Miners Drop as South Africa Escalates Black Ownership Rules

Miners Drop as South Africa Escalates Black Ownership Rules

Companies including Anglo American Plc and Sibanye Gold Ltd. fell after South Africa increased the minimum black ownership requirement for local mines and set a 12-month deadline for compliance with the new rules.

The Department of Mineral Resources will raise the requirement from the current 26 percent to ensure more proceeds from the country’s natural resources flow to the black majority, Mining Minister Mosebenzi Zwane said on Thursday in Pretoria, the capital. The new minimum applies regardless of whether they have previously sold shares or assets to black investors that later divested.

The Chamber of Mines, which represents mining companies in South Africa, will seek to stop the new Mining Charter, which it says is unfair and will hurt investment. The group refused to attend a last-minute meeting with Zwane’s department earlier in the day, saying it wouldn’t be coopted into lending support to the “flawed” process.

Sibanye dropped as much as 7.8 percent and traded 5.6 percent down at 3:38 p.m. in Johannesburg, while Kumba was 5.8 percent lower. Anglo American declined 4.4 percent in London.

The new rules “could pull the rug right from under the industry’s feet,” said Andy Pfaff, chief investment officer of Vanguard Derivatives, a South Africa-based broker. “It’s certainly not going to help with attracting foreign investment into South Africa.”

Most mining companies reached the 26 percent level under previous versions of the charter but many of the black investors have since sold out. The new rules, which require 30 percent ownership in 12 months regardless of prior deals, will mean companies will have to meet the requirements all over again, potentially diluting existing shareholders.

The charter will also require companies to pay 1 percent of annual revenue to communities and new prospecting rights will require black control, Zwane said.

“The new charter is significantly worse for the mining industry than the original draft,” Peter Leon, the Africa co-chair at Herbert Smith Freehills LLP, said by phone on Thursday. “It’s poorly considered and raises serious questions about the government’s commitment to the protection of property rights.”

The industry is confident of its prospects in challenging the charter in court, said Steve Phiri, the chief executive officer of platinum producer Royal Bafokeng Platinum Ltd. The new rules will deter investors and serve as a “nail in the coffin” of the local mining industry, he told reporters at a Johannesburg briefing hosted by the Chamber of Mines.
Highest Court

“There are a lot of constitutional issues,” he said. “I would not rule out the possibility of this matter being decided by the highest court in the land,” Phiri said.

Glencore Plc, Impala Platinum Holdings Ltd., South32 Ltd. and Kumba Iron Ore Ltd., which is majority owned by Anglo American, would need to sell the biggest stakes if the new charter fails to give credit for previous deals, Avior Capital Markets (Pty) Ltd. said June 1. AngloGold Ashanti Ltd. and Sibanye, the country’s two biggest gold miners, may also be affected by the new rules.

The charter also introduced new procurement rules, including that 80 percent of mining-services spending go to black-owned companies, as well as management and board representation. At least 50 percent of the executive directors and 60 percent of senior management must be black, with black women making up half of each target.

“The timeline is very aggressive,” for the changes, said Pfaff. “It may even be in the interest of miners and to the benefit of society in the long run, but in the short-term, they’re going to get hit.”

Source: Paul Burkhardt and Kevin Crowley


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