Revised South African charter poses threat to miners, says Moody’s

Ratings agency Moody’s warned on Wednesday that new regulations seeking to accelerate black ownership in South Africa’s mining industry would deter investment, raise costs and diminish cashflow generation.

Anglo American, AngloGold Ashanti, Gold Fields, Petra Diamonds, Sibanye Gold and South32 would be the most negatively affected miners if the revised mining charter is implemented, Moody’s said.

The government published its revised mining charter on June 15, raising the minimum threshold for black ownership of mining companies to 30 percent from 26 percent.

“The higher Black Economic Empowerment equity holding requirement is credit negative because it will likely require miners to use cash or raise debt to facilitate the equity transfer,” Moody’s said in a statement.

Black Economic Empowerment is meant to include more blacks in the economy, which is still firmly in the hands of whites more than two decades after the end of apartheid.

The ratings agency added that it expects current shareholders to be unlikely to support a further dilution of their equity interests.

The warning echoed a statement by ratings agency Fitch on Monday, which said the government was prioritising radical transformation even if it leads to a weaker business climate and hampers growth.

The Chamber of Mines, which represents mining companies, said it would challenge the new rules in court, arguing that there had been insufficient consultation.

The mining sector accounts for about 7 percent of South Africa’s economic output.

 Source Reuters