JOHANNESBURG (miningweekly.com) – The draft reviewed Mining Charter Three is not an effective tool to achieve the transformation of the mining industry, says law firm Cliffe Dekker Hofmeyr crossborder mergers and acquisitions Africa and Asia head Deepa Vallabh.

Speaking at a ‘State of the South African mining industry’ seminar, in Johannesburg, on Wednesday, Vallabh  stressed that, while transformation in the mining industry was imperative for South Africa’s national transformation objectives, “the fact that government pushes policy and legislation that is unclear, creates uncertainty, and in many instances is [not] implementable is . . . a joke to the objectives that they are setting to redress the imbalances and disparities that exist in our industry”. 

She underscored that significant time and resources were spent in understanding and determining compliance requirements, which detracted from the objectives of ensuring sustainable transformation for communities, employees, businesses and the industry as a whole.

Vallabh unpacked several key elements in the draft review, which included ownership and empowerment partnerships, procurement and supply, employment equity, mine community development, as well as housing and living conditions, stressing that there were “no obvious links” between the proposals and progressing transformation objectives.

KEY ELEMENTS
While many concerns have been raised with regard to black ownership, which is proposed to be at a minimum of 26% per mining right, the ownership provisions have a “one-size fits-all” prescribed model, said Vallabh.

This meant that there must be certain categories for empowerment partners in the company structure, which required a restructure of existing empowerment transactions in a period of three years, she explained.

However, there was no regard to the existing empowerment partners, nor the existing structures in mining companies, Vallabh pointed out.

While the threshold of 26% had not changed, she suggested that industry would face “a flurry” of significant costs relating to restructuring and debt restructuring.

Further, existing black economic empowerment (BEE) partners within the mining industry may be further locked into the structures, creating a dilution of their ability to unlock value, Vallabh said.

“This perpetual locking creates a second-tier market and value in relation to BEE shareholding,” she pointed out.

Additionally, there was a perceived restriction on meaningful participation of empowerment partners, as they were not free to structure themselves, Vallabh said, questioning the rigidity of the proposal.

Meanwhile, the targets for the procurement and supply element had been proposed in an unclear manner and in the absence of an appreciation of what the impacts  on the industry and its stakeholders may be, Vallabh contended.

The targets, despite being set out broadly in the main framework of the reviewed Mining Charter, had not been fully translated into the scorecard, creating misalignment, she said.

Another key concern is the lack of incentive to support small black businesses that have developed and produce sustainable high revenues.

“The manner in which procurement and supplier targets are set, is that a mining company is required to support small businesses. [However], once that small business has [achieved] a certain revenue threshold, mining companies cannot continue supporting them,” she said.

Vallabh believed while this was not the intention of the National Development Plan, which aimed to grow black industrialists this would be the effect.

“If we are hampered in our ability to continue further supporting businesses that have moved or reached a certain threshold, I’m not sure what we are trying to achieve,” she averred.

A key concern is the element of employment equity, which is already regulated in the Employment Equity Act. Vallabh argued that the introduction of these elements in the Mining Charter duplicated compliance structures, creating two regulators and two different enforcement regimes for this concern, which also underlined the lack of a link between this proposal and the furthering of transformation.

Included in the elements Vallabh highlighted was mine community development. While the Department of Mineral Resources’ assessment of the Mining Charter in 2010 was that the communities did not benefit in a meaningful way in relation to transformation objectives,  she emphasised that, from a regulation and policy perspective, there is “a financial overconcentration in mine communities”.

This was evident in the payment of royalties, corporate social initiatives, the proportion of procurement spend directed at mining communities, the obligations of mining companies to create employment in these communities, housing obligations and proposed community participation in ownership structures.

However, the basic financial targets “do not necessarily incentivize sustainable development”, she warned, suggesting that this proposal did not underpin meaningful development.

“The targets are there, and there is an overconcentration of those targets. The fact that we are not seeing the results means that the manner in which we are [promoting mine community development] is not furthering empowerment,” she said.

The element of housing and living conditions was also considered a contentious area, as it was unclear whether this element was meant to replace the housing standards published in 2009 in the reviewed Mining Charter, to which several mining companies aligned their compliance processes, Vallabh said.

“Prescriptively providing for housing and living conditions, which in some ways are ambiguous and in some ways contradict the housing standards . . .  creates a further level of ambiguity to what takes precedence and what needs to be applied.”

Further, the requirements to facilitate home ownership did not consider the economic and social impacts on employees and mining communities, nor the economic realities, which could have the unintended consequence of increasing indebtedness, she contended.