies, the commodity prices were rising and there was almost a guarantee of dividend flow," he said.

But the second wave would carry more risk and would thus be more highly priced at a time of commodity price retreat and dividend uncertainty.

The risk appetite of the current BEE players had also lowered and, given the extent to which current deals were being stress tested, the so-called "usual suspects" might not be as willing as they were in the past to step up to the plate for more big deals.

Mining companies were, at the same time, obliged to complete their deals in order to secure tenure over mineral rights and may have to fund future deals themselves.

"You may see a different form of financing coming through in the future and that is vendor financing. The banks being a little gun-shy, mining companies may have to fund the deals themselves," he said.

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