Mines, communities, and ownership

By | 2018-09-18T10:08:49+00:00 September 18th, 2018|Mining in Focus|

Ownership and transformation are hot topics in the mining industry at the moment, writes Dineo Phoshoko. 

Sibanye

If the Mining Charter is finalised, employees will be given 8% of the mining rights.
Image credit: Sibanye-Stillwater

Debates and discussions about mine companies and how they accommodate communities regarding ownership have always been around. In an article, Mining, land, and community in communal areas I — what could be achieved and why it is not, for the Helen Suzman Foundation, Tamara Jewett discussed the structure of mineral rights in South Africa — where private land owners were prevented from blocking mining development that could potentially be beneficial to the country as a whole. Jewett highlighted that a major disadvantage of the structure was that in practice, it produced negotiations that put rural black communities at a disadvantage.

“The days where one exploits a region for the benefit of investors halfway around the world without any gain to the local community is over. Not only is it over, it is wrong. If you take, you need to give back,” says SHiP CEO, Shirley Hayes.

According to the proposed Mining Charter III, mining companies are required to have 30% black ownership for mining rights. This includes economic interest and a corresponding percentage of voting right in a mine right or company. The 30% will be divided among employees of the mine (8%), the community (8%), and BEE entrepreneurs (14%).

“What worries me as a South African, is why are the majority of the people in the country turned into an economic minority by law if you say that the shareholding in the biggest industry in the country, which is mining, is limited to 30%,” comments David van Wyk, lead researcher at Bench Marks Foundation.

Charter challenges for the industry and communities

Van Wyk mentions that the organisation is engaging with the DMR about the Mining Charter. He highlights that the Mining Charter further states that the ownership percentage is required to gradually increase from 50% to 100% throughout a mine’s lifespan.

“We have a problem with that, because in the last quarter of the mine’s life, that is the most expensive quarter because that is when the mine has to be rehabilitated and shut. We already have 6 000 abandoned mines in South Africa, so we don’t quite understand why there should be a majority or complete black ownership in the last quarter, because you are just creating a huge liability for communities, workers, and black entrepreneurs in that last quarter.”

He expressed the Foundation’s delight at the proposal to pay communities 1% of total revenue; however, there are concerns about executing such payment. “We are worried about the lack of detail in the Mining Charter on how this is going to work,” Van Wyk adds.

The Mining Charter states that dividend payments to communities will only be paid out after seven years of a mine’s operation. In Van Wyk’s view, this would not work for communities, because some mining licenses had a lifespan shorter than seven years.

Policy uncertainty in South Africa is another major problem, especially for mines that are looking to include communities as owners. Van Wyk explains that mining companies do not care what the ownership percentage requirements are; however, policy uncertainty caused by a lack of consistency with the current policies in place, makes it difficult for all stakeholders to understand what is going on. As a result, huge uncertainty is created for communities, workers, and mining companies. “One hopes that the final draft of the Charter will be clear,” Van Wyk says.

Difficult but not impossible

There is no doubt that addressing issues around community ownership in the South African mining industry is difficult and complicated. However, as complex as it is, it can be done, and major miners have already provided ownership to communities in which they operate. Junior miners are also following suit.

South Africa-based prime anthracite producer Zululand Anthracite Colliery (ZAC) has entered into a partnership with the local community in Emakhalathini, KwaZulu-Natal, where the junior mining company operates.

The managing director of ZAC, Vuslat Bayoglu, explains that Maweni Mining Consortium holds 26% stake in ZAC. Maweni is a 50/50 joint venture between the community and employees in the area where the mine operates. “Menar bought 74% of ZAC in 2016 from Rio Tinto. ZAC’s previous owners went through the motions and had made a deal with Maweni before Menar became majority shareholder of ZAC,” explains Bayoglu.

Bayoglu adds the importance of communication between a mine and the community in which it operates for a successful and fruitful partnership, adding that the area where ZAC operates has strong traditional leadership. “We appreciate the value of strong traditional leadership when compared to operations where there is minimal traditional authority.”

SHiP is planning to go the 30% benchmark route outlined by the Mining Charter. During a presentation at the Junior Indaba 2018, Hayes explained that through a copper project in the Northern Cape, 70% of the mine will go to the community. “SHiP will create two community companies that will own 70% of two copper ore bodies, which will be capitalised by SHiP and taken to mine-ready stage,” explains Hayes.

Beading

Communities should invest in projects that will sustain community members at the end of a mine’s lifespan.
Image credit: Debswana

Defining the community

From a mining company point of view, Bayoglu stresses the importance of understanding who the community is. “Identifying the community is critical. This had been done after long consultations with people and the relevant traditional authorities,” Bayoglu explains.

According to Van Wyk, in previous drafts of the Mining Charter, the community was defined as “groups of people residing in areas under traditional authority”. Such a definition had various problems, the most obvious being the exclusion of mining communities in non-rural areas. “Traditional authorities have abused the relationship with mines in the past and used funds to enrich themselves rather than community development,” adds Van Wyk. The DMR has since changed the definition of communities to include urban communities and mine-impacted communities as well.

Alluding to Section 21 companies and trusts around mining, Van Wyk believes that they have not been effective because communities end up being a minority on the trust and are subsequently excluded when it comes to major decision-making processes.

Community sustainability after end of mining operations

A major consideration to take into account is what will remain of the community once a mine operation reaches the end of its lifespan. Van Wyk alluded to the problem where abandoned mines have not been properly rehabilitated and closed. This often has a direct impact on communities who are left to pick up the pieces.

“ZAC has 12 years life of mine left and we are drilling to extend the life,” says Bayoglu. He explains that ZAC is focusing on economic development projects to create opportunities that will employ people and continue to do so even long after the mine’s closure.

Hayes shares similar sentiments to Bayoglu, adding that by the time SHiP reaches the end of its lifespan, “the community company would have invested their capital wisely, created new project opportunities, and therefore created sustainable business growth that used the mine as a springboard for growth but ultimately not dependent on it when it closes.”

Way forward

Accommodating mine-affected communities is a complex process, not only for mine companies, but for communities and the industry as a whole. As such, making the process transparent and easy to understand will ease some of the pressure for the industry. According to Van Wyk, it is important to create viable institutions and to regulate them in a manner that is clearly understood by everyone. With reference to the proposed draft of the Mining Charter, he stresses that it should create some clarity on trusts and its structures.

Another suggestion from Van Wyk is that the Charter should consider and address the negative impacts that mining has on communities. Having communities represented on various committees on a mine, including health and safety, disaster management and environmental management, and mine closure committees, is one of the suggestions put forward by Van Wyk.

Equal distribution among the community members is also essential. With reference to the SHiP mining project, a community company will be established where the community will be shareholders and appoint management and a board to run their affairs. According to Van Wyk, avoiding corruption requires oversight from a national level on what communities will do once they are paid by mining companies. In addition, he suggests democratically and legally constituted audits of all community trusts.

“The biggest challenge is to manage expectations and ensure fair distribution,” Hayes says. To address this challenge, Bayoglu stresses the importance of “consulting with the community to explain the company’s expectations”. Equally, understanding the expectations of the community is essential.

Future for mining and the community

“There is enough wealth for all — and those of us fortunate enough to be able to have capital backers and the technical and commercial means to build and grow business, all need to ensure we act as catalysts or enablers to give those communities the same ability,” says Hayes.

Van Wyk believes that mining is changing dramatically in South Africa: “We are moving from large-scale industrial mining to medium, small and microscale mining.” He adds that mining must be re-engineered in such a way that it accommodates not only big mining companies, but also junior miners and small-scale miners in South Africa.