SA’s New Mining Charter needs regulation clarity

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South Africa’s revised Mining Charter, which was presented by Mineral Resources Minister, Gwede Mantashe to cabinet last month, seeks to provide long-awaited policy certainty for potential investors.

Researchers at Fitch Solutions Macro Research – a subsidiary of the Fitch Group, however, feel that the new Charter remains restrictive, despite improvements.

According to a report released by Fitch Solutions Macro Research on Monday, while the latest version of the charter will provide much needed regulatory clarity, it will largely fail to attract new investment and remains more restrictive than the regulatory framework currently in place.

The new charter highlights the raising of black ownership levels in mining companies from 26 percent to 30 percent for new mining holders. Existing mining rights holders, who have reached the 26 percent levels, will not be required to increase this to 30 percent for the duration of the mining right, as was stipulated in the previous iteration of the charter.

Within the 30 percent black ownership, 5 percent will be given as a free carried interest to employees, 5 percent as a free carried interest to communities and 20 percent to black entrepreneurs, 5 percent of which will preferably be women.

“The new charter does make concessions to the mining industry, removing some of the controversial provisions introduced in previous drafts. These include a requirement to pay workers and communities the equivalent of 1 percent of earnings before interest, tax, depreciation and amortization for new mining rights holders in years that they do not declare dividends,” the report says.

It adds that other ownership requirements outline that at least 50 percent of the board and top management in mining companies must now be composed of black directors and 20 percent of that, by women. Middle management must be made up of 60 percent black management and 25 percent women, while junior management is to comprise 70 percent black management and 30 percent women.”

Mining firms are now required to procure 70 percent of goods and 80 percent of services from black-owned companies, while 70 percent of all the research and development budget must be spent on South African-based companies.

“Overall, the introduction of the new charter will therefore increase compliance costs for miners, offsetting the temporary boost to investor sentiment and any subsequent pickup in investment over the coming months stemming from increased regulatory certainty,” the report says.