Investors demand consultative process on Mining Charter 2017

20 September 2017 ASISA

The Association for Savings and Investment South Africa (ASISA) calls on Mineral Resources Minister, Mosebenzi Zwane, to withdraw the contentious 2017 Mining Charter and to appoint a proper representative body to renegotiate the mining sector empowerment Charter.

Leon Campher, CEO of ASISA, says while the association and its members understand and support the transformation imperatives for the mining sector, the reviewed Mining Charter 2017 carries substantial risks for both local and foreign investors as well as the country’s economy.

He says despite representing asset managers, collective investment scheme management companies and life insurance companies who manage assets in excess of R7.7 trillion on behalf of retirement funds and millions of ordinary South African savers, ASISA was not consulted on the ownership aspects of the Mining Charter.

“We strongly disagree with a recent statement by Minister Zwane that investors support the revised Mining Charter. Minister Zwane has in fact never engaged with ASISA on this and to the best of our knowledge there has been no consultation with any of our big member firms.”

Trevor Chandler, ASISA senior policy adviser on transformation, points out that South African institutional investors hold listed mining stocks worth more than R108 billion on behalf of millions of ordinary South Africans who have their money invested in retirement funds, long-term insurance policies and collective investment schemes. The balance of listed mining stocks is owned or managed by foreign institutional investors - R95 billion through the JSE and R725 billion on global registers. Institutional investors therefore collectively represent more than 80% of mining investors.

Chandler says had the Minster engaged with these institutional investors they would have expressed grave reservations on a number of aspects of the 2017 Charter, including the following:

1. The Charter proposals effectively transfer wealth away from South African workers, many of them black, who have entrusted their long-term savings to retirement funds and life insurance companies to “BEE entrepreneurs” in two ways:

• The Charter requires mining companies to pay their BEE shareholders 1% of annual turnover. This amount is significantly greater than what existing shareholders will be entitled to.
• BEE entrepreneurs are incentivised by the Charter not to repay funding advanced to them by mining houses to purchase the shares. This is effectively a type of “free carried interest” which will be funded at the expense of the existing shareholders.

2. The Charter imposes additional levies on mining (such as the 2% of payroll and the 1% levy on purchases by mining companies from multinational companies). This renders the mining industry less attractive for foreign investors.

3. Of the increased 30% BEE shareholding, 8% is earmarked for mining communities. The Charter proposes that this 8% is managed by Government. Given Government’s ongoing struggles at the SABC SAA and Eskom, there is a risk that the assets could be mismanaged.

According to Campher, there is a very real risk that if the Charter is implemented in its current form, investors will be forced to disinvest from South African mining. He further states that given the significant policy and regulatory uncertainty created by this Charter, new investment into the mining sector is essentially on hold.

He explains that mining is a capital-intensive industry that requires shareholders of reference who represent significant pools of money that can provide the long-term investment capital required by the mining sector to survive and thrive. He adds that it needs to be understood that these pools of money belong to millions of ordinary South Africans, many of them black, who have entrusted their long-term savings to retirement funds, collective investment scheme management companies and life insurance companies.

“If a number of these shareholders had to exit our mining sector, the impact would be disastrous and we would fear for the future of South Africa’s mining industry,” says Campher.

“An immediate consequence would be job losses and since the industry employs thousands of people, both directly and through its value chain, the impact would be significant.

“Also, let’s not forget that mining is a key export revenue generator and taxpayer. The demise of the mining industry would have a significant negative impact on South Africa’s balance of payments as well as on the tax revenues on which government is reliant to fund social programs.”

According to Campher it is incomprehensible that Government would unilaterally impose such a reviewed Charter that would clearly have far reaching and devastating implications for so many key stakeholders.

“We therefore call on the Minister to appoint a body with representation from the Mineral Resources Ministry, the mining industry, representatives of mining communities, organised labour, the DTI and the savings and investment industry to negotiate mining sector empowerment Charter that is properly aligned with the BBBEE Act.”

Chandler adds that the outcome should be a Mining Sector Code gazetted under the BBBEE Act, following similar processes to those followed by other sectors such as the financial sector, construction, tourism, and information and communications technology.

“We are confident that investors will support revised mining sector empowerment requirements, provided that proper consultation through formal processes precedes the gazetting of the revised Charter.”

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