The Mining Charter was gazetted on 27 September 2018 by Mineral Resources Minister, Gwede Mantashe. We are hoping this brings a level of certainty to the mining industry, and that it places mines in a position to start investing. This should give a much-needed boost to the South African manufacturing industries that supply mines, which have been in recession.
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The Department of Mineral Resources (DMR) and mining industry are taking transformation and localisation in supply chains very seriously, and have set out how this is to be measured.
The salient differences to the draft Charter (in respect of mining suppliers), final procurement targets for mining right holders, and key ownership and local content takeaways are set out below.
Salient mining supplier-related differences to the June 2018 draft Charter:
- BEE compliant entities are still required to be level 4 in terms of the BEE Codes. But the ownership by Historically Disadvantaged Persons (HDP) is aligned to the existing Mining Charter, at 25% + 1 vote, rather than the last proposed 26%.
- 51% Black ownership of suppliers is no longer ownership by BEE entrepreneurs (now only applicable to mine ownership), but rather measured as ownership by newly defined “Historically Disadvantaged Persons Owned and Controlled Companies”. The key is that this is ownership that is 51% Black-owned using flow-through. Therefore, modified flow-through cannot be applied. It is interesting to note that the exclusion of mandated investments has been removed in the ownership definition. Does this mean that it can apply?
- The procurement of both mining goods and services have transitional arrangements.
- There are fairly minor changes in the targets for procurement of services – see below for more detail.
- The reference to “Foreign Suppliers” has been removed, meaning there is no special dispensation for them.
- Local content has now been defined as “the value-added during assembly or manufacturing of the mining good that is produced in South Africa”. The calculation of local content “excludes mark-up, and intangible value such as brand value and overheads”.
- Verification of local content appears to be on a goods line as opposed to company-wide.
Final procurement targets for mining right holders:
Mining goods (targets remained the same) – A minimum of 70% (1st year: 10%, 2nd year: 20%, 3rd year: 35%, 4th year: 50%, 5th year 70%) of total mining goods procurement spend must be on South African manufactured goods, which are defined as goods with at least 60% local content during assembly or manufacturing:
- 21% to be spent on South African manufactured goods produced by Historically Disadvantaged Persons Owned and Controlled Companies;
- 5% to be spent on South African manufactured goods produced by a woman or youth-owned and controlled company; and
- 44% to be spent on South African manufactured goods by BEE compliant companies.
Mining services (changed) – A minimum of 80% (1st year: 70%, 2nd year 80%) of the total spend on services (excluding non-discretionary expenditure) must be sourced from South African based companies:
- 50% must be spent on services supplied by Historically Disadvantaged Persons Owned and Controlled Companies;
- 15% must be spent on services supplied by women-owned and controlled companies;
- 5% must be spent on services supplied by youth; and
- 10% must be spent on services supplied by BEE compliant companies.
Key ownership takeaways for mining suppliers:
- A BEE compliant company is defined as having at least a level 4 status in terms of the dti’s BEE Codes of Good Practice, and at least 25% +1 vote ownership by HDPs.
- 51% black-owned suppliers will not qualify for recognition as “Historically Disadvantaged Persons Owned and Controlled Companies” if they make use of modified flow-through.
- Mining suppliers of services will be under extreme pressure to achieve 51% HDP ownership and control. The targets for the services procurement spend are high for the HDP-owned and controlled entities
- There are specific targets for procurement from women owned and controlled companies, and youth owned and controlled companies.
Key local content takeaways:
- A minimum of 70% of goods procurement must be on “South African manufactured goods”.
- A “South African manufactured good” requires at least 60% local content during assembly or manufacturing.
- A minimum of 80% of services must be procured from “South African Based Companies”.
- A “South African Based Company” is a company registered in South Africa and with operations in South Africa.
- Local content is on a product line vs company line.
- A mining right holder must procure goods and services in line with a standardised product identification coding system developed by the dti.
- Local content needs to be certified by SABS or a minister approved body.
- The calculation of local content includes manufacturing and assembly but excludes profit mark up, intangible value such as brand value, and overheads.
How Transcend can help mining suppliers:
- We can assist with an ownership solution and BEE transaction structuring to achieve the ownership requirements and compete as a mining supplier.
- We can help you build a comprehensive BEE strategy to achieve the level 4 requirement for recognition as a “BEE compliant company” as defined in the Charter.
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