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Mining Charter no good for growth and investment

The Minerals Council South Africa believes that much more work needs to be done to create a Mining Charter that promotes competitiveness, investment, growth and transformation for the growth and prosperity of South Africa.

The Minerals Council states the Mining Charter in its current form (draft) will not promote investment and growth

It does recognise that the Mining Charter 2018 is a material improvement on the 2017 Mining Charter. It supports a 30% black ownership target on new mining rights, with shares allocated for communities, organised labour and black entrepreneurs.

However, the Minerals Council does not support some of the elements of the new draft Mining Charter,

Most importantly, some of the elements of the Mining Charter do not promote competitiveness.

Without competitiveness, investment in new exploration and mining will be limited and the current mining sector will continue to decline, to the detriment of all citizens.

This is directly contrary to President Ramaphosa’s stated intention to attract US$100 billion in foreign investment into South Africa in the next five years.

Further, the Mining Charter contains elements that are unconstitutional and contrary to South African Company Law.

The Minerals Council does not support the free carried interest of 5% allocated to each of labour and communities.

Given South Africa’s mature mining sector, a 10% total free carried interest on new mining rights will materially undermine investment, by pushing up investment hurdle rates and ensuring that many potentially new projects become unviable.

Imposition of a free carried interest is a public policy choice, which must be weighed against the critical need to attract investment for growth and employment creation.

The Minerals Council believes that there are other measures to ensure benefits to communities and employees that would not undermine the viability of mining in the future and will continue to engage with the Department of Mineral Resources (DMR) on potential measures.

The Minerals Council is pleased to see that Minister Mantashe recognises that ‘free carry’ is indeed not free and has costs associated with it; the Minister has acknowledged that ‘in kind’ participation could be considered.

The Minerals Council does not support the 1% EBITDA target to communities and labour proposed by the DMR. This was not agreed as a recommendation in the Charter Task Team so is a surprise addition.

The issue of topping up existing right holders BEE ownership to 30% within five years was never agreed as a recommendation in the Charter Task Team, and so this is another surprise inclusion by the DMR.

The Minerals Council does not support this top up, as it prejudices existing right holders that secured their rights on the basis of the 2004 and 2010 Charters.

Despite a High Court declaratory order judgment and an agreement with the DMR, the issue of recognising the continuing consequences of previous BEE deals on existing rights, including for renewals, has not been properly captured in the Charter.

The lack of recognition of the need to phase-in or graduate the Charter’s requirements for junior and emerging mining companies is disappointing.

While the Minerals Council supports transformation of all elements of the exploration and mining value chain, the application of a 30% black ownership target to new Greenfields prospecting rights will result in a continuation of limited exploration, the lifeblood of new projects for the industry.

The Minerals Council urges the DMR and other stakeholders to take on board the significant need to improve the competitiveness of the industry to ensure investment, growth and the transformation of the mining sector.

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