South African mining companies face further uncertainty after the government suspended its revised Mining Charter less than a month after finalising it. The Minister of Mines, Mosebenzi Zwane, said that changes to the Charter would not be enforced until an appeal by the Chamber of Mines is heard by the High Court.
The Chamber argues that it could cause “vast and systemic damage” to the mining sector, and said that efforts to tackle economic inequality had to be “undertaken in a way that it ensures the sustainability and growth of the industry”. The hearing is expected to begin in September, but it is feared that the legal battle could last for years.
The Charter increased the minimum proportion of equity in mining companies and projects that must be owned by black empowerment investors from 26% to 30%, a fairly modest increase in itself. However, it also requires this threshold to be met in perpetuity, so, if any original BEE shareholder sells its shares to interests that do not qualify for empowerment status, the remaining shareholders would be forced to sell equity to investors who do. While the aim of encouraging more broadly based ownership, in order to overcome the legacy of apartheid, is laudable, this stipulation is surely unreasonable.
The credit ratings agencies agree that the revised Charter could deter investment. Fitch argued: “It indicates that the government is prioritising radical transformation, even if this leads to weakening of the business climate and could reduce trend growth. Uncertainty about final outcomes, the implications on returns for existing shareholders of the new provisions, and the challenges of meeting procurement targets, will continue to constrain investment in the mining sector.” There were a few unexpected additions to the Charter when the government published the final version. For instance, empowerment investors are entitled to take 1% of all revenues from new mines before dividends are paid.
Relations between the coal industry and some of the communities within which it operates remain fractious. Protesters in KwaZulu-Natal demanding more jobs blocked the coal railway between the Mpumalanga mines and Richards Bay on several occasions in July, forcing Transnet to halt deliveries.
A spokesperson for Transnet Freight Rail commented: “We have deployed security in the affected areas and are working with relevant authorities to safeguard our employees, infrastructure and the assets of our customers. Transnet wishes to appeal to communities to desist from destroying infrastructure, as such activities pose a huge risk to the sustainability of the South African economy, including loss of lives due to train derailments and job losses.” The disruption was badly timed, as the line was closed for a week later in July for routine maintenance.