S. Africa, Mines Fight Over Proposed Community Revenue Share

South Africa’s biggest mining companies are opposed to a government proposal that 1 percent of their annual revenue be spent on developing communities associated with their operations and have countered with suggestions that they instead pay out a share of profit.

The Chamber of Mines, which represents companies including Glencore Plc, Anglo American Plc and AngloGold Ashanti Ltd., is in discussions with the Department of Mineral Resources and labor unions over a review of the so-called mining charter, which mandates measures designed to boost black participation in the economy ranging from ownership of assets, management diversity and procurement procedures.

“This is a regressive imposition, particularly on marginal mines,” the chamber’s Chief Executive Officer Roger Baxter said by phone from Johannesburg last week. “Our preference is that the commitment should be as a percentage of net profit as it is based on the affordability of the companies.”

South Africa’s economy, the continent’s most industrialized, was built on mining companies, who for over a century, during whites-only rule, profited from cheap black labor and lax environmental laws that have today left communities contending with contaminated water and toxic mine dumps.

Profit Definition

Companies already pay royalties to government that differ by commodity. Gold producers pay about 3 percent of revenue. Sibanye Gold Ltd., which is the biggest producer of gold mined in the country, earned net income of $56.2 million in 2015 from revenue of $1.782 billion, it said in February.

Discussions around community development contributions have centered on the definition of profit, said Martin Madlala, a spokesman for the Department of Mineral Resources.

“We have had to engage with National Treasury,” he said “There may be tax implications."

The proposal, if enacted, would require that the money be spent on communities near the mines as well as those from where they draw their labor. While mining companies already have to submit social and labor plans, detailing their initiatives for community development, to keep their operating licenses legislation governing those is flawed and doesn’t make them accountable to the intended beneficiaries, the Johannesburg-based Centre for Applied Legal Studies said in draft report in February.

"If they miss this opportunity to start to be fair with communities, they’re going to face a revolt," John Capel, executive director of the Bench Marks Foundation, a corporate social responsibility monitoring organization, said. "I just see angry, angry, angry communities whether it’s across coal, platinum, diamonds iron ore, whatever."

South Africa is the world’s biggest source of platinum and manganese and Africa’s largest gold, chrome and coal producer. Mining accounts for about half of the country’s exports with members of the chamber, which represents about 90 percent of the country’s mineral production, contributing 11.3 billion rand in taxes a year, according to the organization.

Court Case

A draft of the document, published for comment April 15, includes other measures including requiring companies to ensure their assets are at least 26 percent black-owned even if the initial buyers sell their stake. That’s another point of contention with the chamber and the Department of Mineral Resources involved in High Court case, with the miners arguing that by selling an initial stake they have met the requirements to keep their operating licenses and the requirement cannot be applied retroactively.

“We understand that people are worried about it and they are trying to work out which way we are leaning,” Madlala said. “The decision has not been made yet.”