JOHANNESBURG (miningweekly.com) – The draft 2018 iteration of the Mining Charter, as well as the Mineral and Petroleum Resources Development Act and social and labour plans amendments expected later this year, offer an opportunity to improve regulatory and policy certainty and, subsequently, investor perception in the South African mining sector, Webber Wentzel and Deloitte said on Tuesday.

Deloitte energy and resources leader for Africa Andrew Lane noted that the new draft charter is an improvement on the previous draft and amended charters, but warned that there were still areas where regulatory uncertainty persist.

In terms of ownership and beneficiation, Webber Wentzel partner and mining sector head Jonathan Veeran explained that the draft charter aims to enable effective ownership of South Africa’s mineral resources by black persons, through meaningful economic participation.

Ownership requirements move away from the past historically disadvantaged South Africans (HDSAs) definition, to that of black persons, aligning with the definition used by the departments of Labour (DoL) and Trade and Industry (DTI), he pointed out.

“It is clear that the ownership element requires 100% compliance and has a clearly defined five-year transition period,” Veeran highlighted.

A differentiation is, however, made for compliance requirements of existing right holders who have to, where necessary, increase to a 30% black economic empowerment (BEE) shareholding from the current 26%.

New right holders, who have the same 30% target, have specific distribution requirements across three owner groups.

The financial impact on right holders of the changes in the ownership element, specifically within the current economic climate, is uncertain, Veeran said, noting that this relates to the costs of supplementing BEE shareholding, as well as the trickle dividend, and/or earnings before interest, taxes, depreciation and amortisation (Ebitda) payment requirements, and the free carry 5% shareholding each for host communities and qualifying employee shareholders.

He further noted that while it is questionable whether one can legally differentiate between employees with regard to who can and cannot participate as employee shareholders, the requirement on new mining rights to seemingly grant a free 5% equity to host communities and qualifying employees respectively, bring uncertainty as to how right holders might structure such a transaction, and how they might finance it.

Further, the current draft Mining Charter requires that 5% of payroll be invested in human resource and essential skills development. While this target has remained constant in the 2018 draft of the charter, Monitor Deloitte manager Stelio Zakkas pointed out that the structure of the 5% spend is different.

“The 2018 draft charter expands on the spending criteria by proposing two notable changes,” he said.

The first, Zakkas explained, proposes that training be reflective of demographics, and be invested in essential skills development activities such as science, technology, engineering, mathematical skills, as well as artisanal, literacy and numeracy development, and bursaries.

“This is a broad mandate and, to date, there has been a strong focus on technical and artisanal skills training as per the needs of the sector,” he noted.

Additionally, the second change is a 1.5% of payroll contribution requirement towards South African public academic institutions, science councils and research entities. This, Zakkas explained, is intended to develop solutions in exploration, mining, processing, technology efficiency, as well as environmental conservation and rehabilitation.

The nonalignment with the DTI broad-based BEE Codes of Good Practice skills training brings uncertainty as to the necessity of driving training in accordance with the learning programme matrix, Zakkas lamented.

Another concern, he noted, is that the draft charter remained silent on enforcing portable skills training that offers opportunities to trainees to find alternative employment, which he said is a “critical consideration in a cyclical industry that is impacted by ongoing digitisation and automation”.

Zakkas further pointed out that there is also uncertainty with regard to the research and development investment being reflective of demographics, which he says could pose a challenge in ensuring, and proving, that investment is reflective of demographics, and exacerbates the already challenging compliance reporting landscape.

Meanwhile, Monitor Deloitte director Khutso Sekgota stated that the procurement from, and support and development of, local empowered businesses is a fundamental driver of not only transformation, but also economic growth in South Africa.

He explained that the draft charter introduces several amendments to the procurement measurement criteria and targets for the inclusive procurement, supplier and enterprise development element.

This element proposes right holders identify both goods and services spend categories within their mining stakeholders supply chain, and allows them to adjust procurement policies to enable spend on these new measurement criteria.

However, the introduction of new compliance criteria in the form of a verification of local content for capital and consumer goods with the South African Bureau of Standards may result in both an administrative and financial burden for stakeholders in the mining goods value chain in South Africa.

Additionally, he lamented that the procurement of mining goods and services from foreign suppliers is still unfavourable and does not comply with South Africa’s trade law obligations.

The draft charter’s procurement requirement states that at least 70% of spending on capital and other mining goods will have to go to locally manufactured products, with a local content of at least 60%.

“This may pose a problem for large companies, as only a few South African companies have the capacity to produce sophisticated capital goods that are required in the mining sector,” Sekgota pointed out.

However, Webber Wentzel and Deloitte believe that, unlike a compliance-driven approach, value beyond compliance thinking drives innovation, productivity, and both social and economic growth, noting that investment in the industry is essential, and may define the speed at which it returns to a sound growth path.

“In the midst of a struggling economy, lower commodity prices and increased global competitiveness, South Africa needs to return to a state in which all stakeholders work together in ensuring the mining sector not only remains a contributor to economic growth, but leverages our mineral resources to make meaningful socioeconomic impact for our people,” the companies said.