South Africa Pushes for Black Ownership of Mining Operations

By Michael Montgomery—Exclusive to Manganese Investing News

South Africa, home to some of the world’s largest reserves of manganese, gold, iron, copper, and diamonds is becoming more vocal about a 2004 mining charter that requires black ownership of natural resource companies. The mining charter states that mine operator’s must sell 26 percent of their assets to black South African citizens by 2014, in an effort to right some of the economic hardships suffered during apartheid. The law has been criticized by labor unions and business interests alike, for being draconian in nature as well as creating a small group of wealthy black elite by not spreading the wealth among the black community as a whole.

Change has been slow, if not non-existent. Most all of the mining companies in the country are still controlled by white business people, many of whom earn more than their black counterparts. The charter also states that companies must fill 40 percent of managerial positions with black South Africans, as well as buy 40 percent of capital goods and 70 percent of services from black-owned businesses.

“South Africa will revoke the mining licenses of companies that fail to increase control by black people in line with local regulations,” said Sandile Nogxina, director general of the Department of Mineral Resources.

The National Union of Mineworkers, South Africa’s largest labor union has stated that is opposes a ‘blanket’ takeover of mining interests, but offers some proposals to counter the nationalization of mining interests.

“The nation should create a state mining company to invest in strategic minerals such as platinum, coal, uranium, iron ore and manganese… [The Union] prefers a model based on strategic fund/strategic equity… The country could also nationalize iron ore mines and ArcelorMittal to mitigate and cushion steel prices,” reported Antony Squazzin, for Bloomberg.

The union also proposed the government should take a 50 percent plus one share of some mining companies, and a 25 percent plus one share for others, depending on profitability; the revenues earned would then be spent on education, health care, and other social services.

South Africa is not the only nation to be struggling with indigenous and race issues in regards to mining operations. India, which has seen a long, at some times violent, struggle with indigenous tribal entities in the Madhya Pradesh province. The Indian Government announced changes to mining policy as well as royalties and profit sharing with regards to this province. The government stated that it is discouraging mining in tribal and forest areas, and is increasing the royalties on mining operations.

“It has decided to discourage surface mining reconnaissance permits. It would also encourage mining of limestone, manganese, and bauxite and value addition through modern industries. Even transportation of mineral to processing plants would be encouraged through conveyor belts and ropeways, Only those mining industries will be encouraged and will be granted licenses that will offer 50 percent jobs to locals,” said a government spokesman.

Mining interests in the region have been vocal in their opposition to the 26 percent profit sharing model proposed by the government, and have even threatened to refuse to make the payments.

“Apex miners’ body FIMI today said it is opposed to the new mining bill, which seeks that miners share 26 per cent profit with the people affected by the projects, and cautioned that if enacted it would choke investments and doom the industry,” stated a report from The Financial Express.

The mining companies seek rather a royalty based system, claiming that if the government or the people want to share the profits they should ‘invest in shares of the company.’

As v nations struggling with unemployment and poverty look to their vast mineral wealth, laws seeking profit sharing, royalty schemes, and indigenous ownership will become more common. Many governments may be afraid to enact blanket nationalization of natural resource companies as has been seen in many Latin American countries. The fear is to be ostracized by the international community as leftist, and hostile to western business as with Venezuela, and as is the case with rebel groups in India labeled as Maoists. The search for natural resources is pushing mining companies further into un-chartered territory and these realities will undoubtedly become more common, a risk that will continue to give leery investors cause for concern.