Great Basin deal unearths legal grey zone over 'buying' empowerment credits
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A black economic-empowerment (BEE) deal in the gold sector, unveiled last week, has raised questions as to how far mining companies can push the line when it comes to 'buying' empowerment credits.
South Africa's Department of Minerals and Energy (DME) on Thursday said that firms could not “buy” empowerment credits, with reference to reports that gold major Gold Fields would “donate” R80-million to a black-owned miner, in exchange for empowerment credits.
Gold Fields said that it would give R80-million in cash to black-owned Tranter Gold, to facilitate the BEE company's purchase of shares in another gold-mining firm - Great Basin Gold - in the hope that the move would increase its empowerment credits.
“You cannot donate money to a BEE company and expect to get empowerment credits in return,” Chief Director of Mineral Regulation Futhi Zikalala told Mining Weekly Online in a telephone interview. “There is no legal framework covering such transactions.”
Last week, Canada-based gold exploration and development firm Great Basin Gold (GBG) unveiled a BEE plan, which involved the company extinguishing a net smelter royalty agreement that it would have to pay Gold Fields' subsidiary GFL, for R80-million.
Gold Fields would then give the cash to Tranter, to allow it to partly pay for the shares that it would acquire in GBG.
Gold Fields head of investor relations Nerina Bodasing told Mining Weekly Online in a telephone interview that the company would, however, get the cash back if it did not receive empowerment credits.
“The basic rationale for the deal was to get empowerment credits, and if we don't get the credits, we get the cash back,” she stated.
Zikalala stressed that there was a “big difference” between offering shares at a discount rate, and donating cash to get empowerment credits.
“There are also other elements to empowerment, including who participates in the transactions and who benefits, particularly historically disadvantaged South Africans,” she said.
Mining Weekly Online spoke to two experts on South African mining law, both of whom asked not to be named, and both agreed that this was a vague area.
“If Gold Fields is claiming credits strictly on the grounds that it is facilitating a BEE transaction, then it could claim, but it would be difficult,” the first expert said. “The legal test would be placing BEE-attributable units of production from the transaction.”
“A company can claim credits for the continuing effects of a BEE transaction,” stated the second lawyer.
“It's a difficult question, it's quite a vague area,” he added.
Gold Fields corporate finance senior manager Paul Harris agreed that it was a vague area.
“This is a test case,” he conceded in a telephone interview. “We will be spending a lot of time with the DME, Great Basin and Tranter Gold to see what empowerment credits we can get.”
He stressed that Gold Fields was “happy” to help facilitate the empowerment transaction, and he hoped that the DME would consider giving the firm empowerment credits for it.
Harris pointed out that the R80-million gift would result in production units attributable to a BEE company.
South Africa's new mining legislation, introduced in 2004, requires mining firms to sell a portion of their shares to black-empowered companies, encouraging the upliftment of black people, who were previously excluded from the economy, under the apartheid regime.
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