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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Platinum, Gold And Coal Prices Could Be Impacted By South Africa’s “26% Rule”

The national government this week released a key policy review. Looking at how “black economic empowerment” (BEE) rules have been implemented by the mining sector.

One of the biggest outcomes from the report was continued controversy over the “26% rule”. Which states that black interests in the country must control at least 26% of South African mining firms. Related: Energy Stocks May Be A Safe Haven For U.S. Investors

The problem, according to the report, has been the implementation of this rule. With officials pointing out that some miners have achieved 26% black ownership for a short period — but then slipped back below the threshold percentage after BEE shareholders sold their equity in the company.

Mining firms contend that such selling is beyond their control. And that they should be considered to have met BEE obligations so long as they initially come in above the 26% threshold — regardless of what happens to shareholdings afterward. Related: Why Putin Doesn’t Need To Pander To The West

The government sees it differently. Saying that miners should be required to maintain 26% BEE ownership at all times.

Officials from both the government and mining groups say there is still “no consensus” on how to resolve this issue. And so the South African Chamber of Mines has agreed to approach the courts, along with state regulators, to ask for a final decision.

The government noted that a court judgment on the issue could come down as early as April. Which will be a critical shift for the mining industry here. Related: Is Warren Buffett Wrong About Oil Stocks?

If judges do uphold the government’s position, it will be one more burden for miners to bear. Companies will be forced to find a way to maintain a perpetual 26% BEE ownership — which could mean giving discounted shares to applicable holders, or implementing other financial strategies.

The bottom line is that corporate costs would go up. At a time when the South African industry is already battling high production costs, and low metals prices. Watch for a decision from the courts over the coming weeks — it could have important implications for commodities like platinum, gold and coal.

Here’s to maintaining control,

Dave Forest

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