Submission to DMR about the Mining Charter

The DMR placed an ad in some Sunday newspaper asking for comments on the Mining Charter. I was really hoping that I would be invited to Parliament to have a yak about it – but it seems as though the process is taking place without me. Anyway - now that I have dealt with the rejection, this is what I sent them.

Dear Ms Skaka

I thank you for inviting public comment on this document.  I write to you not as someone who is involved in the mining sector – but as someone who is intimately involved in the broad-based black economic empowerment world and someone who understands the difficulties and rewards of a successful BEE implementation.   

My focus is not so much on transformation but more on compliance and it is from this perspective that I respectfully submit the following.

1. Ownership

   I am no expert on the complexities of black ownership and the structures that are used to create such vehicles.  But I am firmly of the belief that ownership cannot be effective without a risk and reward element.  I respectfully submit that the definition of "meaningful economic participation" does not adequately envisage a risk portion for the shareholder – even with the "taking into account market conditions" disclaimer.  The unintended consequence of this is that a shareholder is not adequately prepared for the inherent risks in ownership of any merx.  This could have a negative effect on black capital acquisition.

2. Beneficiation

   The set-off targets whilst a vast improvement on prior versions of the Charter should be higher – in fact they should be a complete set-off against the ownership target.  If a beneficiation programme is established within the local community and proves to be sustainable – this would be a huge feather in the DMR's cap – both socially and politically.   A beneficiation matrix should be drawn up with the set-off percentages listed.

3. Procurement.

   Whilst the ramped up targets are welcomed – the definition of BEE entities is problematic.  It seems odd that the mining charter did not consider the procurement targets contained in the DTI's generic B-BBEE codes of good practice.  The targets contained in the generic codes have three intended consequences

   1. To encourage all entities to measure their own BEE performance by use of a BEE scorecard.  We have seen over the last four years that companies are both implementing BEE and improving on their scores.  This shows that the BEE message is permeating the economy
   2. Purchase from smaller entities with a BEE scorecard
   3. Purchase from black and black-women owned entities.  I know that in the Financial Sector there is a sharp drive to source, develop and support black female entities as a result of this

   The issue with the definition of BEE entities to my mind will only encourage fronting as companies who wish to do business with mines will need to meet these targets.  Whilst there is a stated desire by the DTI to stamp out fronting, it is unlikely that they will succeed in any great way because newer and more innovative ways are being developed to disguise this fact.

   Recommendation – adopt the generic codes' definition with a ramped percentage of purchases from the community.

4. Human resource development.  It is respectfully submitted that the target of 5% of total annual payroll is far too high even when you consider the ramp up percentages.  There is no guide as to how this money could be recognised, which is something that the DTI's codes is very clear about.  The exclusion of the SDL is very vague and could be interpreted as adding an extra percentage to this cost.

   Recommendation – reduce the figure to 3% and include a very comprehensive code of good practice which talks specifically to the skills shortage in mining sector and provide very strong guidelines as to how to achieve this.  Code 400 (DTI's codes) should form the basis of this guideline – with strong input from the SETA and business.

5. General

   The overriding sentiment contained in the Mining Charter is one of a desperate need for transformation throughout – from the shareholding to the community development.  The ramped up targets are very welcome.  But it is very clear from the charter that the expense required to implement it fully would likely be regarded as unviable, a solution must be found where mining companies can contribute without seeing their profits being eroded so dramatically because of the cost of implementation.  This serves as a deterrent at many levels – something that the struggling resources sector barely needs.

Thank you for receiving these comments and I would welcome the opportunity to present them in parliament.

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Paul Janisch

Caird - Broad-based BEE compliance experts

"working BEE solutions"