Black economic empowerment and changes in ownership and control in South Africa’s mining industry

Abstract

This study investigates how white and foreign-owned mining companies have complied with the Mining and Petroleum Resources Development Act (MPRDA) and Mining Charter, the core of the Broad- Based Black Economic Empowerment (B-BBEE) policy in South Africa‟s mining industry. The Mining Charter demands that white and foreign-owned companies transfer 15 per cent equity to blacks by 2009, increasing to 26 per cent by 2014. It also demands 40 per cent black control and management of mining companies regardless of the shareholding that blacks own. The study used a sample of 72 mining companies to explore broad aspects; these include changes in equity ownership (company shareholding and mining assets) and in particular mining deals concluded by white and foreign-owned companies with blacks between 1990 and 2012. It also explored black representation on the board and management of mining companies and conducted interviews with 35 executives from 27 mining companies. The study findings are that equity targets are low and reached only 7.4 per cent (R1.8trillion- £163billion) of the total market capitalisation of the Johannesburg Stock Exchange (JSE) as per 12 July 2011. However there is an emergence of large black owned-owned companies (those with 50 + 1 share) such as African Rainbow Nation, Exxaro, Shanduka Resources and Royal Bafokeng, empowered enterprises (25 +1 share) and a broad category of beneficiaries including consortiums, community shareholders and Employee Share Ownership groups which some hold small amount of shares (between 1-5 per cent). Most deals however were concluded by the Anglo American and BHP Billiton. Out of the 468 board members and 226 managers identified, black representation on the board and top management of white and foreign-owned companies was 25.9 and 18.5 respectively. In companies where blacks have majority shareholding board membership was 53.7 per cent and top management at 35.7per cent. The study has highlighted impediments faced by blacks in the mining industry. They lack capital, some are in debts and others liquidated, use poor technology and face difficulties in accessing land and export markets. The first main argument of the study is that the impediments and lack of government support limits their success and survival in the industry. The second is that ownership structure determines control in the mining industry. The reasons are historical, as the industry‟s corporate structure was and is still concentrated, has cross shareholding, significant control of assets by financial institutions and families and low voting shares are conditions are used in empowerment mining deals. This is challenging to the attainment of the 40 per cent target of control and management demanded by the Charter. The conclusion from this study is that the entire B-BBEE implementation process in the mining industry is controlled by the white and foreign-owned companies. They have a free hand in the choice of black-owned companies; which assets to have full ownership and which to offer shares or sell to blacks; the type of shares they offer; the conditions to attach to the transactions; and the manner that they deal with their community partners. This situation arose mainly because blacks lack their own funds and face a host of impediments. Unless the government establishes institutions to guide and monitor implementation of its B-BBEE policy and puts in place support mechanisms for black entrepreneurs, black equity ownership and attainment of management and control of mining assets will remain limited.