Gwede Mantashe. Picture: AFP PHOTO
Gwede Mantashe. Picture: AFP PHOTO

Any evaluation of the draft new Mining Charter Mineral Resources Minister Gwede Mantashe gazetted last week needs two starting points: one is that the industry has done much to transform and tackle the legacies of the past but there is still much to be done; the other is the fact that investment in SA’s mining industry in 2017 was significantly lower in real terms than it was in 2010, and so too was the number of people employed in the industry.

The industry needs transformation, but unless it can attract more investment, there will eventually be nothing left to transform. Without a significant and sustained increase in capital spending, SA’s mining industry will continue to shrink, as will the number of livelihoods it provides for workers and communities as well as the economic activity, tax revenue and foreign exchange earnings it provides for SA.

The charter has therefore to strike an appropriate balance between the pursuit of transformation and the pursuit of competitiveness and investor confidence. Mantashe’s new draft charter does so very much better than his predecessor Mosebenzi Zwane’s disastrous June 2017 revised charter, which slashed R51bn off the value of mining shares in a single day after its release. It does so in an environment that is incomparably better than that which prevailed in 2017, when the government and the mining industry were battling it out in court and there was no possibility of partnership between them.

The big problem is with new mining licences. Mantashe’s team has dropped several bombshells into the draft charter, which did not feature in the discussions. One of them — the 'free carry' — could help to make the industry all but uninvestable. 

However, though the new draft charter addresses concerns about the old, it is still a flawed document. Tough negotiations will be needed if industry and the government are to find each other. If they cannot, there is little chance that investment will start flowing again; SA’s mining sector will continue its slow slide.

At least this time the charter has been crafted in discussions between all the stakeholders in mining. It addresses the issue that has been a cause of uncertainty and conflict between the industry and the government since before Zwane’s time: the "once empowered always empowered" issue, of whether mining companies receive credit for previous empowerment transactions, or have to keep re-empowering themselves, over and over and at great cost, when deals mature. The new charter ensures that deals done in the past will be counted. It does raise the target empowerment equity holding from 26% to 30% for existing mining licences, and while arguably that is a case of moving the goalposts, it shouldn’t be too difficult for most companies to implement.

The big problem is with new mining licences. Mantashe’s team has dropped several bombshells into the draft charter, which did not feature in the discussions. One of them — the "free carry" — could help to make the industry all but uninvestable.

The new charter requires a 30% empowerment shareholding for new licences, of which labour and communities must each hold 8%, including a 5% stake given to each of them for free, so a total of 10% "free carry". That’s on top of the financing the aspirant mining investor would usually have to provide for the other empowerment shareholders. In total this could mean a dilution of up to 20%, which would make it all but impossible to find projects yielding enough of a return to make investment worthwhile.

Is the government willing to take the risk that mining investors will simply take their money elsewhere? Mantashe and his colleagues will need to face that trade-off. Fortunately, the minister has indicated he is open to talks with the industry. The new charter is now open for public comment. Unlike the June 2017 charter it is, thankfully, not cast in stone.

But coming months will test the new relationship Mantashe has sought to build with the industry. A survey by the Minerals Council in late 2017 found that investment could be as much as 84% higher in a more conducive policy and regulatory environment and could generate an additional 150,000 jobs directly and indirectly. That’s the prize, and it is worth winning.