Black power shakes up South Africa

Black power shakes up South Africa

by Toronto Globe and Mail

8th March 2006

New mandate having an impact on how companies operate there

TORONTO -- Mlibo Mgudlwa had never heard of Michael Jones until mid-2003.

That's when Mr. Jones, chief executive officer of Vancouver-based Platinum Group Metals Ltd., approached Mr. Mgudlwa about doing business together. Mr. Mgudlwa, a Johannesburg-based lawyer who a year earlier had launched a company to take advantage of business opportunities created by black empowerment initiatives in South Africa, liked Mr. Jones's approach.

"They kind of embraced what was coming and we were able to work together," Mr. Mgudlwa said.

What is coming is a wholesale shift in the way mining is conducted in South Africa. And Mr. Mgudlwa, chief executive officer of Africa Wide Investment Holdings (Pty.) Ltd., is part of it. His company, along with dozens of others, is a black empowerment vehicle that can allow companies to conform with new rules that mandate black ownership of businesses.

South Africa has launched sweeping reforms aimed at putting more economic control and benefits in the hands of the country's black population. It is perhaps the most extreme example of the ways that the traditional mining model is being re-examined and overhauled around the world. The country's experiment is being closely watched by other African countries vying to attract foreign investment during the current metals boom.

Copper-rich Zambia is reportedly looking at adopting some aspects of South Africa's mining charter, which calls for 15-per-cent ownership in mining ventures by "historically disadvantaged South Africans" by 2009 and 26-per-cent ownership by 2014 -- 20 years after the end of apartheid.

Zimbabwe, meanwhile, rattled investors this week with news that it plans to take a 51-per-cent controlling interest in the country's mining operations. Critics charged that such a move could scare foreign investors from the troubled country.

Nigeria, eager to diversify its economy and kick-start its languishing mining sector, doesn't plan to seek state participation in mining projects, Mining Minister Oby Ezekwesili said this week at the Prospectors and Developers Association of Canada (PDAC) convention in Toronto.

Such a provision would open the door to corruption, already a huge problem in Nigeria, where billions of dollars in oil royalties have flowed into the country with little benefit to most of the population.

"We are haunted by what happened in the past," she said. "And we don't want to be reminded of any of those kinds of weaknesses that have promoted massive corruption. We are using a policy process to determine how to help jump-start our local advantages, without giving a chance to reward bad behaviour by some elite club."

Already there have been complaints that South Africa's well-intentioned black empowerment provisions have created a new black elite, in the form of a small group of well-connected tycoons that run black empowerment companies.

It's true some players have become rich through black empowerment companies, Mr. Mgudlwa said. But that's no reason to conclude the reforms aren't working.

"It will take time, but we have only just started this process," he said at the PDAC convention.

Mr. Mgudlwa's Africa Wide has a 26-per-cent stake in the Western Bushveld Joint Venture. Vancouver's Platinum Group and major producer Anglo Platinum are the other partners in the joint venture, which is working on a platinum exploration project in South Africa.

Equity provisions are only one aspect of the charter, added Mr. Jones. He worked on the Diavik diamond project in the Northwest Territories where local benefits and impacts were key to negotiations that led to the mine's building.

South Africa's mining charter also provides for local hiring, ownership and joint ventures and community development initiatives in health, housing and education.

Black ownership provisions are about to become an issue for Barrick Gold Corp., which recently swallowed Vancouver-based Placer Dome Inc. Placer owns 50 per cent of South Deep, a South African gold mine, and had not yet struck a deal with a black empowerment partner before being acquired by Barrick.

A Barrick spokesman said the company supports South Africa's objectives but that it was too early to say what steps Barrick might take to comply with the charter.