The draft 2018 iteration of the Mining Charter, as well as the Mineral and Petroleum Resources Development Act and social and labour plans amendments expected later this year, offers an opportunity to improve regulatory and policy certainty and, subsequently, investor perception of the South African mining sector, Webber Wentzel and Deloitte said last week.
Deloitte energy and resources leader for Africa Andrew Lane noted that the new draft charter was an improvement on the previous draft and amended charters, but warned that there were still areas where regulatory uncertainty persisted.
In terms of ownership and beneficiation, Webber Wentzel partner and mining sector head Jonathan Veeran explained that the draft charter aimed to enable effective ownership of South Africa’s mineral resources by black persons through meaningful economic participation.
Ownership requirements moved away from the past definition of historically disadvantaged South Africans to one of black persons, aligning with the definition used by the Department of Labour and the Department of Trade and Industry (DTI), he pointed out.
“It is clear that the ownership element requires 100% compliance and has a clearly defined five-year transition period,” Veeran highlighted.
A differentiation is, however, made for the compliance requirements of existing rights holders who have to, where necessary, increase to a 30% black economic empowerment (BEE) shareholding from the current 26%.
New rights holders, who have the same 30% target, have specific distribution requirements across three owner groups.
The financial impact on rights holders of the changes in the ownership element, specifically within the current economic climate, was uncertain, Veeran said, noting that this related to the costs of supplementing BEE shareholding, as well as the trickle dividend, and/or earnings before interest, taxes, depreciation and amortisation payment requirements, and the free-carry of 5% shareholding for host communities and qualifying employee shareholders.
He further noted that while it was questionable whether one could legally differentiate between employees with regard to who could and who could not participate as employee shareholders, the requirement on new mining rights to seemingly grant a free 5% equity to host communities and qualifying employees respectively brought uncertainty as to how rights holders might structure such a transaction, and how they might finance it.
Further, the current draft Mining Charter required that 5% of payroll be invested in human resource and essential skills development. While this target had remained constant in the 2018 draft of the charter, Monitor Deloitte manager Stelio Zakkas pointed out that the structure of the 5% spend was different.
“The 2018 draft charter expands on the spending criteria by proposing two notable changes,” he said.
The first, Zakkas explained, proposed that training be reflective of demographics and be invested in essential skills development activities such as science, technology, engineering and mathematical skills, as well as artisanal, literacy and numeracy development, and bursaries.
“This is a broad mandate and, to date, there has been a strong focus on technical and artisanal skills training as per the needs of the sector,” he noted.
The second change was a 1.5% of payroll contribution requirement towards South African public academic institutions, science councils and research entities. This, Zakkas explained, was intended to develop solutions in exploration, mining, processing and technology efficiency, as well as environmental conservation and rehabilitation.
The nonalignment with the DTI broad-based BEE Codes of Good Practice skills training brought uncertainty in terms of the necessity of driving training in accordance with the learning programme matrix, Zakkas lamented.
Another concern, he noted, was that the draft charter remained silent on enforcing portable skills training that offered opportunities to trainees to find alternative employment, which, he said, was a “critical consideration in a cyclical industry that is impacted by ongoing digitalisation and automation”.
Zakkas further pointed out that there was uncertainty with regard to research and development investment being reflective of demographics, which, he said, could pose a challenge in ensuring, and proving, that investment was reflective of demographics, and exacerbated the already challenging compliance reporting landscape.
Meanwhile, Monitor Deloitte director Khutso Sekgota stated that procurement from, and support and development of, local empowered businesses were fundamental drivers of not only transformation but also economic growth in South Africa.
He explained that the draft charter introduced several amendments to the procurement measurement criteria and targets for the inclusive procurement, supplier and enterprise development element.
This element proposed rights holders identify both goods and services spend categories within their mining stakeholders supply chain, and allowed them to adjust procurement policies to enable spend on these new measurement criteria.
However, the introduction of new compliance criteria in the form of verification of local content for capital and consumer goods with the South African Bureau of Standards might result in both an administrative and financial burden for stakeholders in the mining goods value chain in South Africa.
Additionally, he lamented, the procurement of mining goods and services from foreign suppliers was still unfavourable and did not comply with South Africa’s trade law obligations.
The draft charter’s procurement requirement stated that at least 70% of spending on capital and other mining goods would have to go to locally manufactured products, with a local content of at least 60%.
“This may pose a problem for large companies, as only a few South African companies have the capacity to produce sophisticated capital goods that are required in the mining sector,” Sekgota pointed out.
However, Webber Wentzel and Deloitte believe that, unlike a compliance-driven approach, value beyond compliance thinking drives innovation, productivity, and both social and economic growth, and that investment in the industry is essential and may define the speed at which it returns to a sound growth path.