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| 2002 Dr Jim Harris |
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Recent history Foreign investors and the mining industry are concerned about nationalisation of mineral rights later this year. President Mbeki says government is keen to work with the private sector to promote mining growth. (BD 13.2.2002) Minerals and energy minister Phumzile Mlambo-Ngcuka expects the revised minerals bill to become law by the third quarter of 2002, vesting all mineral rights in the state. (FM 1.3) Parliament passed the Mineral and Petroleum Resources Development Bill to nationalise minerals on June 26, 47th anniversary of the Freedom Charter. Now Mr Mbeki faces a clear test of his commitment to investment in South Africa. He may forward the bill to the Constitutional Court for review before signing it. He can either defend the private property rights that are the foundation of any market economy or, with the stroke of a pen, colour the thinking of any international investor contemplating any sort of venture in South Africa. (BD 4.7, WSJ 5.7) A draft charter governing black empowerment in the mining industry was leaked to the media in July. It wanted 30% of existing mining operations in the hands of previously disadvantaged groups by 2012, and an immediate 51% of all new operations. Foreign equity dealers talked of creeping and galloping nationalisation, and investors fled from South African mining and gold stocks and stocks with exposure to SA. Anglo American shed 25% of its market value. High-level discussions between government and mining industry leaders later established a task team to hammer out a new charter, but many thought the damage done to investor confidence irreversible. The ministers of minerals and energy, trade and industry, finance, and labour made a joint statement with mining executives that it was not, and never had been, government policy to nationalise the industry or any part of it. (Star 15.8) The associated money bill (tax issues and royalty payments) may not be ready until 2003, and President Mbeki will not sign the minerals bill until he sees the money bill. It is thought increasingly likely that he will approach the constitutional court to assess the constitutionality of the minerals bill. (BD 22.8) Two months after parliament passed the minerals bill, the president's office confirmed receiving it and it is being considered. (BR 6.9) Minerals and energy minister Mlambo-Ngcuka told parliament her department needs additional funding to implement the minerals bill, and has asked the Council of Geosciences to develop a mining promotion and licensing administration system. (BD 13.9) When the Royal Bafokeng traditional monarchy has fully commercialised its business interests it may list its platinum and chrome assets, reportedly worth about R10bn, as Royal Bafokeng Resources. (BR 19.9) President Mbeki told parliament that the government's privatisation program is still on course. (BR 20.9) In Swaziland, former employees of closed mines want the state to give up its ownership of mineral rights and sell rights to private firms. (S Ind 29.9) Government's second draft mining empowerment charter, circulating among the parties involved in negotiations, won't be available to the public. It is a radical departure from the disastrous first draft which panicked investors in resources companies with SA operations. Recognising previous broad-based empowerment transactions, it wants R100bn more of them in the next five years and 25% participation by black empowerment companies in all future projects. (BT 29.9, BD 30.9) If President Mbeki signs the minerals bill to promulgate it, government has a further six months to complete the empowerment charter. The market may not like even the revised empowerment targets, since new participants will battle to find funding. (BR 30.9) Investors show concern about how black entrepreneurs will raise capital to buy 30% or 15% of the R750bn mining industry over ten years without a massive knock-down sale of assets. The same question applies to the total economy, with around R1.5 trillion of JSE capitalisation. (M&G 27.9) The mining sector partnership committee (industry, labour, government) needs to define beneficiation of minerals. The mining bill's clause 23(3) requires the minister giving written permission for any SA minerals to be beneficiated outside SA. Chamber of Mines economist Baxter says investment in SA is stifled by the high cost of capital and high (46%) state ownership of the economy. (BD 2.10) At noon on 4 October, Mbeki signed into law the Mineral and Petroleum Resources Development Act transfering ownership of minerals to the state without compensation, saying "nationalisation is not part of the process - it is a matter of black participation" and "government has no plans to nationalise the country's mines." The empowerment charter, which credits empowerment in the last year towards empowerment quotas, will be considered by cabinet. Chamber of Mines president Davison said the charter is a satisfactory compromise. (BT/BR 6.10) On 9 October, Cabinet approved the Broad-based Socio-economic Empowerment Charter for the SA Mining Industry, specifying guidelines: 15% of each mine's value to be owned by black empowerment groups, and 40% of management to be black, within 5 years; 26% of local assets to be black-owned within 10 years; mining industry to help raise a R100bn fund for this; development and infrastructure help to communities supplying mine-workers; increased training and minerals beneficiation; review of empowerment progress in 5 years to determine what further steps, if any, are needed to reach the 26% target. It is as yet unclear whether guidelines are voluntary or essential towards obtaining 30-year mining licences. (BD/BR 9-11.10) About 10% of SA gold, platinum and coal production is already in black hands, and the "willing seller willing buyer" principle seems to have been confirmed. Market jitters were mild. London analysts note improved certainty, but continued doubts about expropriation and further changes after 5-year review will prevent some fund managers from investing in SA again. Reaching the 26% target would depend on availability of finance, and could increase risk for established mining houses. (BD/M&G 11.10) On 11 October, min-en dept added a sentence to the mining charter to relieve mining companies from having to fund empowerment companies beyond the R100bn they have committed for the first 5 years. (BR 13.10) The new legislation transfers all mineral rights into state hands and forces mining companies to reapply for licenses. For it to be gazetted to come into effect early in 2003, the draft Money Bill must be finalised by year-end. Its key provision is that mines must pay royalties to the state for mineral rights. Treasury has to quantify the effect of this new tax on the mining sector and the economy in terms of the impact on investment and development in mining, then get a workable approach agreed by Cabinet and the mining sector. (BR 7/11.10) Perhaps alerted by the Cape/Gencor asbestos case, min-en dept deputy D-G Nchaka Moloyi says govt could transfer wealth to empowerment mining companies without transferring environmental liabilities (which would presumably stay with current owners). (BR 13.10) BD editor Peter Bruce and Sappi director John Job highlight foreign investors' rage at the 'kneecapping event' of the draft mining charter's July release. Very difficult ripple effects went way beyond the mining industry, with fears of widespread nationalisation of private SA assets in the light of the 1955 Freedom Charter's clause on control of "all other industries and trade". This may have terminally scared off many in London who channel foreign investment to SA. The final charter's effects remain in doubt, with no guarantee that BEE will pay fair market value for assets or that political ideology won't shift and move the goalposts again. Shareholder value is likely to be the major casualty of the R100bn BEE rush. (BD 14/16.10) The local Big Business Working Group forcefully conveyed to Mbeki and his economics cabinet team its dismay at how govt's handling of the draft mining charter undermined confidence in the economy. Govt claimed the furious market reaction surprised it, blamed a junior official, and promised a two-day summit about confidence and investment. (BD 17.10) Minerals & energy dept is working on a set of regulations detailing what mining companies will have to do to comply with the Act and charter. (BR 17.10) The IDC is said to have earmarked R28bn to play a spearhead role in funding mining empowerment, and may involve the IMF and World Bank, which has reputedly been keen since the early 90s to lend for empowerment in land and mining reform. This reflects govt's difficult bind over how to fund empowerment. Many in the ruling alliance accuse the "neo-liberal" bank of undermining Third World development through condition-laden lending practices. (M&G 18.10) Much needs to be done to restore investor confidence, and the charter did not do it. While uncertainty persists, investors tend to err towards the worst-case scenario. A Credit Suisse First Boston analyst's guestimate of an 8% royalty tax and 5% export tax hit the Anglo share price until irritated treasury and min-energy dept sources rubbished 'alarmist rumours'. Now the industry wants a clear and simple 2-3% royalty regime not disadvantageous to the local resources industry, and no export tax, when treasury publishes the money/royalties bill early in 2003. (BD/BR 21/22.10, BR 29/31.10) A proposed amendment to the Occupational Diseases in Mines and Works Amendment Bill would make mining companies pay medical costs of workers cntracting lung diseases for two years after they become ill, even if they have moved to another mine. This could raise costs by many millions. (BR 25.10) "Nervous and anxious" UK fund managers want a say in how the charter is implemented, to ensure market rules are followed and profits can be secured. In London, Minister Mlmbo-Ngcuka failed to clarify some issues such as funding for black empowerment, details of the proposed 'scorecard' for rating mining companies towards 5-year goals, and possible shifting goalposts. (BR 29.10, BT 3.11) With World Bank (IFC) support, several SA mining and banking firms launched the New Africa Mining Fund, a R1bn private equity vehicle (not a social investment project) to back the SA junior mining sector. The 10-year term closed fund will be managed by Decorum Capital Partners. (BD/BR 30.10) De Beers producer relations head Jonathan Oppenheimer said the mining charter focuses more on enrichment (via equity ownership) than empowerment (by employment equity). Goldfields chairman/CE Chris Thompson said SA mines are mainly owned by foreign investors and local institutions representing the savings and pensions of millions of people in the street, a large portion of whom are black. Journalist Sipho Ngcobo said these are merely passive investors who own stakes in companies but do not run them - prompting investor Reinhard Stompe's comment that though apartheid deprived blacks of management skills by legislation, unfortunately one cannot acquire management skills by legislation. (BR 22.10, 1/3/10.11) In London the minister assured analysts there was no intention to rip away mines and wealth from present owners or make mining groups give cash to BEE firms. She acknowledged that the tight targets and timescale for transfer of mining assets to BEE firms might require discount sales rather than willing buyer-willing seller. An ABM Amro analyst notes that previous BEE deals involved 20-30% discount, depressing value to existing owners accordingly. She insisted the impact would be offset by longer-term benefits to investors because a broader ownership of assets would lead to greater economic and political stability. But at one meeting she said she was unconcerned whether or not foreign capital flowed into SA's mineral sector. (Mineweb 3.11) Earlier this year, De Beers objected to a requirement for min-energy department permission to beneficiate products outside SA, which was then dropped from the Minerals Bill. Now D-G Sandile Nogxina says min-energy dept is drafting for next year a Precious Metals and Diamonds Bill to regulate SA's 'downstream mining industry' after the minerals are out of the ground. Chief director Jacinto Rocha is managing the process and the bill will address beneficiation, Diamond Board responsibilities, and control of criminal activities. The industry has not been consulted and its suggested interventions in the Minerals Bill were not included, says Chamber of Mines CE Mzolosi Diliza, asking to be included in the debate created by the bill to allow for extensive input from stakeholders. The Chamber will focus on minimising regulatory control, promoting fair competition, and diamond aspects important to members. (BD/Mineweb 6.11) RW Johnson comments that the process around the Minerals Act and Mining Charter tells us in effect that property rights, the constitution and the rule of law are not secure in SA. At least outright nationalisation of all the mines and oil companies with proper compensation could have been done without undermining them. But now government has lurched backwards from an established legal property system, perpetrating profound and lasting damage going far beyond the mining industry and now about to be replicated in banking, IT and every other sector in sight. (BD 6.11) Anglo American has effectively agreed to foot most of the local industry's bill to investigate efficacy of anti-retroviral drugs given to miners with HIV/Aids. It could end up paying over R450m a year, or R15000 per person, for drugs for the infected 23% of its 134 000 Southern African workforce, and will make the acquired data available throughout the wider mining industry. GoldFields, Harmony and Implats do not give antiretrovirals. (BR 6.11) Two months before the empowerment charter was signed, Angloplat negotiated a mineral exploitation deal with min-energy dept, agreeing to cooperate with two black-owned mining businesses nominated by govt on properties adjacent to land on which it had been granted mining licences. Added to its 50/50 joint ventures with African Rainbow Minerals and the Royal Bafokeng nation, Angloplat has now facilitated empowerment transactions on projects and operations valued at about R6bn. (BT 10.11) Nigeria may revoke about 4000 of the 5000 mining leases issued in the last five years, to 'sanitise the industry' and clear out lease squatters who buy leases but cannot or will not use them. (BD 12.11) In July Angloplat warned that govt delays were jeopardising a R20bn investment. Angloplat CE Davison again wants govt to process mining applications faster, and timeously, as delays can cause price spikes. No amount of regulation can insulate the rush of new mining firms from the harsh realities of the global marketplace. Prosperity will be achieved by those who have the critical success factors - long arms and deep pockets. (BR 14.11) Resources management chief director Rocha says min-en dept will simulate Minerals Act operation in January using dummy applications, to check govt readiness to change the industry. He denies creeping nationalisation of the mining industry, and that your mining assets today are taken away by govt tomorrow. The money bill will reach Parliament in February. If the simulation check works, the act will be promulgated and operational by June 2003. (BD 14.11) The mining legislation is no more than an attempt to create a culture of entrepreneurship in SA, says min-en minister Mlambo-Ngcuka. She played down the investment community's narrow focus on equity targets and stressed the goals of literacy, previously disadvantaged management, community, SMME, and local beneficiation. "The equity gogga will simply fall asleep and we will all get on with the business of business," and "we don't intend to raise the 10-year targets" (40% middle/senior management and 26% equity). (BT 17.11) In the year to March, 298 died on 26% of SA's 775 registered operating mines, of which 192 (up from 173 last year) died on gold mines, 50 platinum, and 17 coal. Rockfalls caused 121 of the deaths. (BR 14.11) Health dept is unready so government has indefinitely postponed an HIV/Aids summit for the mining industry that was planned for last December, then February, then November 26. Mineworkers union NUM questioned govt's commitment to combatting the disease through an industry-wide strategy. (BD 20.11) Treasury D-G Ramos says the money bill's royalty regime won't impose any "crazy numbers" or additional taxes, just an extraction fee as minerals custodian, in line with international practice. There might not be a blanket royalty across all the different mining sectors. The minister again claims that under no circumstances will the 10-year 26%-equity target be revised. (BR 19.11, BD 20.11) Chamber of Mines chief economist Roger Baxter is drafting the scorecard administrative tool for measuring empowerment-charter compliance as a condition of licensing to mine. A good scorecard could result in a company's equity target being lowered from 26% to 23%, said BusinessMap. A scorecard system shoots SA in the foot, facing genuine distaste and fears of disguised nationalisation. (BR 20/24.11, Moneyweb 21.11) As well as established firms like Mvelapanda and ARMgold, new BEE resources groups such as Pamodzi, Matodzi, Ekwezi, Ubambo, Kagiso and Lithemba are keen to apply for mining licences. Big mining houses pledged R100bn during charter negotiations. Separately, the IDC and mining firms plan to set up a R2bn New African Mining Fund aimed at commercially viable greenfield projects by new junior miners. (BR 24.11) Chamber of Mines president Barry Davison says miners will continue to seek pracrtical amendments of the act. The industry had previously proposed critical amendments that had been ignored, not least in the areas of security of tenure, legal certainty and objectivity, and a smooth transition between the existing minerals regime and the new one as legislated by the Act. Each of these omissions can, in theory, be fiercely challenged on constitutional grounds. (FW 27.11) Angloplat took minerals & energy dept to court in September because of an eight-month delay in issuing mining authorisations in Limpopo, but both cases were settled out of court. These delays, and political pressure to include black investors in new mines, will slow Angloplat's planned increase in platinum output. Angloplat had to guarantee 50% BEE involvement in Twickenham and Der Brochen expansion projects to remain free to develop its Potgietersrus Platinum Mine without any BEE involvement. Analysts are divided on whether govt's degree of flexibility was and will be sufficient. Empowerment now has to be looked at as a cost of doing business in SA, and there are many other competitive mining opportunities elsewhere, including in Africa, such as Tanzania, Congo, Zimbabwe, Ghana, Mali, Botswana, Angola, Mozambique. (BD 28/29.11, BR 1.12) Chamber of Mines CEO Mzolisi Diliza tells Euromoney gold summit in London the "scorecard" is nearly ready. It is hoped it will give firms empowerment credit for a wide range of activities. Mining industry and govt officials are trying to define beneficiation, one of the scorecard's "7 pillars" - the others being human resources, employment equity, affirmative procurement, ownership, housing and migrant labour, and the upliftment of communities. Scorecard credits will be used to reduce the stakes for compulsory sale by mining firms to BEE groups. (BD 26.11, FW 27.11, BT 1.12) Listing in New York alongside Anglogold, Gold Fields and Sappi, Harmony's commercial director Ferdi Dippenaar says govt and the mining industry are united in their efforts in terms of exploiting SA's resources - brought a lot closer by the new Minerals Act. When promulgated with accompanying empowerment charter, targets, scorecard, royalties bill and so on next June or thereabouts, the Act will transfer mineral rights currently owned in perpetuity by mining companies into state "custody" without compensation. (BT 1.12) Each mining sector will have to pay a single royalty percentage of gross revenue. The percentage may differ by sector - the minister says 'you cannot have the same royalty (percentage) for producers of tiger's eye as you would for producers of gold', but does not explain why. The money will not go to the fiscus but be earmarked 'mining development', purportedly for min-energy dept's 'social upliftment' of mining-connected communities. On minerals-nationalisation day, the Royal Bafokeng face the end of their contractual royalties from Impala Platinum on minerals-nationalisation day. The community would have to show that it was using the proceeds in a structured way in order to retain access to the royalty, the minister said. (Mineweb 4.12, BD 5.12, BT 8.12) The mining sector's globe-trotting, confidence-building roadshow has ended. It was well attended but received mixed responses - some analysts felt they had not learned anything. Not recovering, share prices have built in uncertainty about the full effects of the new mining dispensation the empowerment charter. (BD 6.12) To dispel uncertainty, the "scorecard" and draft money bill will be published before year-end 'for people to consider over Christmas', said min-en D-G Nogxina. The scorecard will present guidelines on how SA mining companies can reach the required empowerment levels. They must meet any requirement on conversion, and the new minerals law states that companies have five years (presumably from promulgation in around mid-2003) to convert old mining rights to new mining rights. (BD 5.12) Feeling they will lose their mineral rights if not used, some holders have been willing to consolidate their rights. Burnstone multi-mine goldfield near Balfour may develop as a result. (BR 8.12) A Kumba shareholder, the parastatal IDC wants to stop Anglo increasing its stakes in Kumba and Avmin. The Competition Tribunal supported the IDC intervention, but Anglo appealed. The Competition Commission recommended that the deals go ahead; despite creating an effective local iron-ore industry monopoly, the merged entity will be unable to affect prices in the domestic market. Delays getting this regulatory approval are boosting Anglo's project costs. (BT 8.12) Black ownership remains to be defined to clarify the mining charter's 26% empowerment quota. Current estimates of black control of the JSE are BusinessMap 2.0%, McGregors 3.9%, Empowerdex 9.5% and Cazenove 11.8% (or 22% excluding foreign and corporate ownership). SAIRR's Kane-Berman favours extending the original narrow concept of boardroom empowerment down the whole socio-economic hierarchy to embrace even the jobless, which means liberalising labour law. (BD/Star 10.12) DTI may invest more in transport infrastructure to ensure rail, roads, ports and airports can handle BEE mining freight for export. (BD 11.12) Washington's influential Cato Institute describes SA's inflexible labour law, recent nationalisation of mineral rights, and mining empowerment plans as a recipe for disaster - well-intended but likely to lead to accelerating disinvestment, increased unemployment, and political manoeuvring to escape charter requirements. (FW 11.12) Afric Oil CE Mafanya expects the mining charter, like the liquid fuels charter, to facilitate constructive debate. He does not fear government nationalising everything or imposing its will. Ultimately parliament can strip any business of its licence for non-compliance with BEE or any other requirements. (BR 11.12) Harmony, the only producer to refine and market its own gold, forms Musuku Beneficiation Systems with parastatal Mintek to process precious metals into jewelry and other goods - and contribute to imminent empowerment quotas. (BR 12.12) Development Bank of Southern Africa sets up R89m fund to support transformation by helping previously disadvantaged groups to participate in SA's 'junior mining sector'. (City Press 15.12) The 7 shareholders in Richards Bay Coal Terminal (capacity 72m tons a year, perhaps rising to 82m by 2005) made 1m tons of export capacity available next year. Min-en dept set up a task force including independent coal producers, dti, terminal representatives and Coallink to decide who should be responsible for controlling the allocation of capacity. (BD 17.12) The Bakubung Initiative of industry stakeholders launches the R1bn New Africa Mining Fund (NAMF) as a private equity investment vehicle (not a social investment project) with a 10-year lifespan, focusing on assisting junior mining entrepreneurs to develop small and medium sized mines on the continent. (M&G 20.12) At ANC's Stellenbosch conference, Mbeki committed himself firmly to deracialising the economy. He proposed "a global transformation charter that will explain our goals" and help avoid uncertainty and instability such as "the unnecessary investor panic that followed the leaking of the mining charter". (Star 18.12) ANC economic transformation committee head Max Sisulu says deracialising the economy will take "an element of sacrifice" by the present owners of capital, and that tensions arising from this will have to be managed. Like the process of negotiating the SA constitution, everybody would have to "die a little to live a little longer". (BD 27.12) When the first draft of govt's mining charter was leaked on July 19, the resulting sell-off took R100 billion plus off the value of listed mining stocks - more than 10% of SA's GDP. SA mining will simply never be the same again, but there is no consensus about the prudence of the changes - equitable basis for prosperity and stability, or nationalisation and crony-enrichment by stealth? Cato Institute (US) calls it a recipe for disaster - appointing managers on the basis of race instead of ability will harm business - the forced focus on non-business issues such as raising billions for asset transfers will impact negatively on competitiveness - in the end, unemployment will worsen and black workers will suffer - businesses will now likely resort to political manoeuvring to escape charter requirements. (Time 30.12) 2002 saw a surprise surge forward in both black economic empowerment and transformation, or what Mbeki has called "deracialisation of the economy". This was largely driven by the historic transfer of the ownership of the country's mineral wealth to the state (i.e. nationalisation) - through fiercely contested legislation - followed by the mining charter that laid the foundation for transformation. (SInd 5.1.03) Major mining houses and trade unions start bargaining in about May towards July's renewal of the two-year-old (7.5-10% p.a.) wage agreement. Midlevel supervisory union Solidarity plans to demand a 13.5% increase (CPIX inflation is 12.7%). (BD 9.1) Spoornet's plan to raise coal transport costs by up to 60% from 1 April will jeopardise many small-scale coal-mining companies which move 2.2mt to Durban, 1.1mt to Maputo. Spoornet claims it is only correcting prices after previous subsidisation - its proposed increases are 'nothing new', needed to operate on sound commercial principles and make the General Freight business sustainable, still lower than road hauliers, and not yet finalised. |
(BD 9.1, BR 10.1) Draft regulations in terms of the Mineral and Petroleum Resources Development Act, 2002 (Act no 28 of 2002) nationalising mineral and petroleum resources are available at www.dme.gov.za and written comments can be made until 6 February. (BT 12.1) Draft regulations in terms of the Mineral and Petroleum Resources Development Act, 2002 (Act no 28 of 2002) nationalising mineral and petroleum resources are available at www.dme.gov.za and written comments can be made until 6 February. The 238-page draft includes about 127 regulations and 42 forms and regulates mining, the environment, pollution and waste management control and various aspects of petroleum exploration and production. It also indicates what a social and labour plan might contain to win a mining permit, but not clearly. (BT 12.1, BD 13.1) Zimbabwe's 55 000 mineworkers now face unemployment. Government's exchange rate requirements for remitting proceeds of mining exports have halted wage adjustments, since employers cannot afford to meet union demands or compensate workers for hyperinflation. Mining companies have proposed a devaluation from Z$55 to Z$729 to the US$, but government has not responded. (BR 17.1) Min-energy minister Mlambo-Ngcuka says the BEE scorecard to chart mining industry transformation (compliance with the mining charter) will be released on 20 January, a simple one-page checklist with no more surprises, and 'not another empowerment charter' as some people had come to believe. She believes treasury has already drafted the money bill with its royalty regime for parliament to see in the first quarter of this year. (BR 18.1) In Avmin's (but not Implat's) first BEE transaction, Tiso Capital consortium got the right to buy 25% of the Two Rivers platinum project near Lydenberg. With the empowerment deal finalised, the mining licence should be a formality, says Avmin's Menell. (ST/BT 19.1) Anglogold estimates the cost of managing HIV/Aids at the epidemic's at $4-6 per ounce mined, and failing to manage it would cost around $9 per ounce. About 3000 Anglogold workers qualify for free drugs-treatment after the planned April roll-out, as they have clinically advanced Aids or severely compromised immunity. But few mine-workers currently want to disclose their HIV status. (ST 19.1) Despite the minister's promised 20 Jan release of the 'scorecard', min-en dept decided to spend more time cobbling together a checklist that will be broadly acceptable to the mining industry, trying to reach 'consensus' and not cause negative market reactions and instability. The Sector Partnership Committee of key industry stakeholders needs to rubber-stamp the scorecard, like it did the charter, before release for public comment. Last July the government's radical BEE starting position - kept secret for the good reason that it was insane - was leaked and in three days about R50bn had been wiped off the boards as investors panicked at supposed signs of nationalisation of a key industry, with repercussions still being felt around the globe. This time perhaps certainty will be restored and the unanticipated costs of transformation minimised. (Sowetan 21.1, BR 21/23.1) In a matter of weeks all the Act's elements will fall into place, enabling many ways for inventive people to structure empowerment deals. The need to transfer 26% of the resources industry to black hands provides, if desired, a handy disinvestment tactic for largely foreign-owned firms such as Cluff Mining, BHP Billiton and Anglo American. (BD 24.10) The five-year window for changing existing mining rights to new rights offers room for innovation. For R250m (R140m plus call options to Harmony of 290000oz of ARV's future gold production over ten years), African Vanguard Resources has bought 26% of Harmony's Doornkop South Reef project's mineral rights, whose ownership will soon be transferred to the state. Min-en dept D-G Andile Nogxina and Harmony CEO Bernie Swanepoel were scathing about emerging comnapies getting into the resources industry for short-term speculation and self-enrichment instead of adding value for the long haul. (BD 24.10, CityPress 26.1) Min-en dept D-G Sandile Nogxina says industry stakeholders are currently commenting on the social plan (empowerment charter). Chamber of Mines will present the scorecard for approval at its next council meeting. Finance dept is finalising the money bill. Mbeki signed the mining bill on 4 October so the various adjuncts must be completed by 4 April. 'Most probably' all will be promulgated by June, so the deadline for SA mining companies to convert their existing mining licences to new mining licences will probably be June 2008. Chief director Jacinto Rocha warns the industry to 'ensure that you are truly compliant, not just in one element. The only way to survive is to be prepared.' (BD 29.1) Union NUM claims Gold Fields will struggle to reach the charter's 40% quota of HDIs in management. A company spokesman says 30% of management across all levels are already black and Gold Fields' EE strategy is to meet the requirement. (BD 31.1) Chamber of Mines chairman Davison says government has to achieve transformation and business has to cooperate to achieve political stability. Last year, after an intense and worthless process, several key players engaged in an often very difficult, confrontational and unpleasant process to reach an entirely sensible and workable compromise. This should ensure the needed huge investments in the mining industry are made. (BR 1.2) Imminent minerals nationalisation and "use-it-or-lose-it" has prompted the restarting of Project Argonaut, first mooted in 1983. It covers 270 sq.km of south Joburg sitting on R350bn-worth of gold. At least three new deep mines would last a century, extracting gold from 2014 on. (Star 3.2) The Mining Titles Registration Amendment Bill was tabled in parliament to create a central deeds and information service and provide for the process to convert mining and prospecting rights to 'new order rights'. Without it, no proper records can be kept of mineral rights, so the legal consequence of the Mineral and Petroleum Resources Development Act is the unconstitutional wiping away of rights. Min-en dept's mining rights director Ms Bopape-Dlomo said this 'legislative lacuna' has to be closed to implement the Act. (BD 6.2) European countries recycle 87% of mining waste, SA only 15%, so dump-recycling offers significant growth possibilities, said Vuka's Matthews Phosa, buying 50% of Ruslyn Mining and Plant Hire for R17.5m. (BD 7.2) Min-en minister Ngcuka says mining firms must develop labour-sending areas by government-approved programs to end poverty and provide basic infrastructure. (BR 7.2) Royal Bafokeng Nation consolidates all its R10bn platinum, chrome and other mineral assets under Royal Bafokeng Resources Holdings, with ex-Implats chairman Steve Kearney, aiming to become a significant mining player. (BD 12.2, BR 18.2) Cyril Ramaphosa's MCI Resources buys 25% of coal producer Kangra, and (with junior miner Metorex) ETCons gold complex from Avgold for R300m. Mzi Khumalo's Metallon and Tokyo Sexwale's Mvelaphanda Resources are also growing. (BD 12.2, BR 18.2) Angloplats' Davison worries that min-en dept may lack staff to process appliocations for new order mining permits later this year. (BR 12.2) NUM union alleges some mining groups lie about their compliance with equity targets in reports to labour dept. (BD 12.2) ING Financial Markets said in a research report that R173bn, or 23% of the market value of nine large mining stocks with exposure to SA constituting almost 50% of the JSE All Share Index, was destroyed in four months after panic-strcken investors, mostly London funds, baled out last year because of the draft charter. (JSE Reaching Out, Summer 2003) President Mbeki said the mooted empowerment advisory council will be non-statutory, and a rigid and inflexible approach is not in the best interests of a modern and global competitive economy. The Black Business Council expressed disappointment that it would be ineffective with "no teeth". The financial sector is now working on a consensus document. The new policy on charters will kill existing initiatives in numerous sectors of the economy. (BD 18.2, BT 23.2) Minister Ngcuka said the new legislation will transfer mineral rights from the private sector (back) to the state, but 'it was never our intention to nationalise our mines'. The black empowerment scorecard was released, apparently introducing no extra problems after Ngcuka had hastily corrected her initial indication that mining companies wouldn't get credit for past empowerment initiatives. DTI minister Erwin said 'we will carry out empowerment in a pragmatic way', since 'BEE goes hand in hand with growth'. Barclays MD Holden predicted BEE will need $8bn for the first five years and another $6bn for the next five years. International investors remained sceptical over outstanding associated legislation and implementation. Long delays in authorising new mining licenses are feared, a great deal of discretion accrues into the hands of the minister, and investors prefer legislative certainty. The money bill will be detailed in the budget speech on Feb 26. (BR/BD 19/20.2, BT 23.2) A draft precious metals bill, expected from DTI and min-en dept by year-end, will define how beneficiation can be offset against empowerment. Minister Ngcuka said offsetting for past empowerment transactions would need an audit. An overseas investor asked for assurances that the empowerment goalposts will not change - the minister said it's a matter of trust. (BD 21.2) Treasury D-G Ramos said late last year that there would be no "crazy numbers" or any "additional taxes". Minister Ngcuka said royalty payments would have a degree of flexibility. A London-based mining analyst expected the budget's new mining royalty payments to be set at 2-3% of SA mine turnover, knocking 5-6% off earnings. Even a 1% charge is a whack for developing mining companies, said BEE Khumo Bathong Holdings chairman Ncholo. But Manuel's budget speech failed to mention the promised money bill, leaving mining companies upset that govt had left them looking silly. Then treasury tax-policy C-D Grote told Bloomberg details will come out within 10 days. Investors are desperate for govt to move along and provide clarity and reassurance by signs of stability. (BD 26.2, BR 27.2) Harmony CEO Swanepoel criticised the budget's mere R10bn over 5 years for empowerment, while the mining industry is expected to come up with R100bns of empowerment deals. We get the bad news like the promised royalties bill in various instalments after the budget, like the equity charter last year. Even 2% royalties would make SA one of the most uncompetitive tax and regulatory regimes in the world. Other mining companies expressed disquiet in private. Finance dept's Donaldson claimed government is generous and doesn't wish to be punitive with the mining industry. (BT 2.3) Treasury promised money bill details by month-end. Royalties will undoubtedly affect earnings of mining companies. Skittish international investor who want hard facts saw the budget's silence as another missed deadline. (BR 5.3) Werksmans Attorneys addressed mining industry concern about excessive ministerial discretion. The Act will give the minister the right to authorise all mining-right transfers and sales. She has to give consent if the new right-holder can show it can comply with the needed criteria. The scorecard is vague about what will prove acceptable to the department and the minister. Companies may only get a clear idea of what's acceptable to gain rights-conversion once legal precedents have been set. So - no clarity or certainty yet. (BD 6.3) Pub-ent minister Radebe's wife and mining magnate Bridget part-owns Cluss Mining, which bid to platinum-prospect on Hoekfontein farm in NW province. Canada's Canamafrica Platinum Corp also bid but encountered frustrating delays. Min-en D-G Nogxina has now undertaken to look at both bids. (M&G 7.3) Mining baroness Bridgette Radebe says 8000 Mmakau community members supported an April 2000 tribal resolution favouring her Mmakau Mining's Madibeng Joint Venture with Cluff Mining. Tribal council chairman Pat Motsepe says no agreement was reached. Canamafrica says its offer is better. (M&G 14.3) North-west province roads dept authorised the firm of diamond digger Buks Oosthuizen to explore his mineral rights on the farm Kareepan - in a huge mining operation on a 1km-long stretch of the R504 provincial road between Wolmaransstadt and Schweizer-Reneke. He has posted a R500000 bank guarantee and will rehabilitate the road afterwards. A gravel service road has been built for diverted traffic. (Cit. 18/19.3) 'Money bill due tomorrow', followed by a surfer's comment: "Marxist ZA screwing international shareholders again" Bloomberg reports govt spokesman Joel Netshitenzhe saying cabinet discussed royalties proposals, will make them public today (20 March), and plans to spend the money on developing communities close to the mines. Stakeholders will get four weeks to comment before cabinet finalises the bill for submission to parliament. (Moneyweb, 18.3, BR 20.3) Finance minister Manuel released money-bill details (available at treasury.gov.za). He insisted the money would go into the national revenue fund and admitted most investors would prefer not to pay any tax at all. Royalties are tax-deductible and set at 1-8% of gross minerals sales value, e.g. coal 1%, iron 2%, gold 3%, platinum 4%, amethysts 5%, diamonds 8%. Local mining shares fell, Anglo and BHP Billiton by 2%. (Star 21.3) Mining companies already pay more than the standard 30% company tax, and facilitate BEE at extra cost. Despite tax deductibility, they'll effectively pay more to the state. The money bill talks of government sharing with mining operators what it calls 'resource rents' - profits over and above the return rate which just justifies development. Despite the bill's stated hope, this is bound to significantly reduce the underlying value of companies and seems likely to impact negatively on the economic viability of projects. (BT 23.3) More royalties will be paid under the proposed scheme than in the past. Manuel claims rates fall within sustainable international norms, but many in the industry see them as an extra tax which will hit values and weaken conpetitiveness. With SA's marginal tax rate for gold miners of 46% and this 3% on gross revenue, SA becomes the least accommodating gold mining regime in the world. 3% of anticipated revenue won't now materialise, and this will scare people away from existing projects. Gold and platinum shares fell. (BD/BR 24.3) JSE platinum counters took another beating as the index plunged over 5.2% because of a stronger rand and negartive sentiment towards local mines because of the bill. Treasury's Martin Grote claims the mining industry is overdramatising - if in place, royalties would have added R4.2bn (another estimate is R6bn) to state coffers last year, which would not erode mining-industry competitiveness. Anyway, treasury can review the rates if necessary to stay competitive. But the bill has stirred fury much like the leaked empowerment charter did last July, and the industry is bound to fight the extra tax. (BR 26.3) The royalty bill adds a fixed cost to an already high-cost industry, raising the cost of capital and the risk of projects. It has scared mining firms into almost immediate cost cutting, starting with planned capex projects. Big-name mining companies warn the extra tax will shoot emerging mining companies in the foot before they've begun to walk. (BR 27.3) De Beers MD Gary Rafle says the 8% rate discriminates against diamond miners. Angloplat MD Barry Davison says 4% on platinum is on the high side, and the proposed 50% stabilisation premium (to insure against the levy rising later) has caused grave doubts among some foreign investors and sends a very negative message, not constructive at all. Implats is very concerned abut possibly being hit twice by royalties, which it already pays the Royal Bafokeng Nation. (BD/BR 28.3, BT 30.3) Anglo ED Michael Spicer says facilitating R100bn of BEE deals may cost the mining industry around R10bn, and royalties may cost a further R30bn. (BR 29.3) Anglogold 'entirely endorses the socioeconomic empowerment charter's focus on human capital development' as 'a very good document' and 'a test of the social licence' which CE Godsell thinks 'is going to make the industry more competitive, not less, and lead to greater wealth creation, not less.' (BR 31.3) African Minerals and Energy Forum spokesmen tell parliamentary committee that SA's commercial banks make it hard for BEE minerals/energy firms to get finance and take excessive profits, and government should ensure all offshore oil/gas exploration licensees have at least a 5% BEE partner. Anglo and govt's Khula Enterprise start a JV with a R40m fund for black-owned small-scale and junior mining companies. Following Anglo and De Beers, Gold Fields will begin providing antiretroviral drugs to its HIV-infected workers. That's an estimated 30% of 48000 and will cost $3.22 per gold ounce produced, rising to $5 by 2009, whereas doing nothing would have added costs of over $10 by 2009. (BD 2.4) Bloomberg reports that the world's biggest precious metals company, Anglo American, says the SA government's plans to charge royalties on mining may cut investment in diamond and platinum mines. (BR 2.4) Foreign investors should not see BEE as an imposition, suggested Cyril Ramaphosa. Minerals-energy minister Ngcuka labelled the ferrochrome industry 'slow to embrace empowerment' and warned it to make the 'robust but not punitive' changes 'with a bit of haste' and 'sooner rather than later'. BHP Billiton said there are likely to be problems ahead with the mine charter, 'a good concept but disappointing in practice, too ambitious, and probably the most complicated piece of legislation ever attempted.' (BD 2.4) Private equity fund New Africa Mining Fund already has R460m commitments from Absa, BHP Billiton, Gold Fields, Harmony and DBSA, IDC, UFC, Kumba towards hoped-for R1-2bn. Requiring competitive returns, it will provide risk capital for junior mining ventures in Africa. Economists say any revenue-based mineral royalty system simply reduces the size of any given ore body. Its impact falls mainly on marginal ore bodies, and in periods of weak product prices. It forces cost-cutting which can reduce mine labour. It reduces project life and acts as barrier to new projects and new entrants. If there must be royalties, they should be profit-based to give automatic marginal mine relief, with a start-up holiday to establish essential cash flow. (BD 4.4) Following the release of the TRC's final report, a US$6.1bn class-action claim was filed in US courts on behalf of victims of human rights violations under apartheid, against Ango American for "exploitation of workers tantamount to slavery" and propping up apartheid. Anglo has "strongly rejected" it. Sasol and its subsidiary Fluor International are also charged, for "repressionist" acts against workers in the 1970s and 1980s. Like other big business leaders, Anglo director Michael Spicer said enough "guilt money" had already been paid. (Star 5.4) Foreign Investors Mining Association represents 18 companies. President Allan Saad says the money bill can delay prospecting by up to three years and drive away international companies, share prices will fall quite dramatically as 4% royalty on gross revenue translates into 12% decline in net profits, and mine lifespans will be shortened. Attributable income and earnings per share are reduced more or less by the same proportion as the royalty rate, so the effect will be pretty dramatic. Wits U. analyst Fred Cawood says royalties have been set too high for international competitiveness, and suggests treasury reconsider basing royalties on gross revenue. (BR 7.4. BD 810/11.4) Resources company Xstrata's CE Mick Davis says there was always an issue about SA risk and this has been increased by uncertainty surrounding the implementation of new minerals laws. Xstrata bought Australia's MIM Holdings rather than an SA company. Xstrata had 43% of its assets as SA ferro-alloy and coal businesses - this has now fallen to 18%. (BD 8.4) The Mineral Corporation says mining job creation has a 4.2 multiplier in the broader economy. Chamber of Mines puts mining's direct 2001 contribution to GDP at R66.8bn or 7.5%. (BR 10.4) No 2 global platinum producer Implats may need to sell 20% or its equity to the Bafokeng tribe to cancel the royalty agreement. Impala faces paying a second royalty of 4% to government, and has protested that one should offset the other. (BD 10.4) Canada's Southern Era president Patrick Evans voiced the serious reservations of highly mobile foreign capital about SA's royalty bill, 30-40% unemployment, 15% HIV infection, unpredictable tax regime, unstable investment climate and political risk. The bill ignores Katz Commission recommendations against sector-specific taxes. At effective 46% marginal tax, mining companies in SA already pay higher taxes than those in Chile and Canada. If anything, SA needs tax relief, not added taxes. (Mineweb 10.4) London's Merrill Lynch gold and resources fund managers, handling nearly $1bn of investors' cash, urge SA government not to impose royalties on the mining industry. All royalties are bad as a method of taxation, an unfair transfer of wealth from the private sector to the state, raising fixed costs and making mining operations less competitive. Merrill Lynch anticipates reducing SA exposure as opportunities arise - no political axe to grind, just economics. Nowhere else do miners have to deal with so many other needs all at the same time - exchange controls, requirements to "Africanise" operations, and the so-called scorecard. Most other governments prefer to increase mining competitiveness, often through subsidies. Already the World Mining Trust has sold its Kumba holding and reduced its Anglogold stake. (Mineweb 14.4) The scorecard lacks clarity. Nothing at present suggests that min-en department will create clear communication and definitive guidelines and procedures. It appears the charter and scorecard will be implemented on an ad hoc basis. (BD 14.4) Anglo American and rivals may reduce SA investment as the burden of making amends for apartheid grows. Domestic and foreign investors are very actively comparing total tax, levy, empowerment and litigation costs of doing business in SA with costs in peer countries. Planned investments, estimated by the Chamber of Mines at R80bn, may fall as firms seek best returns for shareholders. Unless royalties are waived, De Beers may shut Koffiefontein and reconsider spending R7bn to extend Premier's life. Minister Ngcuka says she does not wish to bring undue pressure on the industry - "we need you and you need us". But maybe mining firms don't. (BR 15.4) Representing 90% of the SA mining industry, the Chamber of Mines says a revenue-based 3% royalty that increases costs from R316/ton of ore by R14.30 could bypass some previously-economic gold ore-bodies and cut the recoverable reserve base by 3.7% or 600t (R62.5bn). CEO Mzolisi Diliza listed five problems with the money bill - royalties based on revenue not profit, increased cost of capital raising fixed costs and entry barriers for black miners, worsened international competitiveness in securing exploration investment, lack of offset for social investment activities, and double royalty payments. (BD 17.4) Parliament's minerals/energy portfolio committee out of the loop and not informed by Treasury of public comment on the money bill, which may only be passed by August. The submissions deadline was extended to April 30, and Treasury's Martin Grote says they have to consult with cabinet about any major policy changes. When finalised and tabled, the bill can't be changed by parliament. Treasury wants the royalties for the national revenue fund. Min-energy dept wants a separate fund for community compensation, beneficiation and other projects. (BR 17.4) * The good news is there's not much more new mining legislation, says Harmony's Bernard Swanepoel. Still awaited is a Bill dealing with beneficiation, which will seek to encourage companies to add greater downstream value to their products and create further jobs. Treasury's proposed new royalties - "just another tax" - will erode net present value of Doornkop expansion from R872m to R802m, and of Elandskraal shaft deepening from R1.3bn to R1.2bn. (BT 20.4, Cit. 22.4) * Jubilee Platinum CE Colin Bird says tax should be linked to profitability - government should share the risks - the money bill is now making a ripple in London and is being seen very negatively. Firestone Diamonds CE Philip Kenny says the risk of the rates changing again is the worst possible thing for a market that depperately needs certainty. De Beers MD Gary Ralfe says the proposed level of royalty in diamonds appears to be discriminatory. A City (of London) observer says first government takes away their (Anglo American's) mineral rights, then it forces them to sell to black empowerment partners, and now it wants to impose a royalty charge - also subject to SA's restrictive labour laws, Anglo trades at a discount to "its peers", BHP Billiton and Rio Tinto. (BD 23.4, M&G 25.4) * New two-year mining & metal sector wage negotiations start in May. In mid-2001, Chamber of Mines and NUM union agreed 8.5% increases and new minimum R2000 wage for about 500 000 workers. Siefsa and NUMWSA settled similarly for their 230 000 employees. Unions may seek more than inflation's 2002 average 10% inflation rate, well above Reserve Bank's 3-6% CPIX target. (M&G 25.4) * Companies will get credit for past empowerment deals. Anglo, Amplats, Anglogold and Harmony have all expressed confidence that they already meet the new empowerment crtieria or are close. Grant Lowman of RMB Resources suggests royalties will hit marginal producers and firms where future cashflows have been committed to finance BEE acquisitions. Harmony's Swanepoel strongly rejected the belated royalty tax in its long-owned assets and may have to reconsider Nyala shaft and Tshepong South development projects - the bill increases costs and can destroy jobs regardless of the spin government puts on it. DRD's Wellesley-Wood strongly criticised royalties as an extra cost which will sterilise gold reserves, reduce investment and result in lost jobs. (BD 29/30.4) * After meetings with unions and the Chamber of Mines, finance minister Manuel said treasury is open to further discussion of any aspect of its mining royalty proposals, charging a royalty is not negotiable, but he doesn't want to be reckless. After June the reexamined money bill with any technical changes will be submitted to parliament, which cannot amend it. (BD/BR 2.5) * Patrice Motsepe's ARMgold merges with Harmony Gold. AngloGold had sold Freegold to their JV; now Anglo sells them its 34.5% of Avmin. (Cit. 3.5) |
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