Old mining charter review and new mining charter proposals: Deputy Minister of Mineral Resources briefing

Meeting report

The Chairperson noted the Committee would be on an oversight visit to the Northern Cape later in the month. This would be centred on visits to Kimberley and De Aar. They would meet with a number of mining companies and communities. Details of the planned visit to Chile would be finalised later that day. Issues had arisen at previous meetings related to the Alexkor Development Foundation (ADF) and Namaqualand Diamond Fund Trust (NDFT). The Committee would take legal advice on the possibilities of intervening into the operations of these funds. They would also meet with the trustees of the NDFT during the visit to Kimberley.

Briefing by Department of Mineral Resources
Mr Godfrey Oliphant, newly appointed Deputy Minister of Mineral Resources, said that he had served on this Portfolio Committee for several years but had not had the opportunity to visit it since 2004. He had been involved with the drafting of the Mining Charter. Mining was an important growth area. The Minister was working hard to position the industry as a growth area. There had been important stakeholder engagements.

Mr Mosa Mabuza, Acting Deputy Director-General (DDG): Mineral Policy and Promotion, Department of Mineral Resources (DMR) said that the Mining Charter was a negotiated document involving multiple stakeholders. These included government, organised labour represented by the National Union of Mineworkers (NUM), the Chamber of Mines and South African Mining Development Association (SAMDA). The Mining Charter was introduced by Section 100 of the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. The mining sector was the first to to introduce such an instrument to effect transformation. It promoted access to mineral wealth. It created opportunities for historically disadvantaged South Africans (HDSA). Existing skills were fostered while the skills base was being expanded. The Mining Charter sought to promote investment and diversity as well as the socio-economic upliftment of mining communities. It also addressed the issue of beneficiation.

Mr Mabuza said that the progress report had been drawn up using DMR records, mining company records, questionnaires and detailed data analysis. External consultants had bee used to collect date. A DMR team had interrogated the Mining Charter of 2002. The results of the analysis had been compiled in a document in October 2009.

Mr Mabuza said that in terms of ownership the identification of elements remained relevant in order to address transformation in the sector. The construct was problematic as there was ambiguity in the Mining Charter and multiple interests were at play. The scorecard for this aspect was vague. In terms of HDSA participation, a target of 15% had been set for the five years ending in 2009 and 26% by the end of the first ten years of the Mining Charter. The full value of the mining industry was estimated at R2 trillion. This was the net asset value. Black economic empowerment (BEE) ownership levels only stood at 8.9%. There was doubt over the meaning of this figure as it might be referring to the total value of BEE transactions. Many costs were included. The upside potential was an average of 25%. The 8.9% quoted did not represent the true value of BEE investment. The transaction model was very cumbersome as deals were locked in but no value was attached. There had been some pockets of success, but the real beneficiaries were the financial houses. Government could not go back to leverage assets. He asked why there was a different arrangement for BEE companies. In fact the net asset value of BEE companies was negative, which is why many of them had gone under.

Mr Mabuza said that the aspect of human resources (HR) development sought to address the skills element. The goal of the Mining Charter was to effect every opportunity to have employees functionally literate and numerate by 2005. Questions put to the mining houses were whether there was a career path implemented for HDSA. Companies were asked if they had developed systems though which empowerment groups could be mentored. The results from a representative sample showed that functional literacy only stood at 17%. The same 17% of companies had career paths. The mentorship of empowerment groups only stood at 11%.

Mr Mabuza said that the next aspect to be evaluated was employment equity (EE). Companies were asked if they had put an EE plan together and if there were annual progress reports. Companies had to establish a plan to achieve a target of 40% HDSA in management positions within five years, and to implement such plans. Companies were expected to implement a talent pool. Employment of women should be at least 10%. The results were disappointing. Only 26% of companies had reached the 40% threshold of HDSA participation, and the levels of management at which such people were employed were not specified. The Constitution regarded white women as HDSA and so they were employed as part of the 40%. This did not address the issue of diversification. Since the Mining Charter had been introduced, positions had been created for HDSA. However, one hardly found any blacks of either gender in technical positions. Only 17% of companies had identified a talent pool.

 Mr Mabuza addressed the next element which was mining communities and rural development. The questions asked were whether companies had co-operated in the formation of the integrated development plan (IDP) for the region in which they operated, and if the company had been involved in the implementation of IDPs both in their area of operations and in the areas from which their labour force was sourced. Companies were asked if they had made an effort to engage with the communities. The responses showed that 63% of companies had consulted with the communities but there were tensions. The DMR was unsure of the quality of consultation. The indications were that 49% of companies had been involved with the IDPs in their area of operations but only 14% with the IDPs for the labour sending areas. Mining companies had to acknowledge that the industry was built on the blood and sweat of men who came from such areas.

Mr Mabuza said the next element was housing and living conditions. Companies were charged with improving the upgrading of housing and converting hostels into family units. Home ownership was to be promoted. The nutrition of mine employees was to be considered. There were a broad spread of findings. Different measures had to be used as the elements regarding hostels were irrelevant to those companies that did not provide such institutions for their workers. Seventeen years into democracy there were pockets of excellence. The results showed that 26% of companies had provided housing. In 29% of companies they had improved the existing housing infrastructure. Home ownership plans were instituted in 34%. Nutritional plans had been implemented by 29%. The figures for hostels were low, with just 9% having upgraded their hostels and 6% converting hostels to family units. The latter figures were deceptive as the assumption that all mining companies made use of hostel accommodation was not correct.

Mr Mabuza continued that the next element of evaluation was procurement. It was found that 11% of companies used HDSA as preferential suppliers. The commitment set by the Mining Charter for procurement by HDSA companies over a five year period was 20%. Other results were that 37% had HDSA partnerships. The value of expenditure with HDSA partners was only 3%. This was disturbing. Closer analysis showed that 80% of this 3% was spent on services such as security, cleaning and gardening.

Mr Mabuza said that the next element was beneficiation. Current levels had to be identified. A baseline was established and the question was the extent to which the level of beneficiation had grown. The DMR had not evaluated this aspect as it was still developing a strategy. This process had taken longer than expected. It was a difficult area to measure.

Mr Mabuza said that the final element of the old Mining Charter was reporting. There should be annual reports on progress. Only 37% of the companies could produce audited reports. This made it hard for DMR to track progress. The Department had not anticipated the mineral rush, and the bulk of its resources had to be committed to handling all the new rights applications. The DMR was working hard on this. The scorecard to measure compliance with the Mining Charter needed to be revisited. The way it was laid out did not allow for partial compliance to any one aspect.

Mr Mabuza presented amendments to the Mining Charter. The amendments would make the Mining Charter more effective. The construct of the language used had been improved. The scorecard had been developed and ambiguities had been removed. All of the elements of the original Mining Charter would remain. A new element would assess sustainable development. The pace of transformation in the industry could not be allowed to decline.

Mr Mabuza said that the Mining Growth and Development Task Team (MIDGETT) had been established in December 2008. Participants included the DMR, National Treasury (NT), the Presidency, Department of Public Enterprises (DPE), Economic Development Department, Department of Labour and business, represented by the Chamber of Mines and SAMDA. The unions were represented by NUM, Solaradariteit and the United Association of South Africa (UASA) trade union. A stakeholders' declaration mirrored many elements from the different groups.

Mr Mabuza noted that the ownership element had been retained. The DMR would not move the goalposts. It wanted to see 26% effective HDSA ownership by 2014. It was meaningless if HDSA ownership had only limited benefits for the majority of South Africans. All BEE companies must be entrepreneurs and represent the workers and community. There needed to be a broader scope of benefits. The amendments proposed that there be a re-evaluation of financial structures. There must be a constant cash flow. One BEE company had reported that it had paid off 54% of its debts but could still not make use of its assets. Only beneficiation could offset against ownership to a maximum of 11%. Beneficiation should result in new economic activity, development and job creation.

Mr Mabuza said that the procurement and enterprise development element of the Mining Charter would be upgraded. The original charter had targeted 40% on capital goods by 2014. There would be a separate target of 70% in services spending and 50% on consumer goods by 2014. Where capital goods were acquired from multinational companies there would be a requirement that 0.5% of the value of the transaction should be paid into a social fund for the benefit of the community.

Mr Mabuza added that in terms of EE, companies would be required to have 40% demographic representativity by 2014. This would be expected at all levels of management from the Board to the most junior level. The demographic targets were 85.5% African, 12% white, 2.1% coloured and 0.4% Asian.

Mr Mabuza described the required HR development. Companies should move towards a knowledge basis. A certain amount of the annual payroll should be invested in skills development. The programme should reflect demographics. The amount suggested was 3% in 2010 rising steadily to 5% by 2014. He presented figures on the status of engineers at various levels. The figures for 1998 were that there were 166 black students studying at Bachelordegree level, 683 white, 8 coloured and 27 Asian. At Honours level the numbers were 176 black, 334 white, 15 coloured and 29 Asian. At Masters level there were 75 black students, 144 white, 1 coloured and 17 Asian. At doctorate level there were 7 blacks students, 17 white, 1 coloured and 3 Asian.

Mr Mabuza said that foreign companies were making minimal investments in mining community development whereas they were investing huge amounts elsewhere. Consultation was needed to determine the development needs of the communities. Projects were to be identified. He pointed out the imbalance of investing up to R5 billion in a mining project and then treating the community to ten soccer balls.

The Acting DDG said that companies would need to keep improving the standard of housing and living conditions. Hostels should be upgraded or converted to family units by 2014. Where hostels were still needed, all rooms should have single occupants by 2014.

Mr Mabuza said that the new element was sustainable development and growth. The biggest threat was the green revolution paradigm. Mining operations must fit into the environment. Companies had to implement sustainable development plans. Environmental management must be improved. It was no longer acceptable for gaping holes to be left once mines had been worked out. Health and safety considerations had to be respected. South African facilities should be used for environmental analysis.

Mr Mabuza added that local beneficiation should be in line with Section 26 of the MPRDA. The beneficiation strategy was almost complete. The offset against HDSA ownership would be a maximum of eleven. Weaknesses in the reporting system had been sorted out. A weighted, detailed scorecard had been developed. An example had been published in the Government Gazette. In some areas a pass mark could be set, while in others absolute compliance was non-negotiable. All aspects of the Mining Charter would be evaluated by the scorecard, especially reporting, ownership, housing and living conditions. A mark of between 75 to 100% would be seen as excellent performance, 50 – 75% as acceptable performance, 25-50% as non-compliance and 0 – 25% as gross non-compliance.

Mr Mabuza said that the DMR was venturing into uncharted territory. The upgraded Mining Charter would form a solid basis.

In conclusion, Mr Mabuza said that the Mining Charter was the precursor to all sector charters. The extent of transformation was grossly inadequate. There had been grey areas in the Charter as it stood in 2002. The lack of DMR capacity had led to irregularities. The Mining Charter focused on transformation in the mining sector. The indications were that companies were not treating the provisions of the Mining Charter as being important to their business. The presumption was that all were committed to transformation. The amendments to the Mining Charter would strengthen the document's language and prevent multiple interpretations. Sustainable development would be a key focus area. Clear targets would be set. The reporting system would be strengthened. Finally, the MPRDA would be reviewed to beef up penalties.

Discussion
The Chairperson said that mining was a serious catalyst for development. The Acting DDG had painted a gloomy picture. He asked how far the DMR had gone to remedy the situation. There were certain specific recommendations. A brief look through the presentation suggested that the DMR was trying to shy away from certain issues. He appreciated that Mr Mabuza had not been trying to sweep issues under the carpet. The country's mineral wealth was a heritage for all citizens and all needed to share in the benefits. He referred to the Gini co-efficient that indicated that South Africa was the country in the world with the greatest disparity between rich and poor. At the same time, the CitiGroup had determined that the country had the richest mineral wealth in the world.

Mr Mabuza said that the CitiGroup findings were already known. People would only believe these reports when someone outside the country said so. The report was a conservative estimate. South Africa was the wealthiest mining jurisdiction. The estimated value was $2.5 trillion. This was only in terms of economically exploitable reserves and did not include new exploration. It also excluded the export of energy generation materials such as coal and uranium. It was complicated to determine the depletion rate of the mineral reserves. He knew that the reserves would be mined for a hundred years. It was a sunrise industry and not a dying one.

Mr H Schmidt (DA) said that it went without saying that transformation was a key issue. He was aware of a good consultation process but perhaps this was not what everyone wanted. The review process had been a multi-party effort and he would have expected those parties to have been represented when the results were evaluated. Reports could not be seen in a vacuum. There was the issue of the conversion from old order to new order rights. The deadline had been in 2009. It was difficult to ask a company to apply for rights and at the same time to spell out their plans in detail. Social and Labour Plans (SLPs) had to be provided but the companies were not mining yet. He noted the four categories expressed in the legend. He asked what would happen if a company was found to have a score of between 0 and 25% and was thus considered to be grossly non-compliant. He asked if a compliance order would be issued.

Mr Mabuza said that care must be taken to manage the growth of the industry in order to reap the maximum benefits. The stakeholder agreement was not just focussed on transformation and growth. There were many other challenges. Compliance was an enabler for competition. The DMR was developing explanatory notes for the scorecard. It was important to engage with other stakeholders. The DMR was in the process of meeting the various companies. The significance of a 0 – 25% rating would be explained. A learner did not negotiate with the teacher on the pass rate.

Deputy Minister Oliphant did not have information at hand on the extent to which mining rights could be cancelled. This could happen in the case of non-compliance. The DMR would revert to the Committee on this question.

Mr M Sonto (ANC) asked what the legal status of the document was. This would determine the applicability, compliance and especially the power of enforcement of the Mining Charter. He asked if the amended charter was the product of common purpose and had the ambiguities been removed? He asked if the stakeholders' declaration was binding or just a gentlemen's agreement.

Mr Mabuza replied that the document was legal. It was embedded in Section 100 of the MPRDA. The application process imbued elements of the Mining Charter. In the entire process the Mining Charter was a requirement. It was part of the MPRDA. He did not believe that any process could be perfect. The ambiguities had been removed but there might still be some left over. There must be a continual process of improvement.

Mr C Gololo (ANC) said that there was 26% compliance in terms of EE. He asked what was happening in the 74% of the industry that was non-compliant. He asked if there were any punitive measures in place. There was a difference between fronting and partnerships. Some companies had gone after the global economic meltdown. He felt that between 2 and 3% of revenue should be invested in the community as people were struggling.

Mr Mabuza said that the interpretation of the findings was complicated. The figures were deceptive. There was no company that stood at 0% compliance, but all might have missed the target to some extent. The next report would provide a more detailed analysis. He agreed that fronting was a problem. It might even be a criminal act. It was a big challenge. There should be benefits for the communities hosting mines. Every BEE transaction must have a community element. Cash flow was needed. SLPs should have community development as part of the mining rights agreement. All had to benefit. He wanted to see a proportion of revenue being spent on community development. The figure was still to be determined.

Mr E Mtshale (ANC) asked what benefit the workers got from the mineral rush or if the only ones to benefit were the “big money bags”. He asked what was meant by transformation. Colleagues saw malpractices in place but were afraid to speak out as they might lose their jobs. Transformation should be about changing the jockey rather than the horse. He asked how the inequalities in society could be explained. He told the story of a friend who had invested R20 000 in Asonke – ARM shares but the dividend three years later was merely R400. He said that this was still part of transformation. He asked for more information on beneficiation.

Mr Mabuza said that what was bad for transformation was also bad for the company. BEE did not answer all the questions. What was really needed was value-added transformation. Transformation went beyond ownership and therefore all the elements had to be addressed. In the past the focus had been on ownership. This had led to a lack of skills development and community upliftment. A battery of interventions was now on the cards.

Deputy Minister Oliphant could not answer on the Asonke shares. Investments would not always lead to vast returns. Reports were submitted to the DMR. There was a need to build capacity.

Mr Mtshale said that the growth and development of interest were not reflected in the presentation.

Ms J Ngele (ANC) said that the presentation was too good to be true. On the conversion and upgrading of housing, she noted the date of 2014. She asked if this was the target to start or to complete the project. She asked which mines had made progress in this regard. She noted that 37% had audited reports but only 11% had submitted reports. This was a big gap. In terms of BEE ownership, she asked who monitored contributions to social funds. She asked if the benefits were reaching the community. Most communities did not even know about the contributions that should be made to them.

Deputy Minister Oliphant said that the Mining Charter was meant to implement what was already in the law. The owners should benefit. He did not know who had been threatened. The DMR had nothing to hide. There had been capacity problems. It was not an easy industry. It is clear what the government planned to achieve by law. There had been minimal transformation in a hundred years. Progress was not according to expectations. South Africa was the first to chart the way forward in this manner. Minerals were a wasting asset but this did not mean that mining was a dying industry. Benefits should accrue to the people as a whole. There were inequalities caused by poverty and unemployment. All sectors had to address these issues. The question was whether mineral wealth was being translated into poverty relief. A lot of work had been done. The raw data had been analysed in the evaluation process. Once the data had been gathered there was no need to negotiate further. It was true that there were still inequalities.

The Chairperson said that there were two sets of documents. The Mining Charter should be amended if it was too abbreviated and contained ambiguities. The assessment spoke of a negative net value of BEE investment. The new version of the Mining Charter was silent on the seed capacity of R100 billion. Persons were given opportunities but found themselves tied to loan agreements. There was some retrogression. It was only the financial houses that were benefiting. The element of HR development only addressed financial contributions and not literacy levels. It was not indicated if the contributions would to be handled by the donating companies of if some fund would be established to control the benefits. More detail was needed. There was a question over what such funds would do, how they could be measured and who would administer the funds.

The Chairperson said that the EE plan was a bold statement. It backed the commitment to transformation. There were questions over how the problems in transformation could be remedied. He asked how the DMR had arrived at a figure of 40%. White women were defined as HDSA in the Constitution. The Constitution also acknowledged the need to discriminate in order to redress imbalances. The problem was that white women had been given the chance to own companies or work in the past. Some were owners of mining companies. Black women, and indeed men as well, had been prohibited from ownership in the past. The DMR did not need to be diplomatic on the necessary measures.

Mr Mabuza replied that the percentage was based on the proportion of population groups.

The Chairperson said that the recommendations of 2009 had been considered. He asked if the new Mining Charter was aligned to the MPRDA, other codes and resolutions of the ANC. Broad-based BEE was a central issue. Further agreement was needed on the definition of HDSA, particularly white women. Ownership had to involve meaningful participation. Access had to be created for HDSA but some limitations had to be imposed. Members had only received the documents that day and had not had time to prepare themselves fully. He asked when the Mining Charter would be incorporated into the MPRDA.

Mr Sonto asked how serious the document was being taken. Steps needed to be taken to implement transformation. Some stakeholders were deliberately frustrating the process. Mechanisms needed to be put in place as a deterrent. Members had heard of the lack of commitment from the mining companies and wondered how many more times they would hear the same story. Living out allowances were being paid. A probe was needed into informal settlements as many recipients of this allowance found themselves there. One stakeholder created a problem for another in this way. He asked what deterrents were in place. If the Mining Charter had no teeth then all the talk about transformation was hollow.

Mr Schmidt said that it was good to make inward comparisons, but the country would only know if it was doing any good if it compared itself to other countries. The DMR should be measuring South Africa against countries like Canada and Russia. A holistic view was needed. The impact and importance of mining must be realised. The industry contributed 10% of the gross domestic product (GDP) but was expected to fix all the ills of the country. He asked what other industries should be doing. He asked if government was doing what it should as it derived income from the mining industry through taxes and royalties. He asked what benefit the government was passing on from these earnings.

The Chairperson asked how many single-sex hostels were still in place. The mining industry faced many ills of its own making, of which hostels were but one example.

Deputy Minister Oliphant said that three major issues had been made. The first was the issue of preference to white women. It was the job of the DMR to implement the laws of the country. The Department was at pains to provide legislation to enforce EE. There were designated persons defined such as blacks, women and the disabled. Women were regarded as HDSA irrespective of their race. The mining industry had taken advantage of this situation. This was an anomaly. Government could not work in silos. Some jurisdiction such as EE reports were the business of the Department of Labour. He was excited by the amendments to the Skills Development legislation. Some progress was needed but they were still short of the targets. The Department of Education was leading the process. In terms of net value, agreements were needed between private companies and their partners. These would be registered in the Companies Act. This process was administered by the Department of Trade and Industry.

The Deputy Minister said that the laws needed to be reviewed from time to time. Government took the issue seriously. There was an impact on how laws were crafted. The Mining Charter emanated from the MPRDA so it was a legal document. The plan was to make legislation as simple and understandable as possible.

Deputy Minister Oliphant said that companies were not boosting transformation. Some of them had to be dragged kicking and screaming. He was encouraged by the progress to date. He did not have statistics on the hostels. There was still a need to recognise the contributions of mineworkers to the country. The living and working conditions of mineworkers had to be improved. The DMR was working with NUM towards building a museum.

The Deputy Minister said that it would be difficult to compare the situation in South Africa to that in other countries due to the disparity in GDP. One could still take a holistic view by focussing on the mining sector. Other sectors had now followed the lead taken by the mining sector.

Mr P Dexter (COPE) supported the implementation of a parliamentary resolution. One of the weaknesses was the need for recognition of the contribution of women in the rural areas. It was in these areas that mine workers were reproduced. Women created the conditions that enabled the men to go work.

Mr Mabuza apologised for the late delivery of the documents. One of the amendments to the Mining Charter was the definition of meaningful economic participation. It would provide the mechanism for BEE and would protect stakeholders' rights. HR development was in addition to the skills development levy. A company would invest in skills, but the responsibility lay with that company to prove what it was doing to the regulator. The creation of funds was the source of problems.

The Chairperson said that one of the results of oversight visits was that Members had observed a shocking state of affairs. Mines were surrounded by poverty. Companies had to determine the development needs of the community. The cost of development projects should be proportional to the size of the investment.

Mr Mabuza replied that 5% of revenue should be invested in community projects. In some cases these community projects were no more then R200 to paint a school. It was difficult to determine the level of participation. Every area was different. The company should be allowed to determine the needs of the community and the DMR would evaluate the situation on a case-by-case basis.

The Chairperson said that public hearings would be scheduled. Requests were still coming in. An independent company had indicated that it did not want to be painted with the same brush as some other companies. The Chamber of Mines had failed but some companies had exceeded expectations.

Mr Mtshale said that some of his questions had not been answered. These answers were needed before the public hearings.

The Chairperson said that some time would be set aside on the day of the public hearings for a further briefing by the DMR.

The meeting was adjourned.