Banks Balk at Risk of Funding South Africa Mining Charter Deals – by Renee Bonorchis (Bloomberg News – June 26, 2017)

https://www.bloomberg.com/

South Africa’s plan to force mining companies to give the black majority a bigger stake in the nation’s mineral wealth faces a major obstacle: convincing banks to back billions of dollars of fresh deals in an industry in decline.

Mineral Resources Minister Mosebenzi Zwane said on June 15 that local mines should be at least 30 percent owned by black people, up from the previous requirement of 26 percent. The mining companies need banks to help fund transactions that transfer the stakes to black investors who often don’t have the capital to invest due to their marginalization during white rule.

Companies often use dividends or divert cash flows to pay off the debt on behalf on the black empowerment partners, which means full ownership only vests years later. “The charter will have an effect on our ability to finance the mining industry in South Africa,” said Ursula Nobrega, a spokeswoman for Investec Plc, one of South Africa’s five biggest banks. “We already exercise caution as to who and what projects we finance.”

South Africa is pushing to increase black ownership as it seeks to redress economic imbalances caused by apartheid. The introduction of the latest charter triggered a selloff in mining stocks and a drop in the rand amid concerns that the new rules will deter investment when the country is already in recession.

The sector, once the economy’s bedrock and the foundation on which Johannesburg was built, now accounts for only 7.3 percent of gross domestic product, while fixed-investment into the industry shrank, hitting a 10-year low last year, according to the Chamber of Mines, which represents the biggest producers.

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