22 September 2010 | Nick Martindale
Buyers in South Africa’s mining sector will have to meet tough targets on sourcing from suppliers that meet the criteria for black economic empowerment (BEE) over the next four years.
Under the government’s new mining charter, companies must agree to purchase a minimum of 40 per cent of capital goods from organisations that meet BEE standards by 2014.
They must also ensure multinational suppliers of such products contribute a minimum of 0.5 per cent of the annual income they generate from mining towards the socio-economic development of local communities.
Mining firms must also commit to sourcing 70 per cent of services and 50 per cent of consumer good purchases from businesses that meet BEE requirements, which specify firms are at least 25 per cent black owned, with black shareholder voting rights.
Companies that fail to comply risk financial penalties and even losing their licence to trade.
Only non-discretionary spend required by law is excluded from the ambitious targets set by the government.
Launching the charter, mineral resources minister Susan Shabangu said: “The development of the country’s mineral complex presents opportunities to expand related industries that supply material and services for mining to be effective.
“To this extent, we have strengthened the notion of local content to support local industries, consistent with the government’s drive for local industrialisation, creation of decent jobs and poverty alleviation.”
The socio-economic transformation of the mining industry to date had been “disappointingly slow”, added Shabangu.
Julian Gwillim, a consultant to the steel manufacturer ArcelorMittal South Africa, which uses third parties to operate a number of mines in South Africa on its behalf, said: “The company subscribes to the spirit and intent of the new charter and recently announced a BEE transaction. We are currently working on our scorecard to ensure that we comply with the various sections.”
Rio Tinto said: “We are aware of the review. We are studying the documents and do not want to make any comments at this point.”
The mining charter also pledges to increase the percentage of black ownership of mining assets from 8.9 per cent in 2009 to 26 per cent by 2014.
BHP Billiton, another mining firm operating in South Africa, declined to comment.