MCSA Tebello Chabana transformation

The Minerals Council South Africa’s member companies have shown substantial compliance and have made significant progress along the journey towards transforming the South African mining industry and the economy in the past decade.

While the Minerals Council remains fully committed to improving the competitiveness of the mining sector by ensuring its ongoing growth, transformation and sustainability, it highlights the critical need for consistent and ongoing engagement among industry stakeholders and the Department of Minerals Resources and Energy (DMRE). CHANTELLE KOTZE writes.

This article first appeared in Mining Review Africa Issue 7, 2020
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Regular engagement will ensure the creation of workable policy frameworks with clear implementation guidelines that will secure the effective transformation of this critical economic sector in South Africa.

Promoting and enabling transformation is one of the Minerals Council’s five strategic goals, aimed in part at creating an enabling policy environment for the mining sector by engaging with stakeholders on all policies that impact the sector to ensure that they are stable, competitive and predictable in order to promote investment and transformation.

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The industry’s most recent transformation objectives were set out in the third iteration of the Mining Charter – published in September 2018.

Taking stock of the industry’s transformation

The Minerals Council commissioned a study in the first half of 2019 to assess the industry’s compliance with the transformation objectives outlined in the 2010 Mining Charter, which was applicable until 2018.

The assessment, which focused on five of the Charter’s pillars; namely ownership, employment equity, procurement, human resources development and mine community development, found a very good level of compliance by member companies’ against the transformation obligations of the Charter.

While there were areas where compliance was exceeded, such as the level of HDSA representation across all management positions and the levels of procurement of capital goods, services and consumables, there were certain areas where average compliance did not meet the 2010 Charter targets.

In particular, while the required 26% BEE ownership target was significantly surpassed, the structure of ownership transactions did not, on balance, meet the 2010 Charter’s requirements of “effective ownership” and “meaningful economic participation”.

According to Minerals Council senior executive for public affairs and transformation Tebello Chabana, the definitions of “effective ownership” and “meaningful economic participation” were introduced in the 2010 Mining Charter.

Many successful ownership transactions concluded prior to 2010 hadn’t applied these new empowerment shareholding requirements and therefore were disqualified even though they had achieved economic empowerment in reality.

What the findings of the report also indicated is that the mining industry does not view transformation as a mere compliance or box-ticking exercise in that it is going way beyond compliance, Chabana points out.

While it is still early days in the implementation of the third iteration of the Charter, which came into effect on 1 March 2019, the Minerals Council has already begun planning how it intends to assess the industry’s transformation compliance.

Unpacking the 2018 Mining Charter

“While the latest iteration of the Charter pushes the mining industry to transform more than ever before, as it rightfully should, the Minerals Council notes that while it provides a reasonable and workable framework, a few areas of concern remain unresolved,” says Chabana.

The non-recognition of continuing consequences of previous empowerment transactions, particularly in respect of mining right renewals and transfers of these rights, was and continues to be shortfall of the Charter.

While the Minerals Council held talks with the DMRE in a bid to seek consensus on the matter, the efforts were unsuccessful and the matter was handed over to the courts where the Minerals Council is currently seeking judicial review on the matter.

Another aspect of the Charter before the court is the practicality of procurement provisions related to the local content targets for mining goods.

The Mining Charter stipulates that a minimum of 70% (by value) of mining goods must be manufactured or assembled in South Africa within the next five years – this requires that at least 60% local content be used during manufacture or assembly.

While the Minerals Council supports the procurement from local entities and the local manufacture of goods required for mining, the local content target of 60% must be met or exceeded before mining goods qualify for recognition and measurement.

Currently, mining goods are nowhere near achieving the 60% local content target and therefore do not qualify.  It would take decades of support and funding from the government, for mining goods to meet the 60% local content target. That is where the challenge lies, says Chabana.

Moreover, the extent to which the Mining Charter elements apply to junior mining companies is too harsh, says Chabana, noting that exemptions are only made for junior and small-scale mining operations with turnovers of less than R150 million and then more for those of R10 million.

This threshold should have been in line with similar global turnover thresholds of at least R500 million, the Minerals Council believes.

Moreover, of critical and equal importance according to Chabana, is that there is no process in place to engage the DMRE or mining industry stakeholders on an ongoing basis relating to the implementation and interpretation of the Mining Charter.

“We would have liked to see the new Charter usher in a process of regular engagement as opposed to the current engagement which takes place only every five years,” he says.

The Minerals Council will continue to advocate that the DMRE assists the industry in clarifying some of the vague and conflicting provisions in the Charter as well as in the Implementation Guidelines.