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New mining rules in South Africa would require 30-per-cent black ownership

South African Minister of Mineral Resources Mosebenzi Zwane.

Mike Hutchings/REUTERS

South Africa has announced a "revolutionary" new mining code to force companies to give a 30-per-cent ownership stake to black partners, triggering a plunge in mining stocks and a swift threat of legal action by the industry.

Canadian companies such as Ivanhoe Mines Ltd., which is developing one of the world's biggest platinum mines in South Africa, would be among those potentially affected by the new ownership rules.

The new code would increase the minimum black ownership from 26 per cent to 30 per cent for mine owners, while also requiring companies to be majority black-owned if they want a prospecting licence.

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Mining companies would have to give 1 per cent of their annual revenue to their black shareholders before paying dividends to any other shareholders. The new code would take effect in 12 months.

South Africa's Mining Minister Mosebenzi Zwane called it a "revolutionary tool" and a "key instrument for radical change" to address inequalities in the mining sector and provide benefits for South Africa's people.

But the Chamber of Mines, the leading industry group, called the new rules "unworkable" and "destructive." It complained of being excluded from discussions with the government before the announcement, and it said it would launch a court challenge against the new code.

The stocks of several major mining companies fell sharply on the Johannesburg Stock Exchange after the announcement on Thursday, although some later recovered.

South Africa's economy has fallen into an official recession this year, and there are fears that the new mining code could further damage investment.

The mining code was announced at a time when South Africa's ruling party, the African National Congress, is struggling with corruption scandals and declining popularity.

It has responded with populist gestures and a campaign against "white monopoly capital."

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It argues that the economy has remained largely under the control of white-owned businesses, despite the end of apartheid in 1994.

Critics say the new rules are intended to distract South Africans from the corruption scandals, using the business sector as a scapegoat. "The ANC government's Mining Charter proposal wants to make cronies and insiders richer, as they open up new opportunities to get in on mining deals," said James Lorimer, mineral resources critic for the opposition Democratic Alliance.

He said the new rules would be "a disaster for the mining industry" and "a massive giveaway of mine value to the ANC's favoured groups." The new rules for prospecting licences "will mean the virtual death of prospecting," he said. "The amount of prospecting will plummet. Even if there are new finds, capital will be extremely difficult to raise."

Ivanhoe's new $1.6-billion platinum mine in South Africa is currently owned 64 per cent by Ivanhoe, 10 per cent by a Japanese consortium, and 26 per cent by a black-empowerment structure, including employees, local communities and local entrepreneurs.

Under the new rules, Ivanhoe would presumably be forced to restructure the ownership of its platinum mine, giving a greater share to the black partners. A spokesman for Ivanhoe said late on Thursday that the company did not have any comment on the new mining code.

The new mining code would also require that 50 per cent of board members and top managers must be black, including women in at least 25 per cent of these posts. In addition, 70 per cent of mining procurement and 80 per cent of mining services would have to be channelled to black-owned companies.

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"The need for more radical measures in order to meet the socio-economic needs of our people has never been greater than it is right now," said Mr. Zwane, the mining minister.

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About the Author
Africa Bureau Chief

Geoffrey York is The Globe and Mail's Africa correspondent.He has been a foreign correspondent for the newspaper since 1994, including seven years as the Moscow Bureau Chief and seven years as the Beijing Bureau Chief.He is a veteran war correspondent who has covered war zones since 1992 in places such as Somalia, Sudan, Chechnya, Iraq and Afghanistan. More


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