Gwede Mantashe. Picture: AFP PHOTO / MUJAHID SAFODIEN
Gwede Mantashe. Picture: AFP PHOTO / MUJAHID SAFODIEN

If President Cyril Ramaphosa seriously wants to woo US$100bn in new capital, as he loftily claims, he should have paid closer attention to the draft mining charter released last week. The charter is meant to encourage companies to boost black investors in the industry. It is a mission statement for transforming a legacy sector that was, for decades, the emblem of apartheid brutality, characterised by exploitative migrant labour, notoriously heedless disregard for safety, and unequal distribution of benefits.

As mining minister Gwede Mantashe put it last week: "Black South Africans cannot be spectators — they must benefit and accumulate wealth."

But the mining sector has changed a lot since the 1980s, which has made it more difficult for anyone, white or black, to accumulate wealth. Even though SA’s mineral reserves are estimated at a peerless $2.5 trillion, runaway costs (electricity and labour mostly) mean that most gold and platinum mines are cash-flow negative today.

Picture: 123RF/serz72
Picture: 123RF/serz72

Back in 1980, R21 of every R100 produced in this country came from the mining industry, which employed more than 700,000 people. SA’s gold mining sector was the largest in the world.

But by 2016, just R7.90 of every R100 produced by SA’s economy came from mining. Employment has shrunk to just 465,000, and by two-thirds in the gold mining industry. SA’s gold mining sector is now eighth globally, behind Peru.

So while it is patently correct to say everyone should share in SA’s wealth, you have to have policies that ensure there’s still wealth to share.

It’s clear that Mantashe’s charter is a radical improvement on the earlier version released by the terminally compromised Mosebenzi Zwane, who was axed by Ramaphosa in February. But it still falls short of being likely to entice investment.

In a nutshell, the new charter:

Recognises the "once-empowered, always-empowered" principle, unlike Zwane’s charter. This means companies that did empowerment deals will still get credit for those transactions, even though black investors have since sold out;

• Raises the requirement for black equity investment from 26% to 30% for existing mines;

• Requires mines to have a minimum of 50% black directors, and 20% black women directors;

• Stipulates that mining companies must pay a minimum 1% "trickle dividend" to communities and labour from the sixth year of a mining right;

• Requires 30% black shareholding for new licences, but stipulates that labour and communities must hold 8% each. Of that 8%, the mine will have to give each group 5% for free. Taken together, that amounts to a 10% "free carry".

The "free carry" is the most contentious clause. While it commendably seeks to extend wealth beyond the elite to include communities, the Minerals Council SA argues that the "free carry" makes it "uneconomical" to build new mines.

Given the likelihood that existing owners will also have to vendor-finance empowerment deals, pundits estimate this will lead to a 20% dilution for investors — a threat to an industry already seen as unattractive for investors. The Fraser Institute, which surveys global mining companies, puts SA’s ranking at 81 of 91 countries when it comes to the "attractiveness of its mining policy".

There is now a month for the public to comment. This time, government will at least listen.

To be clear, this charter isn’t the death knell that Zwane’s version undoubtedly was. For one thing, it commendably commits government to a 30-year timeline in which the policy will be ruthlessly stuck to, providing vital stability.

But if the charter aims to seriously revive the industry to create real wealth, last week’s draft falls far short of being the defibrillator needed.