South Africa’s Colour Divide Affecting Mining

South Africa’s latest mining overhaul could be mired in a long legal battle after producers vowed to stop the changes even as the government said it’s time the black majority benefits from the country’s mineral wealth.

Mineral Resources Minister Mosebenzi Zwane unveiled new rules for so-called black economic empowerment, including tougher ownership requirements, a community-development tax equal to 1 percent of revenue, and expanded quotas for buying goods and services from black-owned companies.

The Chamber of Mines, which represents South Africa’s biggest producers, plans to start fighting the plan in court as soon as next week.

“This charter’s not going to see the light of day anytime soon,” Peter Leon, the Africa co-chair at law firm Herbert Smith Freehills LLP, said by phone on Thursday. “We’re looking at years of protracted litigation.”

 

Producers are fuming after having been kept in the dark on the details of the updated Mining Charter and the chamber refused to attend a last-minute meeting with Zwane’s department earlier Thursday, saying it wouldn’t be coopted into lending support.

The new rules, which don’t give credit for deals already concluded and from which black shareholders have since divested, will deter investment and serve as a “nail in the coffin” for the industry, said Steve Phiri, the chief executive officer of platinum producer Royal Bafokeng Platinum Ltd.

Court Battle

“We’re confident of our prospects in court,” he told reporters in Johannesburg. “I would not rule out the possibility of this matter being decided by the highest court in the land.”

Miners would still prefer to reach a negotiated solution but are prepared to fight the changes if needed, Chamber of Mines President Mxolisi Mgojo told reporters.

Under the new rules, companies must ensure that their South African assets are 30 percent black-owned within 12 months, up from a previous level of 26 percent. If upheld, several of the country’s biggest mining companies would have to sell new stakes, raising the risk of dilution for existing investors.

“The value destruction is hard to quantify and the uncertainty will persist,” Liberum Capital Ltd. analysts including Ben Davis said in a note. “What is certain is that South Africa continues to be a terrible destination for mining investment and assets in South Africa will continue to trade at a discount.”

South Africa holds the biggest reserves of platinum, chrome and manganese and mining companies operating in the country include Anglo American Plc, Glencore Plc and AngloGold Ashanti Ltd.

White Male

The push for increased black ownership of the industry is part of an effort to address the legacy of apartheid and, with its highly paid, mainly white, male executives overseeing hundreds of thousands of workers laboring in some of the world’s deepest and most dangerous operations, the mining industry is starkly symbolic of the country’s persisting inequalities. Yet critics say many deals have mainly benefited the politically connected elite and deter foreign investors.

Mining companies may also be getting caught in the cross hairs of local politics and posturing ahead of the ruling African National Congress’s leadership conference in December, said Theo Venter, a political analyst at North West University’s business school in Potchefstroom, west of Johannesburg.

The party will seek an urgent meeting with Zwane on the charter and is concerned about potential job losses as a result of the new charter, it said on Thursday.

“Given the fact that the mining industry has shed about 60,000 jobs in the last five years, we don’t want legislation that will add to that bloodbath,” ANC spokesman Zizi Kodwa said by phone.

The ANC conference will pit rival factions, including one led by President Jacob Zuma, against each other.

“This is part of an effort by the Zuma faction to provide hard evidence that they are trying to put radical economic transformation into practice,” Venter said. “They are saying: ‘We are not only talking, we are doing something.’”

Cheerio

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South Africa Recession

South Africa has entered recession for the first time in eight years, data showed on Tuesday, piling pressure on a government facing corruption allegations and credit downgrades.

Data from Statistics South Africa showed the first quarter contraction was led by weak manufacturing and trade, suggesting high unemployment and stagnant wages were dragging down South Africa’s long-resilient consumer sector, analysts said.

Political instability, high unemployment and credit ratings downgrades have dented business and consumer confidence in South Africa and the rand extended its losses against the dollar, while government bonds also weakened.

South Africa’s economy contracted by 0.7 percent in the first three months of 2017 after shrinking by 0.3 percent in the fourth quarter of last year, lagging market expectations of a quarter-on-quarter GDP expansion of 0.9 percent.

It was the first time two consecutive quarters showed contraction — a definition of recession — since the second quarter of 2009, although there have been individual quarters of so-called negative growth in more recent years.

A consumer frenzy helped the South African economy grow by an average 5 percent a year in the five years before the 2009 recession, but it has struggled to register much growth since.

“The slowdown in Q1 was due to much worse results from usually stable consumer-facing sectors that had been the key drivers of growth in recent years,” Capital Economics Africa economist John Ashbourne said.

The worst performing sector was trade, catering and accommodation, which contracted by 5.9 percent, while manufacturing – one of the key sectors – fell by 3.7 percent.

Standard Chartered Bank’s Chief Africa Economist Razia Khan said the “awful” data showed weakness where it was not expected.

“Economy in tatters”

The poor growth numbers will pile more pressure on the ruling African National Congress (ANC) to get the economy back on track faster as it tries to stave off further credit ratings downgrades and stem falling voter support.

Pressure on President Jacob Zuma, including from within the ANC, has risen since a controversial cabinet reshuffle in March that led to downgrades to “junk” status by S&P Global Ratings and Fitch and allegations of influence peddling.

Zuma has denied any wrongdoing over the allegations.

Corruption allegations escalated when local media reported this week on more than 100,000 leaked emails they say show inappropriate interference in lucrative tenders.

“Our economy is now in tatters as a direct result of an ANC government which is corrupt to the core and has no plan for our economy,” Mmusi Maimane, the leader of the opposition Democratic Alliance, said.

South Africa’s Treasury has said it would work to finalise policies critical for boosting confidence and economic growth.

S&P Global Ratings and Fitch last week said risks to South Africa’s ratings include weak economic growth and political uncertainty ahead of the ANC conference in December when a successor to Zuma as party leader will be chosen.

Zuma can remain as head of state until an election in 2019.

Moody’s — whose Baa2 rating is two notches above “junk” — is reviewing South Africa for a possible downgrade.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

No End To The Love Of A Nugget

A partnership between Randgold, AngloGold Ashanti Ltd. and state-owned Sokimo, Kibali shipped 642,720 ounces of gold worth more than $700 million in 2015. That helped increase production of the precious metal in the country from almost nothing in 2011 to more than 25 tons a year.

Production last year fell to 585,946 ounces after technical challenges in the first six months, but output is scheduled to peak at 750,000 ounces in 2018 as the underground operation reaches full capacity, Randgold says.

Other miners have been less successful in Congo. Randgold’s partner, AngloGold, suspended operations in 2013 at the Mongbwalu project, also in northeastern Congo, saying that it couldn’t make the economics of the project work. In the past decade, mining majors Rio Tinto Group, BHP Billiton Plc, Vale SA and De Beers have all held and abandoned mining licenses in Congo for different minerals without making headway.

In short, gold has been in demand for thousands of years, is in huge demand right now and gold has a massive future because everybody loves gold.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.