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This Thesis Has Been Submitted in Fulfilment of the Requirements for a Postgraduate Degree (E.G This thesis has been submitted in fulfilment of the requirements for a postgraduate degree (e.g. PhD, MPhil, DClinPsychol) at the University of Edinburgh. Please note the following terms and conditions of use: This work is protected by copyright and other intellectual property rights, which are retained by the thesis author, unless otherwise stated. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This thesis cannot be reproduced or quoted extensively from without first obtaining permission in writing from the author. The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the author. When referring to this work, full bibliographic details including the author, title, awarding institution and date of the thesis must be given. Black Economic Empowerment and Changes in Ownership and Control in South Africa’s Mining Industry Sixta Raphael Kilambo A thesis submitted in partial fulfilment of the requirements of the Degree of DOCTOR OF PHILOSOPHY At the CENTRE OF AFRICAN STUDIES UNIVERSITY OF EDINBURGH July 2016 i Abstract This study investigates how white and foreign-owned mining companies have complied with the Mining and Petroleum Resources Development Act (MPRDA) and Mining Charter, the core of the Broad- Based Black Economic Empowerment (B-BBEE) policy in South Africa‟s mining industry. The Mining Charter demands that white and foreign-owned companies transfer 15 per cent equity to blacks by 2009, increasing to 26 per cent by 2014. It also demands 40 per cent black control and management of mining companies regardless of the shareholding that blacks own. The study used a sample of 72 mining companies to explore broad aspects; these include changes in equity ownership (company shareholding and mining assets) and in particular mining deals concluded by white and foreign-owned companies with blacks between 1990 and 2012. It also explored black representation on the board and management of mining companies and conducted interviews with 35 executives from 27 mining companies. The study findings are that equity targets are low and reached only 7.4 per cent (R1.8trillion- £163billion) of the total market capitalisation of the Johannesburg Stock Exchange (JSE) as per 12 July 2011. However there is an emergence of large black owned-owned companies (those with 50 + 1 share) such as African Rainbow Nation, Exxaro, Shanduka Resources and Royal Bafokeng, empowered enterprises (25 +1 share) and a broad category of beneficiaries including consortiums, community shareholders and Employee Share Ownership groups which some hold small amount of shares (between 1-5 per cent). Most deals however were concluded by the Anglo American and BHP Billiton. Out of the 468 board members and 226 managers identified, black representation on the board and top management of white and foreign-owned companies was 25.9 and 18.5 respectively. In companies where blacks have majority shareholding board membership was 53.7 per cent and top management at 35.7per cent. The study has highlighted impediments faced by blacks in the mining industry. They lack capital, some are in debts and others liquidated, use poor technology and face difficulties in accessing land and export markets. The first main argument of the study is that the impediments and lack of government support limits their success and survival in the industry. The second is that ownership structure determines control in the mining industry. The reasons are historical, as the industry‟s corporate structure was and is still concentrated, has cross shareholding, significant control of assets by financial institutions and families and low voting shares are conditions are used in empowerment mining deals. This is challenging to the attainment of the 40 per cent target of control and management demanded by the Charter. The conclusion from this study is that the entire B-BBEE implementation process in the mining industry is controlled by the white and foreign-owned companies. They have a free hand in the choice of black-owned companies; which assets to have full ownership and which to offer shares or sell to ii blacks; the type of shares they offer; the conditions to attach to the transactions; and the manner that they deal with their community partners. This situation arose mainly because blacks lack their own funds and face a host of impediments. Unless the government establishes institutions to guide and monitor implementation of its B-BBEE policy and puts in place support mechanisms for black entrepreneurs, black equity ownership and attainment of management and control of mining assets will remain limited. iii Acknowledgements In conceptualising and executing this study, I owe profound debt to a number of people who cannot all be mentioned. But first and foremost I would like to thank my supervisors Dr Thomas Molony and Dr Gerhard Anders. Tom accepted the supervisory role of the thesis, suggested extra literature, and provided constructive comments, continuous guidance and encouragements. From Tom, I learnt discipline, hard work and formalities and tactics of conducting research for a PHD thesis. It will be difficult for me to forget Dr Gerhard Anders for his expertise on research related to policy issues, and Dr Andrew Lawrence, my first supervisor, for his knowledge of black economic empowerment issues and his fast response to hurdles that I faced in obtaining my student visas. In trying to understand issues that were unfamiliar and reach people, my gratitude are to Clive Knobe and Musa Budeda, for the enlightenment on mining expertise, Prof Kantor for his outstanding knowledge on South Africa‟s ownership and control structures. I also thank Julius Komba, Loice Alusala, Dr Chris Nshimbi and Prof S Maithufi for their constructive comments and heartedly given technical support. To Nkosinathi Ngwenya for accepting to be my research assistant and introducing me to the mining industry fraternity and this made data collection possible. I will always appreciate the endurance of my sister Bernada Kilambo as I lost my three siblings in the course of study, my brothers Lucian Kilambo, an Edinburgh University alumna who would have been proud of me, Vitus Kilambo who was always excited with my academic achievement and my sister Maria Kilambo who always gave me motherly love. I appreciate the endurance of Isaya Kilambo, Raphael Kilambo, Ephraim Kilolelo, Hermes and Bernard Kuweta; Luki, Frida, Grace and Jane Njale; and Cassim Ligwala for keeping our homestead. I am also grateful to Kristina Kilambo, the twins Agnes and Angela Kilambo and Sixta Abdala, Lucian, Simon, Godwin and little twins Loveness and Lightness, who all missed me. I hope they appreciate education. I heartily thank my husband Prof Novatus Miti especially for financial support for the entire period of my study. Without him it would have been impossible! I would also like to thank Steve Koch my Head of Department at the University of Pretoria for granting me study leave, my fellow PhD students and staff members at CAS. My bright memories of Scotland are because of Ms Pat Bryden a Good Samaritan, a friend, who welcomed me in her cosy home at Canonmills, for the wonderful places we travelled, for the movies and talks and ideas we shared. Lastly I thank the Almighty God. iv Table of Contents 1 Introduction ..................................................................................................... 1 1.1 Why Research BEE Equity Ownership and Control in South Africa’s Mining Industry? ....................................................................................... 1 1.2 The Importance of Mining to the South African Economy ...................... 9 1.3 The Wrongs of Apartheid and the Roots of Social and Economic Imbalances ............................................................................................. 14 1.4 Black Economic Empowerment in South Africa: the Literature ............ 17 1.5 Objectives of the Study ........................................................................ 43 1.6 The Organisation of Chapters .............................................................. 45 2 The Evolution of the Broad Based Black Economic Empowerment Policy in South Africa .................................................................................................... 49 2.1 Introduction .......................................................................................... 49 2.2 Where are the Big Six? The Unbundling of the Conglomerates and the Incorporation of Blacks ........................................................................... 50 2.3 The Elaboration of BEE Policy ............................................................. 59 2.4 The DME and the Elaboration of the BEE Policy for the Mining Industry .................................................................................................. 63 2.4.1 The Minerals and Petroleum Resources Development Act (MPRDA) .... 68 2.4.2 The Broad Based Socio-Economic Empowerment Charter for the South African Mining Industry ................................................................ 71 2.4.3 The Mining Scorecard ................................................................... 74 2.5 The DTI and the Elaboration of the BEE Policy for the Economy at Large ...................................................................................................... 76 2.5.1 The Broad Based Black Economic Empowerment Act (2003) ...... 78 2.5.2 The
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