South African regulators unveiled a new mining charter to force companies to give more ownership to black shareholders, sparking a selloff across the industry.
Anglo American Plc and Sibanye Gold Ltd. shares tumbled after the Department of Mineral Resources introduced requirements that local companies must ensure 30 percent of their shareholders are black, up from a previous level of 26 percent. Several of South Africa’s biggest mining companies may have to sell new stakes, raising the risk of dilution for existing owners.
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.”
The mining industry has become a major target of reform in South Africa, where highly paid, mainly white male executives oversee hundreds of thousands of mostly black workers laboring in some of the world’s deepest and most dangerous operations. The government’s updated rules for so-called black economic empowerment seek to reverse the imbalances.
The Chamber of Mines, which represents mining companies in South Africa, will seek to stop the mining charter in court, which may delay the regulation. The group says the rules are unfair and will hurt investment.
Mining stocks pared losses later in the trading day as analysts speculated the charter faces a drawn out court battle. Sibanye closed down 3.5 percent and Anglo American declined 6 percent. The African National Congress’s economic transformation committee is planning to discuss the charter with Mines Minister Mosebenzi Zwane.
“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 party spokesman Zizi Kodwa said by phone.
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.
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.
“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.”