New mining regulation rattles South African mining sector

Companies including Anglo American Plc and Sibanye Gold Ltd. dropped after South Africa increased the minimum black ownership requirement for local mines and set a 12-month deadline for compliance with the new rules.

The Department of Mineral Resources will raise the requirement from the current 26 percent to ensure more proceeds from the country’s natural resources flow to the black majority, Mining Minister Mosebenzi Zwane said in Pretoria, the capital. The new minimum applies regardless of whether they have previously sold shares or assets to black investors that later divested.

Sibanye dropped 7.4 percent at 12:58 p.m. in Johannesburg, while Kumba was 6.2 percent lower. Anglo American declined 6 percent in London.

A holder who claims a historical transaction that achieved 26 percent prior to the new Mining Charter, which Zwane presented, “must top up to 30 percent,” regardless of whether the earlier black shareholders still hold their position.

Most mining companies reached the 26 percent level under previous versions of the charter but many of the black investors have since sold out. The Chamber of Mines, which represents mining companies, has said it’s willing to fight the government in court over the issue of getting credit from earlier deals, which it says would kill investment in the industry.

The new charter is significantly worse for the mining industry than the original draft,” Peter Leon, the Africa co-chair at Herbert Smith Freehills LLP, said. “It’s poorly considered and raises serious questions about the government’s commitment to the protection of property rights.”

Glencore Plc, Impala Platinum Holdings Ltd., South32 Ltd. and Kumba Iron Ore Ltd., which is majority owned by Anglo American, would need to sell the biggest stakes if the new charter fails to give credit for previous deals, Avior Capital Markets (Pty) Ltd. said June 1.  AngloGold Ashanti Ltd. and Sibanye, the country’s two biggest gold miners, may also be affected by the new rules.

The charter will require companies to pay 1 percent of annual revenue to communities and new prospecting rights will require black control, Zwane said.

Miners must also ensure that at least 80 percent of their total spending goes to South African companies, including a minimum of 65 percent of spending of services to black-owned companies, according to a copy of the charter handed to reporters.

At least 50 percent of the executive directors and 60 percent of senior management must be black, with black women making up half of each target.