Mining is probably the only industry in the country in which there is a legislated black economic empowerment (BEE) policy that includes punitive measures for failure to address empowerment.
Though the mining charter introduced the balanced empowerment scorecard, ownership is a non-negotiable factor in complying with empowerment in the industry.
Empowerment group Kumba might be proud of being ranked first in the sector, but it is one of the few large empowerment companies that do not have an empowerment shareholder.
However, it is not for want of trying. Kumba has long indicated that it is looking for empowerment partners. In 2002 it tied up with empowerment consortium Kgalakgadi, led by Tiso Group, which acquired 5% of Kumba. The Tiso-Kgalakgadi consortium is a broad-based empowerment group representing various strategic empowerment interests in natural resources, women-led groupings and Northern Cape development initiatives.
As Kumba's long-term preferred empowerment partner, the idea was, and apparently still is, that the consortium would play an important role in the Sishen South iron-ore project, which will be developed into a mine with a capacity of 10 Mt/year, as well as in the development of other projects.
However, Tiso disinvested from the holding company and it seems unlikely the consortium will take up a stake at the holding level in the near future. Tiso is known to prefer asset-level deals that facilitate more optimal funding structures, including creating better access to cash flows for the empowerment partners.
It also means BEE firms can participate in new projects and build value.
New projects are more easily funded than equity transactions. There's little upside for BEE players in debt-funded stock purchases that rely on a rising stock price and strong dividend yields. Dividends can rarely hope to meet the cost of capital.
Kumba's empowerment plans were also affected by a protracted battle between the Industrial Development Corp (IDC) and Anglo American.
The IDC had plans of its own for an empowerment player in Kumba, while Anglo wanted to take a controlling interest in Kumba, which it eventually did.
Anglo ended up owning 66,6% of the base metals group after a huge take-up following an offer to minorities.
Kumba isn't letting that get it down. The group is set to proceed with the development of the R280m Inyanda Coal joint venture (formerly Kalbasfontein).
The project, a 50-50 joint venture with black-owned coal and energy company Eyesizwe Coal, is scheduled to coincide with the Phase V expansion of the Richards Bay Coal Terminal, which will make provision for additional export tonnage.
Kumba is also looking at a coal mining project in the Waterberg in Limpopo province. That could yield more opportunities for joint ventures with empowerment partners. Government and other private-sector players have been complaining about the lack of empowerment in the base metals sector.
A corporate finance specialist at a large bank says base metals, largely disregarded by empowerment groups, offer substantial upside for BEE.
Eyesizwe is one of the only empowerment players in base metals.
However, some of the big players such as Mvelaphanda are beginning to turn their attention to base metals.
Nevertheless, Kumba has made other impressive attempts at empowerment.
It spends 6,2% of its total salary bill on training. This is well above the industry investment of 3,8% of the average wage bill.
Most graduates-in-training and bursary holders in engineering and geology are from historically disadvantaged groups. Last year 70% of beneficiaries from the group's bursary scheme were black.
At present 27% of the company's board and 33% of general managers are historically disadvantaged South Africans.
Of the management categories defined in the empowerment charter, 20% are historically disadvantaged South Africans.
As part of its five-year equity plan, Kumba has set individual targets for each of the five years of the plan. This has proved successful, particularly in training, in which there are more equity candidates than required in the plan, and in the advancement of women, in which the company is already approaching the five-year stated target of 10% women in the workforce.
Still, the main challenge remains selling at least a portion of the holding level group to an empowerment player. Anglo will be a critical factor in that effort.
