Paul Janisch

The mining indaba, Susan, Tim and a dog named Boo (who is a front)

SA’s mining experts say the way the royalties tax works in practice leans away from the initial idea of a tax on turnover, and towards a tax on profits. In any event, it’s questionable whether SA’s tax is lower than the international average, particularly if the cost of BEE is included. The document itself tabulates mining corporate income tax at 28%. This is the same as Mexico, higher than Canada and a little lower than Australia.

via www.businessday.co.za

I wonder if they've taken the whole BEE cost into account here.  The shareholding cost pales in comparison to the other requirements in the Mining Charter.  Whilst we are looking at mining profitability, a new Deloitte Consulting report has this to say

only a small residual portion of the inherent value of an opportunity finds its way to original private shareholders. In our experience, there are many successful mining projects where this residual value is only a lower single-digit percentage of the primary in-situ value. The remainder, in fact the lion share of the inherent value of any commercial opportunity, ends up in the economy at large, either through state treasury or through private sector spending, where it benefits all and translates into wealth and jobs.

Citigroup Global Markets estimates that “only 7% of the value generated by SA miners gets distributed to shareholders i.e. the entrepreneur and risk taker. The biggest beneficiaries are in fact suppliers to the industry, mining sector employees and the government. To turn opportunity into this value (and many fail along the way) requires substantial upfront investment capital and specialised and scarce skills.

 7% is all you get once everything else is considered.  Not much left to nationalise, not that Shabangu is entertaining nationalisation, although she does say that all this "fronting" brought on nationalisation.  This is a head scratching moment

Manus Booysen, head of the mining, energy and natural resources practice group at Webber Wentzel said "I disagree with the minister for placing the blame for the nationalisation debate on fronting and on the inability of the mining industry to respond to the social needs of affected communities.  The debate was sparked by suspended ANC Youth League president Julius Malema as a political ploy to get support.”

I wonder who Susan was chatting to before the mining indaba?  This lack of transformation argument is getting old now, and it is largely incorrect anyway.  More on this in a later post

Overview of the mining charter (from Werksmans)

No it ain't all me own werk - in fact I didn't write any of it.  This is a somewhat brief update on the mining charter.  It's worth the read.  What it doesn't cover is where the charter sits at the moment.  Wessel Badenhorst suggests that it is in fact law, but with the recent consultations that have been happening around the country the view is that the mining charter is in fact not in effect.  

This is what Wessel says about the charter

It can be argued that the Charter is no more than a policy document containing the goals to be achieved by the mining industry in the foreseeable future.  But this ignores the flavour of subordinate legislation added to the Charter – particularly in its revised form.  It is accepted in certain circles that the Charter has the standing of law.  The Charter itself provides that any failure to comply with its provisions will render the mining company in breach of the MPRDA.

Very often, conditions of economic empowerment of mining right holders are written into their mining rights and so become conditions thereof.  Section 47 provides that where right holders breach the MPRDA or any condition of such rights, the Minister may revoke the rights.

Before the Minister may consider a revocation of rights, she must follow due process.   Although one can split hairs as to whether compliance with the Charter is included in the concept of compliance with the MPRDA, it is an argument without an audience.  As the issuing and renewing of rights under the MPRDA fall within the power of the Minister, and Government clearly wants to see transformation and social upliftment in the mining industry, any mining company who discounts the Charter does so at its peril.

You can read the whole publication here.

Namibian mining from Tim Cohen

Namibia, has also started on the nationalisation course, causing a number of mining stocks on the Australian stock exchange to tank, and showing how contagious bad policy can be.

via www.businessday.co.za

Why they don't learn from each other I don't know.  Cohen colours an interesting picture about Zim and how Morgan and his crowd might not be as angellic as they would like us to believe.

Namibia and mining and nationalisation and Malema doesn't even get a mention (must piss him off completely)

The most recent case of resource nationalism in Africa occurred last week in Namibia, the 4th biggest uranium producer in the world. Its ‘friendliest mining regime’ image evaporated on April 21 when the Minister for Mines in a budget speech in the National Assembly, somewhat out of the blue, stated that the Government’s mining company, Epangelo Mining (Pty) Ltd., will alone have all the exploration and mining rights to ‘strategic minerals’—uranium, copper, zinc, gold, and coal. On April 28, the Cabinet endorsed that position, further elaborating that the government would take-over uranium mining to ensure Epangelo participated in the industry fully. Namibia’s stance of course pales in significance to Robert Mugabe’s planned confiscation of 50 per cent foreign mining companies.

The increase in nationalist rhetoric in Namibia is not unconnected with the rising budgetary shortfalls, growing poverty and high youth unemployment, problems that will supposedly be solved through a ‘black economic empowerment’ (BEE) in mining. Government’s Transformational Economic and Social Empowerment Framework (TESEF) has yet to be finalized, but BEE advocates are borrowing from South Africa where BEE has compelled mining companies to guarantee 15-25 per cent black equity ownership and management in the sector, resulting in denunciation that the policy has only fostered a small black elite indistinguishable from their white counterparts.

Although the Namibian mining minister later assured that the new policy will not affect current mining licences, exclusive prospecting licences (EPLs) and mineral deposit retention licences, mining companies in operating in Nambia, such as Palladin, Bannerman Uranium Co., Auryx Gold and Forsys Metals have at least 10 per cent of their value since last week. The worst hit seems to be Extract Resources, whose plan to build one of the world’s biggest uranium mines at its Husab project east of Swakopmund may be in jeopardy. Trading in the company’s stock on the Australian Stock Exchange was on Monday halted at the company’s request due to uncertainties regarding China Guondong Nuclear Power Corp’s (CGNP’s) interest in acquisition Kalahari Minerals, Extract’s biggest shareholder. Husab is the largest uranium mining project in the world that could make Namibia the world’s largest producer of uranium upon completion.

via www.businessdayonline.com

Must be a bad move.  But look at the underlined section - again this type of state control is viewed as some sort of get-out-of-poverty panacea.   Totally misguided - even our esteemed mining minister has seen the mess that this has caused here. 

the Namibian: Govt pockets all rights to mine uranium

Govt pockets all rights to mine uranium (with my comments in italics)

(the Namibian) CABINET has declared uranium, copper, gold, zinc and coal as strategic minerals to allow the State-owned Epangelo Mining Company “exclusive exploration and mining” rights, Mines and Energy Minister Isak Katali told Parliament yesterday.

Katali said Cabinet recently approved a submission in this regard “so that the Namibian citizen can fully reap the benefits arising from the rich endowment of our mineral resources”.

Oh - but isn't this what we are doing (SA that is)

Mining last year contributed about 15 per cent to the country’s gross domestic product and its export earnings were more than half Namibia’s total export revenue. Namibia recently retained its position as the fourth biggest uranium producer in the world.
Katali said his Ministry’s priority this year will be to finalise the Minerals Bill and minerals policy to allow Epangelo “to fully participate in the exploration and mineral development” in the country.

Yes - this is exactly what we are doing.  Oh well

Katali also said Government is fully aware that black economic empowerment (BEE) is abused by some to make “phenomenal amounts” of money.
He said some BEE companies are “fronting”, a practice where foreign companies use local empowerment companies to clinch deals. The Minister said he also knows of BEE licensees “selling out” exploration licences as soon as they are granted them.

This type of legislating is fundamentally anti-capitalist (which is not a good thing).  People invest for a return, get the return and then move on.  Legislating for black people to retain their ownership is counter-productive.  PLEASE don't make the same mistakes South African has made - you really don't have to!!!!!!!

The Minister also told Parliament that as soon as Government’s Transformational Economic and Social Empowerment Framework (Tesef) is finalised, BEE charters for the electricity, petroleum and mining sectors will be implemented to ensure that previously disadvantaged Namibians benefit.

We are now seeing the shape that TESEF is going to take.  Somewhat similar to ours with industry charters (they have an approved financial services charter).  

“I am happy to announce that the mining charter is at an advanced stage of completion and will be gazetted as soon as all the steps are conducted,” he said.

Let me guess, it's going to be like SA's - you know legislated and not a voluntary thing.  SA's is a mess and will not achieve the targets that it has set because it's not reasonable.  As David Crosby once said - don't do it man.

via www.namibian.com.na

Oceana challenges BEE in court

Oceana contests what it considers is government’s overly narrow interpretation of BEE.

CAPE TOWN - Fishing company Oceana and the government, represented by the Department of Agriculture Forestry and Fisheries came head to head last month when they met in court to contest what Oceana considers is government’s overly narrow interpretation of black economic empowerment.

At the heart of the matter is that departments transfer policy which allows the holders of fishing rights to sell their rights to another party – subject to certain conditions.

After 1994 the government set about transforming the fishing industry with some gusto. It was a complicated and often emotional process that was not without allegations of political interference and corruption. But the sector is now one of the most transformed in the country. From almost total control by whites, SA’s small-scale and large-scale commercial fisheries were 60% black-owned and managed by 2005.

This is an achievement that the government does not want to see unwound. “The problem with the approach of the application is that it would effectively undo past achievements, and prevent the department from furthering transformation,” the State says in its heads of argument (court papers).

However in the ordinary course of business, trading circumstances are dynamic. People enter an industry and leave it, sell their investments and buy new ones. Sam Montsi, CEO of Montsi Investments, a Cape based investment holding company, is one of these people. He attempted to sell his fishing rights to Blue Continent Products, an Oceana subsidiary. The application for transfer of these rights has been denied.

Oceana is arguing that the policy for the transfer of commercial fishing rights is unlawful. It wants the policy, or certain of its provisions, to be set aside.

The policy states that transfers will be assessed on the basis of “ownership and management control”. Oceana, a level 3 BEE company says this is an overly narrow interpretation of the law. The policy states its criteria more plainly when it goes on to say that applications will be favourably considered if the transferee is “at least as transformed as the transferer”.

Oceana argues that the gazetting of the B-BBEE codes in February 2007 marked a fundamental change in the legal framework regarding B-BBEE and placed the department as well as all other organs of government under a legal obligation to take into account and apply these codes in the measurement of transformation. It adds that these are intended to cover decisions affecting licences and concessions and therefore apply in relation to fishing rights

However, the State is arguing that the codes are not applicable to the transfer of fishing rights.  Instead, its transfer policy seeks to guard against the dilution of transformation in the industry. It accuses Oceana of failing to recognise the importance of transformation when it comes to the transfer of fishing rights. “Two issues will be considered: will the transfer lead to the consolidation of rights holders and effort? And how much will the black ownership of that catch change?” 

The department also argues that the transfer policy, as policy rather than regulation, does not prescribe hard and fast rules. Instead it affords the department and the minister the flexibility to deal with each application on a case by case basis.

A large part of the argument was taken up with legal technicalities surrounding policy and how it is applied.

It is not clear exactly how many transfer applications are outstanding, but it could be argued that there is a moratorium on the approval of commercial fishing transfers. Just one application has been denied, none have been approved, and the balance is

via www.moneyweb.co.za

This was bound to happen. I thought it would happen with Mining. What is interesting is that the regulations are effectively barring a black person from accumulating wealth.  In other words - the market is now being limited so that the government can pursue its transformation strategy.  Susan Shabangu said something similar,  when asked about selling mining rights she stated that a black person must sell to a black person.  

Not an easy problem to resolvem, the real issue here is whether the codes have superseded those rights that are legislated.  - but we wait for the court outcome with much anticipation.

India watches (and waits - that's for Ian)

Typepad has this amazing feature called Blog It which is an app that allows you to highlight text on a page and then send it through to your blog.  It also allows you to post the same content to Facebook and Twitter.  My blogging has gone up as a result of this.  But sometimes you just need to type a blog.

The Business Standard / New Delhi published an analysis of their own mining industry.  It was written by R K Sharma  - Secretary General, Federation of Indian Mineral Industries and  entitled "Should locals get 26% of mining profits?".  The analysis talks about India's own issue with redistribution which is aimed at

displaced people in addition to providing employment and other assistance in accordance with the rehabilitation and resettlement (R&R) policy of the state government

The proposition is that 26% of the profits of each mine should be redistributed to these beneficiaries.

However there is a strong move away from this thought because they have learned from our own DMR

If 26 per cent of the net profit is allocated for local development, a firm may not have enough of a cushion to invest in future exploration, which is required to enhance its mining operations. It is worth noting that ever since the 26 per cent scheme for Black Economic Empowerment (BEE) was enforced in South Africa and Namibia — which the present recommendation has copied — no significant investment has come into the mining sector in these nations; instead, there has been a flight of private capital.

Sharma, speaking on behalf of the Federation of Indian Mineral Industries (FIMI), suggests royalty-linked contribution as the best way to achieve the government’s objectives of providing long-term economic security, raising living standards and providing better hygiene, health and education to the families of those whose land has been taken over for mining.

Kind of inspired by the new charter but with a stronger and perhaps more enforceable focus on community development.  The single flaw in this argument is that the state needs to manage this royalty in the form of a trust.  We as South Africans would steer clear from this - especially if the DMR in its current guise is involved.

But the sentiment remains that

If 26% of the net profit is allocated for local development, a firm may not have enough of a cushion to invest in future exploration, required to enhance its mining operations

Peter Leon would not disagree with this.  Read the article it is very balanced.

 

 

Mining Charter – or more correctly “The Broad Based Socio Economic Charter” for the South African Industry

My numerous and (in some cases) somewhat sycophantic requests to numerous players in the minerals industry for an advance copy of the minerals charter fell on deaf ears. So I. like everyone else who is not in the industry had to wait for the document to be published. I got my copy off the Business Day this morning. (Thanks to Leila Munda and Thinus Kruger who sent me copies this afternoon – it is very appreciated).

The launch of this document drew attention from far and wide. We had Peter Leon claiming that it would probably not make it past the constitutional court

The most far reaching change is that non-compliance with the revised Mining Charter will amount to a breach of the Mineral and Petroleum Resources Development Act, 2002 (the MPRDA) resulting in the suspension or cancellation of licences granted under the Act. Clothing the Mining Charter with the force of law may well not withstand constitutional scrutiny, in addition to vitiating its consensual nature. In addition, the Minister of Mineral Resources is now entitled to amend the Charter unilaterally, thus perpetuating the problem of overly broad administrative discretion.

To the San Francisco Chronicle that dramatically announced S. Africa May Revoke Mine Licenses to Enforce Charter.

The question is how does it measure up? It certainly is a lot more detailed than the last one, but then the targets are infinitely steeper than the last one. If you had to actually calculate how much it would cost to implement this it might not be worth your while to mine in this country. I was expecting something a lot less punitive, especially after the ICT/Kumba and Lonmin scandals (those are only the high profile incidents – there are countless others that never make it to court or the press).

I'll go through some of the things that make for interesting reading.

1. The charter is NOT issued under section 9 of the B-BBEE Act, it's issued under section 100(2)(a) of the MPRDA. Perhaps this is why it is still called the "The Broad Based Socio Economic Charter". It has now drawn a fair amount of inspiration from the standard DTI-type scorecard, with its own little twist (more twisty than a string of DNA).
2. There is a scorecard, but ownership is not a scorecard item – it's an absolute (along with reporting). This is where things get a little murky – we know that ownership will always be an issue but is non-compliance with the scorecard also a breach? Paragraph 3 says

   Non compliance (sic) with the provisions of the Charter and the MPRDA shall render the mining company in breach of the MPRDA and subject to the provisions of Section 47 read in conjunction with Section 98 and 99 of the Act.

3. A very nice feature of the scorecard is that the targets are ramped up over a four year period. This makes the targets more palatable (but does not detract from the sheer ridiculousness of those targets).
4. HDSA is still used in the definition but they've been a little cleverer with the new definition

   Historically Disadvantaged South Africans refers to South African citizens, category of persons or community, disadvantaged by unfair discrimination before the (current) Constitution came into operation which should be representative of the demographics of the country.

   In other words – you can include white women but only to the extent that they are demographically represented. A question springs to my lips – do you now need to structure deals so that all HDSA's are included and to the exact percentage (as Mpho Nkeli would have us do it).

5. BEE transactions must now include workers and communities – nice move.
6. I'm not going to speak about the ownership requirement – I'll leave that for the rest of the fourth estate. However the beneficiation requirement allows companies to set off 11% against their ownership targets. Only 11%!!!! They should be given 100% ownership credits.
7. You should feel sorry for multinational suppliers of capital goods – they have to contribute 0.5% of revenue generated from local mining companies (not NPAT) towards socio-economic development of local mining communities. This must be paid into a social development fund. It is thought that the DMR will manage this fund. I can't see anyone contributing to this fund if the beleaguered DMR is going to be managing the money.
8. Procurement is punitive. By 2014, 40% of all capital goods must be purchased from BEE entities (70% of goods and services). And a BEE entity is a company that is 25.1% black owned. The cynic in me cannot but laugh at this requirement. They are trying to extend the possibilities for the ANC and its cronies – they'll now go to the major manufacturers and suppliers and state that they must do a deal with them otherwise the mines won't buy from them. Couldn't they just be a little more subtle?
9. The skills development targets are a joke – 3% ramping up to 5% in 2014. This is SPEND on training – you don't have code 400 to fall back on here.

Otherwise there is a strong focus on staff and community welfare.

I was speaking to a mining guy yesterday who told me that this is still a discussion document – if it goes through in this form then Malema will get his mines because many will just stop mining here and head for West Africa.

I was hoping that the time must be approaching where the ANC drops its arrogant stance towards private and foreign investment and starts collaborating more. However a document like this would indicate that they are still a fair way away from this.

Will ArcelorMittal`s ICT/BEE deal ever fly? - Politics blog | Moneyweb

JOHANNESBURG - On August 10 this year ArcelorMittal South Africa (AMSA) announced its purchase of Imperial Crown Trading 289 (ICT) for R800m as well as a so-called "BEE" deal with various cronies and family members of the ANC leadership.

via www.moneyweb.co.za

 AMSA CEO Nonkululeko Nyembezi-Heita told the Mail & Guardian that "both the BEE deal and the ICT acquisition would have to pass an internal due diligence investigation in terms of the United States Foreign Corrupt Practices Act (FCPA) and satisfy South African anti-corruption legislation before coming into force." 

Myburgh somewhat cynically notes that that this deal might make it through our local anti-corruption legislation.  This is probably based on the highly political nature of the deal and that the minister denied Kumba's appeal.  Strange that she did not pay any attention to the Kumba allegations and the apparent gross violation of section 16 of the Mineral and Petroleum Resources Development Act which requires that 

a company applying for a prospecting right needs to submit amongst others a budget and documentary proof of the applicant's financial ability or access thereto, which may include but is not limited to the following:

(i) Loan agreements entered into for the proposed prospecting operation;

(ii) A resolution by a company to provide for the finances required for the proposed prospecting operation; and

(iii) Any other mechanism or scheme providing for the necessary finances for the proposed prospecting operation.

My sources tell me that it shouldn't make it through the local legislation, but it will take an expensive court case to clear it - the real issue is that the corruption exists and remains unchecked and the corrupters are still able to hi-jack mineral rights because the original owner does not have an appetite for costly litigation.

Oh and, the story goes that Jacinto Rocha left the DMR to re-build his very tarnished reputation - read Jenny Cargill's book for a character assassination of this oddity.

Without an ANChor

How long will it take for the ultimate ANC-defender (Joey Shaarky) to make some snide racist comment on Facebook.

Much is happening on the ANC front. We have the Mining Industry that is in a complete shambles, such that they have actually placed a moratorium on receiving new applications for prospecting rights.  And then there is the Protection of Information Bill.  This is a total shocker and harks back to the old PW days.  So disgusting is this thought that for the first time big business has actually spoken out about it.   Gareth Ackerman, following in his father's footsteps has also spoken out about it - good on you mate.  As to its constitutionality - Pierre de Vos has a few words to say about that.  In case you don't want to read his post - the answer is NO FUCKING WAY is it constitutional.

And the upshot of these two little incidents.  The Times had this to say

Two questionable mining deals and two proposed measures to curb the media have posed a question mark about how South African President Jacob Zuma’s government has been running the country.
The deals and proposed media curbs in and of themselves may not be hugely significant, but they have triggered a volley of criticism directed at Zuma’s government, suggesting it may suffer from a leadership vacuum where cronyism can thrive.
The risk for investors is that with few safeguards in place, a constrained media and a weak administration, sweetheart deals could increase in the remaining four years of Zuma’s term.

I was chatting to a regular reader of this informative blog yesterday who had sent me a mail about the AMSA/ICT deal.  He told me that he was speaking to a not-insignificant CEO about BEE and the ANC, and this not-insignificant CEO told him that he no longer entertains any consultant who purports to have influence with the decision makers in the ANC.  The reason behind this is very simple - there are a multitude of factions within the ANC and EVERYONE of these is actually running the party!

This makes perfect sense when you think about that stinking ICT deal.  The only way for so called serious players to earn cash out of deals is by going the rent option (IOW - buying mineral rights and selling them on).   No right minded company is going to take a politically connected person as their "partner" when they can't be sure that this person can in fact arrange any business deals with the government.  Sandile Zungu would deny this - he told Bruce Whitfield that they had done a legitimate BEE deal with AMSA and this stands on its own and is not connected to the ICT/Kumba saga.  What rubbish - Zungu's credibility is now seriously in question.

When you look at the ANC as this fractured organisation with 15 different drivers and no clear direction, the Protection of Information Bill suddenly makes a lot more sense.  They need this bill passed into law to reign in the various factions.

I'll tell you a little story a newspaperman told me recently to illustrate this point.  This guy told me that during one week the Star carried a different story on Malema - and all this information came from their neighbour Luthuli House.

With this Bill made into law the factions can go about their nefarious activities and we'd be none the wiser. All we'd ever hear is Jackson Mthembu's pro-ANC drivel.

In other words (and this is from a largely finished song I wrote) - they close the doors to keep the demons in.  Clever hey?

And then there are a number of smokescreens that they use to point the transformation blame straight back at business.  One of these is the Manyi-ite institution known as the Commission for Employment Equity.  The new chair seems to have stolen all of jungle's moves.  Mpho Nkeli, alleges extreme racism across the board and is going to ensure that there are numerical quotas in each business.  And with dire consequences if these target are not met - in other words transformation at gun point.

It is now so patently obvious that the ANC really has no clue, has run out of interesting ideas and excuses and so now needs to almost go the Zanu-route to ensure that the smokescreen is maintained.

I am heartened by business speaking out about this stuff.  The time has come for the government to govern and deliver - why on earth should we as the private sector continuously take the blame and fund their dubious activities.