Fed tests gold upleg
Gold’s outlook and fundamentals remain really bullish.
by Kevin Crowley and Paul Burkhardt
Mining companies in South Africa have been frozen out of consultation over regulatory changes that could dilute shareholders, raise costs and impose new levies to fund community development.
South Africa’s Cabinet last week approved a new draft of the country’s Mining Charter and President Jacob Zuma said Wednesday it will be gazetted within weeks. Yet while labor leaders have been consulted on the long-delayed new rules, the Chamber of Mines, which represents producers, says it “does not have any insight” into the latest version and hasn’t met government officials on the subject since March.
The looming dispute threatens to prolong uncertainty and further slow spending in South Africa’s biggest export industry. Fixed investment in mining dropped in each of the past two years and companies including Sibanye Gold Ltd. have warned that any new investment will be a tough sell in the current environment.
“The government and the Chamber of Mines haven’t really sat down on this issue, and much of the public discourse has been posturing by both sides,” said John Meyer, a London-based analyst at SP Angel Corporate Finance. The industry may head to court if government imposes harmful changes, the Chamber said this month.
South Africa holds the biggest reserves of platinum, chrome and manganese. In 2010, Citigroup Inc. valued the mineral wealth at $2.5 trillion, the most of any nation. Mining companies including Anglo American Plc, Glencore Plc and AngloGold Ashanti Ltd. operate in the nation.
Read: South Africa’s Zwane said to seek 30% black mine ownership rule
The industry is particularly concerned about changes to black ownership requirements. Mining Minister Mosebenzi Zwane shocked the sector last year with a draft charter that would require much of the industry to sell additional shares to maintain ownership levels after earlier investors sold their stakes.
Zuma said Wednesday the charter would seek to “transform the ownership of South African mining assets” while ensuring the industry remains “globally competitive.”
Zwane has now also proposed raising the minimum to 30 percent from 26 percent, two people familiar with the situation said last week. It’s unclear whether the cabinet approved Zwane’s proposal, or if the new draft includes the provision allowing miners to claim credits for past deals where they have sold stakes or assets to black investors, even if the ownership has since changed.
Ayanda Shezi, a spokeswoman for DMR, didn’t immediately reply to an email request for comment.
Read: Miners’ Spat With South Africa Government Deepens on Charter
“We’re not shy if we need to engage government in court processes,” Roger Baxter, the Chamber’s chief executive officer, told reporters May 24. “Government has the same route if they want to follow it.”
The FTSE/JSE Africa Mining Index of 16 miners listed in Johannesburg has declined 33 percent over the past three years, compared to a 22 percent decline in the Bloomberg World Mining Index in local currency terms. The JSE gauge declined 1.3 percent to 21,784.74 points at 3:54 p.m. in Johannesburg.
South Africa’s push for increased black ownership of the mining industry is part of an effort to address the legacy of apartheid that locked the black majority out of key sectors. Yet critics say many deals have benefited the politically connected elite and deter foreign investors in the country.
While the industry remains in the dark, the National Union of Mineworkers, the largest labor group in the sector, has had “in-depth stakeholder engagement” with Zwane’s department, according to Luthando Brukwe, the union’s head of transformation.
The NUM has asked the government to require at least 10 percent of mining companies to be owned by employees, he said in an interview. It should also be mandatory for producers to take steps to help employees own their homes, he said.
The union is opposed to the idea that mining companies get credit for sales to black investors who later dispose of the assets.
Zwane, who was appointed minister in 2015, has clashed repeatedly with the industry over issues that also included enforced safety stoppages. The revised mine-ownership rules will be published whether the industry agrees with them or not, he told reporters in February.
“The style of engagement is totally us-versus-them,” Peter Major, head of mining at Cadiz Corporate Solutions, said by phone. “When I talk to anyone involved in mining they say it has never been more polarized.”
