If investors are angry with bankers for the mess they created, mining companies forced to do black economic empowerment (BEE) deals that are now under water must be livid with government.
A warning came from Chamber of Mines president Sipho Nkosi in November, when he said many empowerment deals in the sector were "under water" because of the sudden drop in metal prices. Many empowerment outfits borrowed cash to fund their stakes in mining firms, and had been servicing this debt through dividend payments.
But now, with sharply subsiding metal prices throttling profits, blue chip mining companies that have paid consistent dividends for years are having to think hard about the risks of doing so in the current economic climate. For 2009, conserving cash is king in mining.
And as the April 2009 deadline for converting old mining rights to the new regime draws nearer, companies that left their BEE deals to the last minute are in a fix. Now they have to secure funding from banks that just don't want to lend.
According to the charter, companies have to sell a 15% stake to black South Africans by this year, and a further 11% by 2014. The charter is linked to the Minerals & Petroleum Resources Development Act that was signed into law in 2004.
Many of the earlier deals have come in for criticism because they benefited a select few mining entrepreneurs. Since then, a trend has emerged where entire communities nearby mining operations become shareholders, as well as the employees of the mining firms. Nkosi asked at the chamber's AGM in November that government be flexible when looking at empowerment deals, given the current economic climate.
At the time, minerals & energy minister Buyelwa Sonjica said government would reflect on this. But given the state of the global mining sector, and the horrible year it is in for, government would do well to give mining companies and empowerment groups a bit of slack.
Government already made a change to mining legislation in April 2007, shifting the deadline for aggrieved mining companies to lodge claims against the state to April 30 2009.
The department of minerals & energy (DME) made the move in a bid to avoid potentially damaging lawsuits that might have arisen by the previous deadline of April 2008. DME spokesman Bheki Khumalo tells the FM there are some laggards that have still to complete their empowerment deals and apply for new order mining rights. He says the DME is sympathetic to the difficulties mining companies will have in concluding empowerment deals in this economic climate.
Firms that haven't ticked all the boxes to secure new order mining rights by the April deadline will not necessarily cede their old order ones. "They have to come to the department and have a discussion with us," says Khumalo. The DME will then assess each case on its own merit. Transformation, however, is ultimately a non-negotiable.
The mining charter is due for a midterm review this year. Important to the charter review will be a summit the DME will be holding early to look at transformation in the sector. At the time of writing, no firm dates had been set for the summit.
The review process might be distorted by the fact that only two of its original draughtsman are still in their positions. Business's Bobby Godsell, Rick Menell and Con Fauconnier, labour's Gwede Mantashe and government's Phumzile Mlambo-Ngcuka have all moved on. This leaves only DME director-general Sandile Nogxina and chamber of mines CE Zoli Diliza.
Further complicating the review process will be the new ANC leadership due to enter government after the elections. There have been conflicting signals from its leaders over what business should expect. On the one hand, the new leaders have a strong leaning to the Left, but they have also promised no major changes to legislation.
ANC secretary-general Mantashe (who was previously general secretary of the National Union of Mineworkers) hinted last year the new government will place more focus on developing areas where mining companies recruit from.
When engaging in the mining charter review process, government and industry will need to tread carefully. The memory of the leak of a draft copy of the mining charter in July 2002 is still fresh. Its proposals - which included majority black ownership of SA's mines - wiped out R52bn off the value of the JSE's mining shares in two days.
The resources companies snatching the top five spots in the 2009 Top Empowerment Companies (TEC) survey are ferrochrome producer Merafe Resources, paper and packaging company Mondi, diversified miner Exxaro Resources, anthracite producer Petmin and petroleum giant Sasol.
Merafe - with the Royal Bafokeng Nation being its biggest shareholder - has a partnership with Xstrata Alloys, which produces more ferrochrome (used to make stainless steel) than any other company. It commands a total BEE score of 71,7%.
Exxaro scored a total BEE score of 59,8%, pushing it up six places in the Top 10 list from last year. The company was formed out of the merger of Eyesizwe Coal and Kumba Resources non-iron ore assets. It is the biggest supplier of coal to Eskom.
Petmin comes in at number four. Its BEE shareholders include People's Organisation for Police & Prisons Civil Rights. Petmin's total BEE score is 52,9%, while BEE voting rights are 36% - the same as its black ownership. The company owns two anthracite mines and has an iron-ore joint venture project with Kermas.
Coal-to-liquids giant Sasol rates number five in the TEC resources sector with an overall score of 47,1%, followed by diamond miner Trans Hex. The latter has an empowerment partner in the form of Tokyo Sexwale's Mvelaphanda Resources, which owns just over a fifth of its issued shares, and Lazarus Zim is the chairman.
Kumba Iron Ore - Africa's biggest producer of the steel-making ingredient - ranks number eight in the TEC survey. The rest of the Top 10 includes AngloGold Ashanti and Harmony Gold. The York Timber Organisation and Patrice Motsepe's African Rainbow Minerals slipped out of the Top 10 this year.
