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High stakes in mining BEE dispute - BDlive

Friday, 19 June 2015

THERE are dire consequences for the South African mining industry stemming from the Department of Mineral Resources’ interpretation of the empowerment component of the Mining Charter, the Chamber of Mines said in court papers.

The papers are the opening salvo in a lengthy court process to gain a declaratory order on whether empowerment deals done after 2004 and which have diminished — meaning companies no longer comply with the 26% black ownership levels stipulated in the Mining Charter — need to be topped up and whether mining companies stand to lose their mining rights for noncompliance.

At the heart of the chamber’s argument is a contention that the revised charter of 2010 stipulated there would be no "continuing consequences" of deals done after the promulgation of the Mineral and Petroleum Resources Development Act in 2004, a change the chamber said was unilaterally inserted by the department.

In essence, this means the department would not recognise any credits stemming from empowerment deals done after 2004 if the empowerment parties had reduced their stake in the mining company for whatever reason.

The chamber is adamant it had not agreed to the restriction included in the 2010 charter. The chamber argued that the 2010 charter was applying regulations retrospectively to the period between 2004 and 2010, when the original charter was in force, and it wanted the court to make a ruling that it could not do so.

In talks in March, the department asked why the chamber was only now contesting this point.

The chamber said that in the past it had been "indicated that companies would be considered on a case-by-case basis" on their compliance with the spirit of empowerment, but an audit of compliance started last year showed there was a blanket exclusion of post-2004 transactions that had fallen away.

The consequences of the department’s stance were dire, stated chamber documents submitted to the North Gauteng High Court.

In a letter to Mineral Resources Minister Ngoako Ramatlhodi in February this year, chamber president Mike Teke said excluding the consequences of the post-2004 deals would mean a "material misrepresentation of the mining industry’s material contribution to creating access to ownership and creating a critical mass of black economic empowerment".

"The exclusion of past … transactions would result in material misrepresentation of empowerment transactions, leading to reputational and regulatory risks to companies, and with potential significant negative consequences to shareholder value," he said.

In 2014 money terms, the industry had created empowerment deals to the value of R205bn since 2000, the chamber said.

In a study of the effect of applying the clause excluding the continuing consequences for deals done between 2004 and 2010, the chamber said it had surveyed 23 companies in the six largest mining sectors representing up to 90% of the value of the industry.

It found a quarter of the companies would be affected negatively if the department’s view of continuing consequences was applied.

Five major companies — Anglo American Platinum, AngloGold Ashanti, Gold Fields, Sibanye Gold and Aquarius Platinum — would fall below the 26% black ownership target if the department’s view was adopted, chamber CEO Roger Baxter said in a letter to the department in March.

The founding affidavit by Vusi Mabena, the chamber’s senior executive in charge of transformation and stakeholder relations, detailed the impasse on the ownership issue.

The affidavit and accompanying documents showed the urgency within the chamber to resolve the matter before the outcome of the charter compliance review, started last year, was made public.

While the department agreed to speak to companies individually, the documents made clear the government was not backing down on its insistence that black economic empowerment (BEE) levels be maintained at 26%.

"This will force mining companies to perpetually dilute other shareholders if the required BEE partners cannot be found in the open market," Mr Baxter said.

"The consequences will be a shareholder revolt, divestment from companies and a significant constraint to raise capital."

The mining chamber noted in a circular to members in March that "it seems the biggest issue the department is grappling with is what they phrase as ‘double dipping’, where more than one company claims credits over the same asset or BEE company".

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