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policy certainty, but at what cost?
Oct 30, 2018
Since we last wrote about South Africa’s controversial new Mining Charter (Mining Charter 3) in April, Minister Mantashe has not been dragging his feet. In June, he issued a draft charter for comment, which has now been further revised into a final version published in the Government Gazette in late September.
The highlights of the new mining charter are:
Existing mining right holders
New mining right holders
All mining right holders
The Minerals Council of South Africa (the former Chamber of Mines), has welcomed the latest iteration of the Mining Charter. The council has acknowledged that it represents a compromise between promoting competitiveness on the one hand, and increasing transformation on the other, and that it needs to balance the requirements of various stakeholders – labour, host communities, government and business.
As was expected, the council has welcomed the removal of ownership targets for existing mining right holders (point 1), the scrapping of the 1% EBITDA trickle-down dividend to BEE shareholders (point 4) and the scrapping of the requirements for prospecting rights (point 9).
However, it’s expressed concern about the ‘once empowered, always empowered’ clause, which doesn’t apply to renewed mining rights (point 2), the limited applicability of past transactions in the case of the disposal of shares by a BEE shareholder (point 5), and the feasibility of the mining goods and services procurement clauses (point 6 and 7).
The latest version of the Mining Charter is certainly likely to boost policy certainty. Despite increased transformation requirements, mining companies can now evaluate potential investments with an improved information set. In addition, existing mining right holders have limited additional requirements to abide by. This is good news for the mining companies we hold in our portfolio.
However, we remain concerned about some of the requirements new mining right holders have to meet and the fact that a renewed mining right will be treated in the same way as a new right. South Africa still has relatively plentiful mineral resources: precious metals (platinum group metals, diamonds and gold), ferrous metals (iron ore, manganese and chrome) and coal. However, our resources have to compete with other global options for the business of large mining companies. The onerous transformation targets in the Mining Charter make the required returns on these investments higher, which means other jurisdictions may in many cases prove more attractive.
So in a nutshell, the increased policy certainty introduced by the new Mining Charter is without a doubt a positive development for the industry – compared to the huge uncertainty that prevailed a year ago.
But if we take a step back and evaluate its longer term impact – especially the consequences of continually raising the bar for transformation targets, it’s difficult to see sustained growth over time in an industry which – as an investment jurisdiction – has to compete on the global stage.
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