New Mining Charter’s funding model remains point of contention
The mineral resources deputy minister says the department has set a date of June 8, but the free-carry issue is a sticking point
A draft of the revised third Mining Charter may be unveiled on June 8, but there is a heated discussion about a 10% “free-carry” component in the unchanged empowerment ownership level of 30% for newly issued mining rights, says Deputy Mineral Resources Minister Godfrey Oliphant.
Speaking on the sidelines of the Junior Indaba, Oliphant said that the Mineral Resources Department had set a date of June 8 to complete deliberations on the charter and hold a summit to present the final draft to stakeholders.
Industry players said that, in their opinion, the timeline was unlikely to be met and that there was still a lot to discuss, particularly about the 10% free-carry for communities and employees in new mining rights that the department was pushing for.
It was not described as a deal breaker, but certainly one of the major sources of disagreement in formulating a new document to drive transformation of the mining industry.
The 30% ownership level remained unchanged from the original version of the charter, which former mines minister Mosebenzi Zwane gazetted in June 2017, Oliphant said.
This and many other controversial clauses in the Zwane charter — relating to deductions from the revenue line for empowerment partners, procurement demands and other issues — provoked an outcry from the mining industry.
In the talks on the new charter, a proposed 1% deduction from the revenue line to pay to the 30% empowerment partners was scrapped as was a controversial department- controlled fund — the Mining Transformation and Development Agency — to house communities’ shares and receive payments from mining companies, indicating substantial progress on key areas of unhappiness with the Zwane charter.
The industry immediately brought a legal challenge in court to review the Zwane charter and have it set aside, claiming it was damaging and badly drafted. The council postponed its court challenge to give the new talks a chance of success.
It could revisit the courts if, in its view, the charter was once again flawed.
Zwane’s charter lifted the black-ownership level to 30% from the 26% contained in the first two charters. Zwane was fired by Cyril Ramaphosa, who replaced Jacob Zuma as the president, and was replaced in February by Gwede Mantashe, a 30-year veteran of the mining sector. Mantashe immediately started talks with the industry’s lobby group Minerals Council SA (formerly the Chamber of Mines), along with labour and communities.
Under Zwane’s charter, employees should hold 8% of companies, communities around mines 8% and entrepreneurs 14%. Oliphant suggested this configuration could be changed. The proposed percentages have now been changed to 5% each for communities and employees, meaning companies were expected to give these parties a free-carry of 10%. Black entrepreneurs would be allocated 20%, which would have to be funded.
Free-carry means there is no cost, participation in capital raising or expenditure related to that holding, of which the other shareholders owning 90% of the company would have to fund 100%.
A 10% free-carry could render marginal deposits uneconomic and push SA further down the investor friendliness rankings.
The new charter would be gazetted in June, Oliphant said, confirming earlier statements from Mantashe that the mining industry would have policy certainty in June.