South Africa Eases Free-Carry Rules in Final Mining Charter

(Bloomberg) -- South Africa eased some of the more controversial provisions in a final version of its Mining Charter approved by the cabinet this week as the government seeks to provide policy certainty and ease investor concerns.

While holders of new mining rights must still give employees a 5 percent stake in the assets, they can choose to offset another 5 percent for nearby communities by investing in community development instead, Mineral Resources Minister Gwede Mantashe said Thursday. Separately, the cabinet also approved a plan to withdraw the long-delayed Mineral and Petroleum Resources Development Amendment Bill, he said.

The Mining Charter is a set of rules aimed at distributing the industry’s wealth more widely among South Africans to make up for racial discrimination during apartheid. The free carry -- which was included in a June draft and means the respective groups don’t have to buy their shares or pay their way -- was heavily criticized by the industry as likely to make new projects much tougher to finance.

Another difference from the previous draft is that holders of new mining rights will no longer be required to pay workers and communities 1 percent of core earnings in years when they don’t declare a regular dividend, the minister said.

Mantashe, who was appointed in February by President Cyril Ramaphosa, has spent most of this year in talks with companies, unions and mining communities on an update to the charter after a version published last year by his predecessor drew strong opposition and legal challenges from producers.

Redress Inequalities

The Mining Charter, first introduced in 2004, laid out rules and targets for areas such as black ownership to help to redress economic inequalities stemming from white-minority rule under apartheid. The country has been mined commercially for more than a century and thousands of mostly black workers still labor in deep and dangerous operations.

“Communities are not going to wait for dividends, they want development in their communities,” Mantashe said. “In communities we have an option of recognizing benefit value. If an equivalent of 5 percent of the company is channeled towards the development of communities, that will be recognized.”

The Minerals Council South Africa, which represents most producers and has previously challenged the requirements for free-carried interests, said it couldn’t immediately comment.

While the new rules raise black ownership requirements to 30 percent, producers who secured mining licenses when the requirements were for 26 percent ownership won’t be forced to immediately comply with the new rules, Mantashe said. Pending applications for rights to mine would equally be given a transition period to comply with the new threshold, he added.

“Those who got their licenses when 26 percent was the requirement, we will not force them to top up until at the point of renewal of the right,” Mantashe said. “But at the point of the renewal of the right, we will force them to comply with the 30 percent.”

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