Johannesburg - South
Africa’s plan to force mining companies to
give the black majority a bigger stake in the nation’s mineral wealth faces a
major obstacle: convincing banks to back billions of dollars of fresh
deals in an industry in decline.
Mineral Resources Minister Mosebenzi Zwane said on June 15
that local mines should be at least 30 percent owned by black people, up from
the previous requirement of 26 percent. The mining companies need banks to
help fund transactions that transfer the stakes to black investors who often
don’t have the capital to invest due to their marginalization during white
rule.
Companies often use dividends or divert cash flows to pay
off the debt on behalf on the black empowerment partners, which means full
ownership only vests years later.
“The charter will have an effect on our ability to finance
the mining industry in South Africa,” said Ursula Nobrega, a spokeswoman for
Investec one of South Africa’s five biggest banks. “We already exercise caution
Africa is pushing to increase black
ownership as it seeks to redress economic imbalances caused by
apartheid. The introduction of the latest charter triggered a selloff in
mining stocks and a drop in the rand amid concerns that the new rules will
deter investment when the country is already in recession.
The sector, once the economy’s bedrock and the foundation on
which Johannesburg was built, now accounts for only 7.3 percent of gross
domestic product, while fixed-investment into the industry shrank, hitting
a 10-year low last year, according to the Chamber of Mines, which
represents the biggest producers.
South Africa holds the biggest reserves of platinum, chrome
and manganese and mining companies operating in the country include Anglo
American, Glencore and AngloGold Ashanti.
The new rules don’t give credit for deals already
concluded and from which black shareholders have since divested. They also
impose a community-development tax equal to 1 percent of revenue and expand
quotas for buying goods and services from black-owned companies.
The Chamber of Mines said it will challenge the new rules in
court, while Deputy President Cyril Ramaphosa called for the charter to be
reconsidered and the ruling African National Congress said the legislation may
cause job losses.
With mining companies using diminishing cash flows to
finance empowerment deals, “there could be fewer bankable transactions” Sandile
Mbulawa, head of resource finance for Rand Merchant Bank, said in an interview.
If the charter is implemented in its current form, fewer companies would meet
RMB’s predetermined measures for funding approval, said Business Development
Director Henk de Hoop.
Moody’s Investors Service said the proposals are credit
negative for mining companies because they will likely require miners to use
cash or raise debt to facilitate the equity transfer.
“We expect that current shareholders are unlikely to support
a further dilution of their equity interests,” Moody’s said in a report on June
21. The industry is, to many, symbolic of the country’s ongoing
inequalities with its highly paid, mainly white, male executives overseeing
hundreds of thousands of workers labouring in some of the world’s deepest and
most dangerous mines. Yet critics say many earlier deals have mainly created politically
connected elite and, in some cases, deterred foreign investors.
By 2014, all member companies of the Chamber of Mines had
complied with legislation requiring them to have 26 percent black ownership,
according to the organization. At that stage, black investors held stakes
equivalent to 38 percent of the mining industry, according to the chamber.
“The availability of bankable opportunities will determine
whether our exposure to the sector will grow or shrink,” Mike Brown, chief
executive officer of London-based Old Mutual Nedbank Group, said on Friday.
While Nedbank remains committed to funding the South African mining industry,
it will “carefully assess the risks of every client and transaction.”President Jacob Zuma said last week in parliament that he
supports the charter.
The current version of the charter is “clumsy, inconsistent
and lacks clarity,” Brown said. There’s going to be a lengthy legal process and
a long period of uncertainty, all of which is “bad news for the mining industry
and investment, growth, jobs and the South African economy.”
BLOOMBERG