Policy certainty needed as storm clouds gather

The Mining Indaba kicks off amid a level of gloom not seen for many years in South Africa’s resource sector. A ratings downgrade looms amid carnage on the commodities and currency markets, which when combined with ongoing and seemingly impenetrable socio-economic challenges paint a bleak picture for jobs and growth.

As these storm clouds gather over the ailing economy, a legal battle is bubbling as mining companies, via the Chamber of Mines, and the government fight it out in court over the exact meaning of “once empowered always empowered” principle. This is the notion that a mining company can still claim its empowerment status even after black shareholders have sold the shares acquired by them from previous empowerment transactions.

Immense pressure

Additionally, any further layers of red tape and policy restrictions are only going to hurt an industry already under immense pressure. There is nothing wrong with policies that provide stability and support to an industry via clear and concise frameworks – but this just does not seem to be the case.

The industry is waiting for the Mineral and Petroleum Resources Development Act Amendment Bill for clarity – but this was referred back to Parliament by the president a year ago.

The bill has not meaningfully progressed since it was referred back – this is a bill that was approved by the National Council of Provinces and Parliament in early April 2014. The referral created the feasibility of splitting out oil and gas from other resources, but the proposed time frames did not make that practical and other red flags were also raised about potential significant state holdings in new ventures.

Current hiccups perhaps relate to the conflict between policy and the need to maintain an investor-friendly basis of legislation – simply put, a better balance has to be struck between the requirements of the state and those of investors.

With falling commodity prices and the dwindling attraction of South Africa as an investment destination, this is becoming increasingly difficult.

The problems with the bill also tie in with the new Protection of Investment Act, which was silently assented to earlier this year and in turn raised alarm bells about how it might negatively impact on already scarce foreign investment. This act will come into operation on a date to be proclaimed by the president.

Added to this, a new bill relating to a state mining company has just been published for comment. Concerns have already been raised that it may give the new Minister of Mineral Resources, Mosebenzi Zwane, too much control as it will allow him to be a player and a referee at the same time.

The risk is that these types of changes send the wrong messages at the worst possible time, and do not create policy certainty or drive the jobs and growth agenda.

The first thing we need is certainty in our regulatory framework – this relates to the mining legislation and the mining charter and their interaction with the dti’s codes of good practice.

Confusion

Confusion reigns about which to apply and the moratorium on the application of the dti’s codes on the mining industry for one year from October 30, so industry can align the codes with the charter, does not really help solve the root of problem.

I am not convinced that a moratorium was necessary anyway, as I don’t believe the dti codes will override the mining charter. Either way, all of this is adding to the uncertainty – and investors dislike uncertainty.

There is also a need for buy-in by unions to a consolidation and recovery process. This is critical as we have rhetoric coming from unions looking to increase membership, which does nothing for the image of the country or industry. The five-month wage strike on the platinum belt in 2014 was only a pyrrhic victory and probably more detrimental to union members than anything as a number of mines are going into care and maintenance.

There is a clear need for political leadership within the industry, but the appointment of Zwane out of the blue did little to foster the relationships between the government and the mining industry.

It is hoped the minister and the government will use this indaba as a platform to improve levels of trust and reduce uncertainty, moving the agenda back to what is needed to improve growth and create jobs. For example, a negotiated resolution to the impasse over empowerment levels may be far better than a protracted legal battle.

The parties are expected to come to court in March to thrash it out in adversarial fashion. For the good of the industry, it is hoped that ongoing attempts to find some common ground will be successful.

Amid all the gloom and poor sentiment towards emerging markets, it is likely this year’s indaba will have a poorer attendance by foreigners. While there may be less interest in the acquisition of mining goods and assets, I do expect a bit of interest from investors with deeper pockets. There will be interest in mining assets being spun out from the core operations of several of the majors and people will be looking to snap them up at relatively cheap prices.

* Allan Reid is a director in the corporate and commercial practice at Cliffe Dekker Hofmeyr.

** The views expressed here do not necessarily reflect those of Independent Media.

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