WERNER DUVENHAGE: Learning from the past — role of community trusts in the future

When the department of mineral resources & energy (DMRE), in its administration of the Mining Charter, introduced the idea that one element of the empowerment ownership formula be community ownership — along with employee and entrepreneur ownership — no significant group in the mining industry demurred.  

Indeed, the imperative to implement broad-based empowerment meant that many companies (including our own) had already implemented community- and employee-based ownership transactions. This was before the 2018 iteration of the Mining Charter introduced a provision that there should be a 5% equity equivalent benefit for communities. At Richards Bay Minerals (RBM) communities hold 10.8% (indirectly) in equity. The company also included its smelting operation in the transaction, even though the charter could have been interpreted as only applying to the mining side. 

Complications and challenges

As a step towards enhancing a mine’s social license to operate the concept is positive, and RBM entered into the transaction in good faith. However, the complication of this approach comes in its implementation, where there is little guidance on how the structures that would administer the mining company shareholdings on behalf of the communities would operate. Who should oversee them? How could it be ensured that the benefits of community ownership would actually flow to the communities whose members are intended beneficiaries of the companies involved? 

RBM is not the only mining operation that has borne the consequences of these challenges with community trusts. As has been well reported in recent times, one reason for community dissatisfaction towards RBM is the fact that benefits have not meaningfully and consistently flowed from the four community trusts established to administer the assets included in the 2009 empowerment transaction.  

Several efforts to negotiate better governance standards with the trustees have unfortunately failed. And, as was reported in November last year, as a last resort RBM took the matter to court, seeking amendments to the trust deeds of the four communities’ trusts, in line with transparency and improved governance. The goal is to ensure that the trusts can consistently deliver meaningful and sustainable benefit to all community members.   

Lessons to learn

As we pursued trust reform we wanted to understand not only what went wrong, but also how we — and the industry — can find better ways to contribute to the improvement of  the lives of our host community members over the long-term, through improved governance and management of the trusts. 

As a step, RBM commissioned a study into the management of community trusts established by mining and other businesses. This study is being published this week and we believe it offers helpful findings and recommendations to prevent similar tensions arising between mining operations, host communities and their representatives.  

The report was developed by Tshikululu Social Investments, a long-established institution that, among other things, carries out community development project work for a wide range of companies both in the mining industry and elsewhere. The findings and recommendations are borne of the many years of experience of the 11 trusts whose trustees or managers were interviewed as part of the research. 

Tshikululu found that to operate effectively community trusts need: 

• Clear objectives and long-term strategy;
• Strong governance and oversight, including a combination of necessary skills and a good balance between independent trustees, on the one hand, and community and founding company representation on the other. Independent trustees should comprise at least half the total number of trustees and no single group should have control of the trust board;
• Recognition of the trust’s independence, while it has an obligation to report regularly to stakeholders including the founding company and community representatives;
• Sufficient operational, legal and financial capacity effectively to carry out its developmental tasks; 
• Consistent, transparent and deliberately planned community engagement and no direct or preferential benefit for any special interest group, including traditional leaders; and
• Robust monitoring and evaluation systems. 

In all communities the perspectives, interests and preferences of community members are not homogeneous. For a mining company seeking to develop and sustain positive relationships with surrounding communities, it requires us to recognise and respect all of these groups and interests, even where they might not be aligned.

It is no easy task, but it is a lesson we and our peers need to learn. We believe the Tshikululu report has an important part to play in these efforts and we welcome wider dialogue on mining’s contribution to socioeconomic development in SA. 

• Duvenhage is MD of Rio Tinto Iron & Titanium Africa Operations.