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New empowerment rules exclude mining companies

Mining companies in South Africa have been excluded out of consultations over regulatory changes of empowerment rules on the South African mining industry.

The changes could possibly dilute shareholders, raise costs and impose new levies to fund community development.

“It’s not clear why the government has not engaged miners on these issues, and that’s obviously a concern,” said Peter Leon, global co-chairman of Herbert Smith Freehills’ Africa practice.

“Cabinet decided to adopt the Mining Charter III, which is being proposed by the Department of Mineral Resources. Everyone is anxiously waiting to see what will happen when it gets gazetted in a few weeks time.”

Leon explained that the proposed draft of the Mining Charter could impact the mining industry by potentially raising its costs, especially when the yearly fall of investment in the mining industry is considered.

“If this Charter comes out in the form that it was published last April, that could be very bad for the industry, as the industry already, is suffering from something of an investment strike,” noted Leon.

“The problem for the industry is that capital is unsentimental; this is a long term capital intensive industry, and capital will go where it gets the best returns. The challenge is the change in the goal post – It is not conducive to investment at the end of the day.”

Leon also noted that the draft Charter is also very vague in the way it’s written.

The Chamber of Mines commenting on the mining charter expressed its concerns over the Charter seeking to tax mining companies. According to the Chamber of Mines, and Leon, it is not within the department’s competence to tax mining companies.

“That’s a competence reserved for the treasury, which is one of the reasons why treasury has now weighed in on the process. Hopefully that proposal will be modified. We’ll really need to see what comes out of the final version,” said Leon.

One of the most problematic issues in the draft charter published last April, is that the ‘once empowered always empowered’ principle has been thrown out of the window, forcing mining companies to continually re-empower themselves.

According to Leon, the Charter has been made retrospective because the way empowerment transactions have been done in the past, means the industry will have to restructure completely to comply with the new version of the charter.

The Charter has also hardened the non-ownership requirements.

 

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