Black economic-empowerment (BEE) transactions are under scrutiny at Exxaro Resources as existing BEE deals head towards their deadlines, after ten years of providing licences to operate.

The original 26% BEE shareholdings, transacted in 2006 with a 2016 expiry date, must now either be sold off to other BEE groupings or be extended for further periods.

“The management and board are focused on ensuring that the company remains BEE aligned in South Africa, which is very, very important,” Exxaro CEO Sipho Nkosi said at the company’s presentation of 2014 results, which saw its net operating profit plummet 192% to a loss of R3.292-billion, mainly on the R5.76-billion pretax impairment of the suspended Mayoko iron-ore project, in the Republic of Congo.

The black-controlled mining company’s structure not only confers “empowerment-plus” on itself, but also empowers Anglo American’s high-dividend-paying Sishen Iron Ore Company (SIOC) – in which it has a 20% stake – as well as Vedanta’s Black Mountain zinc asset.

Failure to facilitate ongoing BEE accreditation would result in mineral rights being lost by all the entities.

“As Exxaro, we have to make sure that we adhere to the legislation of this country and have a minimum 26% BEE shareholding,” CFO Wim de Klerk said in response to a question by Creamer Media’s Mining Weekly during the media roundtable that followed the latest presentation of results.

The company is, however, still undecided on the tenure of the new BEE arrangements – which could be for another ten years or for shorter periods – and the search is on for other BEE groupings willing to buy shareholdings that have intrinsic resale constraints in that the 26% BEE holdings only have value in the hands of other BEE companies, which means, for instance, that if the 26% shareholding in Black Mountain were ceded to Vedanta, Vedanta would want it for nothing because it would be forced to lease it back to another BEE grouping in order to keep its licence to operate.

“Having a realistic view of the future, we can only sell to another BEE player,” De Klerk explained to Mining Weekly.

South Africa’s Department of Mineral Resources has up to now spurned the ‘once empowered, always empowered’ principle, which would have allowed BEE shareholders to sell their shares on the open market at the end of their tenures.

Nonmining companies, too, are also having to decide whether to extend the tenure of their existing BEE partners or to introduce new BEE groupings.

Sanlam, for instance, has decided to extend its BEE transaction with Ubuntu-Botho Investments – led by prominent South African mining industry stalwart Patrice Motsepe – for another ten years, a decision that came against the background of the insurer’s 2014 net income climbing 18% higher on new business volumes and its dividend being hoisted 13% to 225c a share.

In contrast, Exxaro’s headline earnings per share were 6% down, its final dividend 15% lower at 470c a share, and its business conditions set to remain challenging in 2015.

A 60-page book that Exxaro distributed at its latest presentation of results points out the comprehensive work that the company has achieved in employment equity and housing as well as education, training and development.

The book records that R4-billion has been paid in dividends to BEE majority shareholders and that 7 138 employees of the diversified coal, titanium dioxide, ferrous and energy business have received R1-billion so far, and stand to receive more in the future as holders of a new tranche of shares worth R584-million under Exxaro’s Mpower scheme.

Nearly 3 000 young people have been enrolled in Exxaro learnerships in the last six years and the book publishes pictures of people placed in a wide range of business ventures, ranging from farming and bakeries to woodworking, through the company’s ongoing investment in community development.