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Banks’ hard line on BEE mining finance

Absa – one of big
four taking a strong
position on BEE
Cape Town, South Africa — MININGREVIEW.COM — 11 February 2009 – The South African banking industry has taken a strong position on black economic empowerment (BEE) in the mining industry, because BEE has been financed with debt that the banks could no longer support, reports Fin24.com.

“The government will have to buy out these mining companies or the mines will need to sell their production forward to repay their BEE loans,” said Absa Capital investment team member Cliff Zephyrine, at the Mining Indaba here.

He was speaking on behalf of Absa and Barclays, but said frankly that the other three large commercial banks – Standard, Nedbank and First National Bank (FNB) – as well as Investec and Rand Merchant Bank, found themselves in a similar position.

The credit crunch and accompanying collapse of resource prices had wiped out the possibility of returns within the terms of the loans.

“This year will be the year of truth for BEE in the mining industry,” said Zephyrine. “The South African banking sector – which includes the four major banks, as well as Investec and Rand Merchant Bank – is in a delicate position. We are unable to accommodate these transactions,” he explained.

Zephyrine said he didn’t want to use the term toxic assets, but others were welcome to do so.

These deals had involved enormous amounts. It was unwise to do these deals at fair value when the resource super-cycle was at its height, he continued.

Many are marginal mines that cannot operate profitably during low points in the cycle.

Moreover, these transactions frequently involve a division between shareholding with voting rights and economic shareholding. “In reality the banks that advanced the loans now control these assets,” he pointed out.