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Citi: South African Mining-Charter Changes Are 'Investment Negative'

Kitco News

(Kitco News) - Changes to South Africa’s charter for mining companies are “investment negative,” as social costs of mining in the country are likely to keep rising, said Citi analysts Thursday.

Shares of mining companies based in South Africa tumbled in wake of the news about the charter.

Reuters reported that South Africa upped the requirement for black ownership of mining companies to 30% from 26%. Companies were given a year to meet the new target. However, the news service quoted Mines Minister Mosebenzi Zwane as saying officials have not decided if firms must retain that structure permanently.

South Africa's Chamber of Mines said it will challenge the new mining charter in court, saying the industry was not adequately consulted and the new rules will hurt investment.

“The lack of meaningful engagement with the industry, and collective engagement with all stakeholders, has been most disappointing,” said Mxolisi Mgojo, Chamber of Mines president.

Citi listed a number of other changes, including a requirement that 1% of mining company annual turnover must go to communities and mines must be 8% owned by communities. Mining companies must pay 1% to the 30% black shareholding over and above any distribution to its shareholders.

The rules require 50% black representation at board level, of which 25% must be women, Citi said. They also require 60% black representation at the senior-management level, and 88% at the junior-management level.

“Importantly, the notion of once empowered always empowered seems to stand,” Citi said. “Despite this, we view the charter as investment negative, with some targets potentially unattainable.”

Bank analysts said they anticipate that social costs for the country’s mining industry will continue to increase over time.

“We do not believe that on average investors have fully appreciated this in the risk premiums applied to SA-based mining equities,” Citi added.

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