Hello free carry? Goodbye mining projects, warns top South African mining boss

PUBLISHED: Thu, 12 Jul 2018 18:27:13 GMT


Mining projects bearing jobs and investment could be lost across South Africa through one of the well-meaning clauses in the proposed amendments to the country’s Mining Charter, warns the head of one of Africa’s biggest precious metals producers. The legislators may live to regret the idea of “free carry,” in the ownership of mining projects.

The Mining Charter – the voluntary document governing black participation in South Africa’s shrinking, yet lucrative, mining industry – is open for public comment until the end of August and should come into force by the end of October. The amended document calls for 30% black ownership, up from 26% laid down in the original document in 2004, to be achieved within five years.

The well-meaning clause to give part ownership of projects to mine employees and the communities who live with the dirt and dust of mining – so called “free carry” – has caused controversy. It says that 10% of the 30% black ownership of new mining rights be handed free to employees and communities by the mining companies.

“Free carry will cause a lot of mining investors to look elsewhere and that is sad,” says Neal Froneman, the CEO of Sibanye-Stillwater the world’s second largest platinum producer.

“A few good projects will get through but most projects won’t be able to carry the costs in an industry where capital costs are already high.”

Soria Hay, BEE expert and Head of Corporate Finance at Bravura, an independent investment banking firm specialising in corporate finance and structured solutions, warned that mining was already in retreat. She says the industry contributed 14% to GDP in 1994 and now contributes a mere 7% and “free carry” could make it worse.

“The free carry requirement that 10% of the 30% black ownership target for new mining right applicants be granted free to communities and qualifying employees, as well as the required contribution of 5% from payroll will have a major impact on the profitability and cash flow of mining entities. From an investor’s perspective, this translates into big costs, before you even reach positive cash flows in a mine,” says Hay.

“A one-month extension for token consultation is not going to help. Going back to the drawing board and starting afresh on the problematic issues may take longer, but a bad outcome is worse than a longer waiting period. We are in a booming commodity cycle globally, but South Africa is missing out because we don’t get our ducks in a row.”

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