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Dave Forest

Dave Forest

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

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South African Miners Disgruntled After Changes In Mining Code

The mining sector in one of the world’s most important platinum, gold and coal nations is in an uproar this week. After the government surprised the industry with some controversial changes Friday.

The place is South Africa. Where the national government published a draft of a new Mining Charter for the country’s industry late last week — containing some unexpected proposed measures. Related: This Is How Oilfield Services Are Surviving Low Oil Prices

One of the biggest surprises was new rules for Black Economic Empowerment (BEE) requirements. With the government making a decisive declaration on the so-called “once empowered, always empowered” issue.

Here’s the crux. Mining enterprises in South Africa are currently required to sell 26 percent of ownership to local BEE groups. But there’s been a lot of confusion about what happens after that.

For example, what if the black empowerment group then turns around and sells its share of the mining business to a non-BEE shareholder? Is it the responsibility of the mining company to go out and sell additional percentages to new BEE groups, in order to get back above the 26 percent threshold?

Miners have argued no — saying that if they met the 26 percent requirement, things are out of their hands if the BEE partner sells. One empowered, always empowered. Related: 200M Barrels Of Oil Sit In Idle Tankers Waiting To Unload At Chinese Ports 

But the proposed new mining charter disagrees. Here’s what the new text prescribes:

“Where a BEE partner or partners have exited, BEE contract has lapsed or the previous BEE partner has transferred shares to a non-BEE company, the mining right holder must within the three years transitional period from the date of publication of the charter review its empowerment credentials consistent with the amended 2016 mining charter.”

Such a rule would put miners on the treadmill — having to constantly replace BEE shareholders if old ones exit. And that’s not the only change the new rules are proposing.

The draft charter also makes new stipulations on where the 26 percent BEE ownership must go. With the new rules specifying that 5 percent overall ownership must go to mine workers (through a trust), while another 5 percent must be owned by a local community trust. Related: Will China's Slowing Economy Stall The Silk Road Project?

The new rules also increase targets for black representation in management to between 60 percent and 88 percent, from a former 40 percent. And raise requirements for sourcing capital goods from local black interests.

South African mining leaders such as Sibanye Gold immediately said that elements in the new proposal are “unacceptable”. With the country’s Chamber of Mines saying it will engage with the government during the 30-day comment period for the draft rules, to see what can be changed.

Watch for more developments on the acceptance or rejection of this critical document, in one of the world’s most important mining centers.

Here’s to BEEing prudent

By Dave Forest

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