SOUTH AFRICA – As Anglo American scales back its operations in SA, the government is coaxing black investors to fill the void in mining left by a conglomerate that once dominated industries from coal mining to paper, banking to sugar.
Mineral Resources Minister Mosebenzi Zwane said Anglo American’s announcement on Tuesday that it may exit its 69.7% stake in Kumba Iron Ore could encourage the emergence of “new black economic empowerment champions.”
The minister and his predecessor, Ngoako Ramatlhodi, have both called for the creation of a leading black-owned mining company.
The push for black citizens to increase their ownership of the mining industry, which once formed the bedrock of the economy, comes as SA grapples with addressing racial disparities that have persisted since the end of white minority rule in 1994.
While the Chamber of Mines, an industry body, says black control in mining averaged 38% by the end of 2014, the government said just 20% of companies had complied with a requirement that they be 26% black-owned.
“There is a lot of emphasis on radical economic transformation and everyone is scrambling to find something to showcase,” Mzukisi Qobo, an associate professor at the University of Johannesburg, said on Wednesday.
“If it doesn’t do anything about it, it will be used by populists to show that the economy is still in white hands.”
Of the seven largest mining companies that trade on the Johannesburg Stock Exchange, only Exxaro Resources is controlled by black management.
The Economic Freedom Fighters has been pushing for the nationalisation of mines, an option the government has ruled out.
Formed in 1917 to exploit SA’s vast gold reserves, Anglo American branched out from mining to make investments in companies ranging from pulp and paper maker Mondi to sugar producer Tongaat Hulett.
Now it is selling coal and iron ore assets as it focuses on producing platinum, diamonds and copper.
It plans to shrink its South African asset base to the 77% stake it holds in Anglo American Platinum, some of diamond producer De Beers’s operations and the Vergelegen wine farm in the Western Cape.
Striking deals with black investors would make sound business sense for Anglo because it would help the company maintain cordial relations with the government and help retain itsmining licenses for its remaining operations, said Keith Levenstein, the CEO of EconoServe SA, which advises clients on black empowerment.
“There is still a huge amount of wealth in white hands and not so much in black hands,” he said.
“The government is saying to Anglo ‘if you want to sell your businesses, why not sell them to black investors?’”
Any deals would depend on black investors securing funding and the right price, according to Simon Venables,corporate finance leader at accounting firm PwC.
“If there was going to be localisation of some of these assets with state support, I guess now would be a good time as opposed to the top of the commodity cycle,” he said.
Peter Vundla, chairman of financial services group AMB Capital, doubts the operations being shed by Anglo will be a good deal for black investors.
“I don’t know if it’s a good idea to be buying distressed companies and handing them to black people,” he said. “The assets that Anglo is hanging on to are the ones that are viable and profitable. Shouldn’t blacks be buying those?”
Anglo’s attempts to foster black ownership in the industry went wrong before. In 1996, it sold control of gold miner JCI to black investors for $629m.
A year later the share price had more than halved as the gold price fell, its black chairman Mzi Khumalo resigned and its two biggest gold mines were sold back to Anglo.
The creation of a large black-owned mining company may not be realistic while commodity prices remain in a trough, according to the University of Johannesburg’s Prof Qobo.
“I don’t think there are players with deep pockets who will play a Santa Claus role when they know profits are in decline,” he said – Bloomberg