Zwane dividend spooks mines
The new Mining Charter measure ‘makes the future bleak’
Mining analysts say in the short term most mining companies would be able to pay the 1% turnover dividend required by the new Mining Charter, but in the longer term, it would have devastating effects on the sustainability of the industry.
Andries Rossouw, PwC’s mining assurance partner, said on Tuesday the 1% represents a huge cost to the industry. "In the short term, the majority of mining companies would be able to pass the solvency and liquidity tests required before any distributions can be made but longer term it will have a substantial effect on investment."
The solvency test, which requires a company’s fairly valued assets to exceed its liabilities, will be straightforward.
"The bigger issue is on the liquidity test," said Rossouw. There were additional concerns due to the uncertainty of the implementation of the charter. "Will the 1% distribution to BEE [black economic empowerment] shareholders be tax deductible, or will it be treated like a special dividend and not be deductible?" asked Rossouw.
Also unclear is whether the 1% has to be paid on existing mining rights or only mining rights acquired or renewed since June 15 2017, when the charter was gazetted.
Firms had no choice but to cut back on new developments, refocus on profitable production rather than maximum production and reduce costsHenk Langenhoven
Chamber of Mines chief economist Henk Langenhoven said if the 1% distribution only applied to new rights then given that it took from 15 or 25 years to develop that right, unless it involved open-cast mining, it would be more than a decade before any distribution was to be made. Also unclear is the legality of a distribution to only one class of shareholder.
The Chamber of Mines estimates that on the basis of the mining industry’s sales in 2016 the 1% of turnover that has to be distributed to BEE shareholders would cost R5.8bn.
The new charter calls for a holder of a new mining right to pay a minimum 1% of its annual turnover to the black shareholders "prior to and over and above any distributions to the shareholders of the holder".
The Companies Act states a distribution can be done only after a company has satisfactorily completed a solvency and liquidity test. If a distribution, such as a dividend, threatens the solvency or liquidity of a company it cannot be made.
Langenhoven said the R5.8bn represented 1% of the industry’s nominal turnover of R580bn in 2016.
About "50% of our costs are administered costs that companies have no control over such as transport, including harbours, water, electricity and local taxes," said Langenhoven. Companies also had little control over interest costs.
In its 2016 South African Mining report, PwC said flat revenues, higher costs and record impairments had led to an aggregate loss for the industry.
"Firms had no choice but to cut back on new developments, refocus on profitable production rather than maximum production and reduce costs."