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A new mining charter in South Africa is more onerous than expected and implies that companies could have a reduced share of profit and suffer higher costs.
Miners have 12 months to ensure a black economic empowerment (BEE) group owns at least 30% of their mining assets in South Africa, up from the previous 26% rule. Miners must also pay 1% of turnover from local assets to the BEE partner, as a way of putting money back into the community.
Anglo American (AAL) is most exposed of the large diversified miners, but investment bank UBS also flags South32 (S32) and Glencore (GLEN) as having projects where black ownership is well below the required level.
Miners must now procure 80% of services and 70% of goods, as a minimum, from black-owned local suppliers. That could push up costs compared to benefits of buying from more competitively-priced overseas operators.
New prospecting rights require 50% black ownership which could deter many companies from undertaking exploration in the country.
‘Apart from the new 1% royalty, the value destruction is hard to quantify and the uncertainty will persist,’ says Liberum analyst Ben Davis. ‘What is certain is that South Africa continues to be a terrible destination for mining investment.’
Other UK-quoted miners with assets in South Africa include Lonmin (LMI), Tharisa (THS), Petra Diamonds (PDL), Pan African Resources (PAF:AIM) and Ironveld (IRON:AIM). (DC)
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