This past weekend, the government and the mining industry got together in preliminary talks about talks on a new Mining Charter. Rather predictably, it ended badly.
But it’s important to remember that this meeting was the first step in what is bound to be a long and toughly fought issue. There is an enormous amount at stake and the experience of the first two versions of the charter has not been happy.
After an uplifting first meeting between Mineral Resources Minister Gwede Mantashe and representatives of the Chamber of Mines, the meeting at the weekend was a blast of cold air. Reality has returned and, with it, the tactics of negotiations have made an unwelcome arrival in the discussions.
In true negotiating style, Mantashe indicated that the ridiculous and, on the face of it, unconstitutional Mining Charter 3 would be the basis of the negotiation of the new charter. The industry was understandably furious and, according to insiders, came close to walking out. It was ultimately agreed that Mining Charter 3 would be regarded as the government’s negotiating position. How much of this is a prenegotiating positioning remains to be seen, but the omens are not good.
A growth environment would make transformation easier, provide jobs the unions want, confidence to investors and benefits for mining communities
To say this is depressing would be a huge understatement. SA is a medium-sized, developing country and has precious few competitive advantages. The fact that a vast mineral wealth lies within its borders constitutes a tantalising opportunity. The government faces understandable political pressure to ensure that this bounty is shared among citizens, particularly black South Africans, and that the industry is thoroughly transformed. No one seriously argues this point; the difficulty is how to get there.
SA, in its uncomfortable way, has tried to manage this process in a way that accommodates, to a greater or lesser degree, all sides. Or at least it has thought of itself as doing that. The problem is that every success achieved in the transformation process is regarded by the government as a new starting point.
One of the issues in Mining Charter 3 has been an increase in the level of equity held by black South Africans. On the face of it, the difference between the two seems small. The charter sets the level at 30%, while the industry was offering 29%. But that small difference obscures the surrounding issues. The industry wants closure on this issue. It doesn’t want every successive charter to move the goalposts a little farther down the track. The reason is not its resistance to change as such; it would love to see this issue behind it once and for all. The problem is that at a certain point providing free equity to a slice of new owners makes new mining projects impossible.
For example, at the moment the government requires the industry to effectively give away 25% of its equity. Consequently, to launch a new mining project the ore has to be 25% richer or 25% easier to mine than the existing industry average.
Happily, in SA there are assets of this character and consequently the industry has limped along at about 7% of GDP for the past decade. But increase this level to 50% and the projects become impossible, unless black investors can finance their own stakes. In some cases they can, which is of course glorious. But mining usually requires very large investments typically drawn from deep pools of investment funds that really have no racial or even national character.
Myriad issues like this make these discussions tangled and difficult. However, there is a way out. That would be for the government, industry, unions and community organisations to start with an absolutely iron rule: the industry must grow.
A growth environment would make transformation easier, provide jobs the unions want, confidence to investors and benefits for mining communities.
All of the nonindustry groups tend to think about the charter process in political terms and if they cannot be persuaded off that narrow course of things we might as well bid our mining industry goodbye.