South Africa

Let’s Play Make-Believe – South Africa Edition

Today’s article comes from our head trader, Brad.

 

Q2 hedge fund letters, conference, scoops etc

If you missed his last article on South Africa go check it out here. Actually, on that note, Brad and I have something special to share with subscribers in the next few days. To learn more, put down your beer and sign up here (if you’re already an Insider member, don’t worry).


When I was a little fellow, perhaps 3 or 4 years old, I used to play “doctors and nurses” with the girls next door. Them two little vixens were a couple of years older than me… and they took advantage of a helpless farm-boy. I still have flashbacks. Would you believe it? One of those girls grew up to become Miss South Africa. And me? Well, I grew up to smile a lot.

You may think this is a bizarre way to start off a blog but it was the first thought that came to mind when debating the title to the blog, “Let’s Play Make -Believe”.

A few weeks ago I had a good rant about the “land expropriation” thing that is the talk of the town in South Africa… and how it is ultimately going to lead South Africa down the garden path of no return (economic destruction).

This week I want to talk about the state of play with mining in South Africa and the long-term consequences of the “mining charter”.

Now, let’s play make-believe. Pretend you are the CEO of a large mining conglomerate with operations in South Africa, and you’re considering deploying more capital to expand operations or buying an asset/exploration licence in South Africa. Now read this:

The essence of the new Mining Charter:

Ownership

  • A new mining right must have a minimum of 30% Black Persons’ shareholding, with the 30% shareholding to be apportioned between employees, communities and entrepreneurs in a specific manner
  • A minimum 8% shareholding is allocated to mine communities, to be held through a trust
  • A minimum 14% shareholding must be to black entrepreneurs

Annual turnover

  • Holder of a mining rights must pay 1% of its annual turnover to the 30% black persons’ shareholding prior to, and over and above any distributions made by a Holder to its shareholders

This 1% payment is always subject to the solvency and liquidity test as provided for in the Companies Act but is not negotiable under any other terms.

Procurement

  • The Charter requires 70% procurement of mining goods and 80% procurement of services from BEE entities (Black empowered entities); it also requires that analysis of 100% of mineral samples be done by South African based companies. This is mandatory and in place no matter how incompetent or expensive these protected companies services may be.

Employment Equity

  • At board level, a minimum of 50% black representation, 25% of which must be both female and black.
  • At executive/top management level, a minimum of 50% black representation, 25% of which must be both female and black
  • At senior management level, a minimum of 60% black representation, 30% of which must be both female and black
  • At middle management level, a minimum of 75% black representation, 38% of which must be both female and black
  • At junior management level, a minimum of 88% black representation, 44% of which must be both female and black

Human Resource Development

  • A holder must invest 5% of the leviable amount on essential skills development.

Now, wouldn’t you, being the CEO of that mining company, be inclined to think:

Bugger that, it’s all way too hard and just not economically viable!

In any event, why should I have to pay away 30% of what I invest in South Africa to someone who never lifted a finger to earn that money? And what guarantee is there I don’t have to pay more away in a few years from now? After all, they keep changing this mining charter each year and it just gets exponentially worse with each passing year.

Also, where am I going to get qualified people from, and what do I have to pay for them, to fit the “Employment Equity” requirements? I’m way better off investing more capital in Australia, Indonesia, South America, Canada, or even the rest of Africa!

This is certainly what I would be thinking if I was that CEO. It’s not a decision based on feeling sorry for “previously disadvantaged” peoples. It all comes down to economics.

This mining charter will eventually lead to South Africa becoming a mining backwater, a shadow of its former glory.

Even the average village idiot could tell you that the South African mining industry is going to follow a slow and painful decline with the “irony” that the very people that the mining charter is purportedly going to “empower” will be those worst affected, along with all the businesses surrounding this industry and, in turn, those businesses surrounding the mining service businesses. In short, the whole of South Africa.

Sadly, in many respects I think South Africa is doing a more thorough job at effing up economy up than Venezuela and Zimbabwe ever did.

In our latest Trade Alert we discuss four asymmetric trades that will profit from the deranged and delusional policies of the South African government.

We’re going to make a lot of money on these trades….but I won’t be proud of it. It is never fun making money from someone else’s misery – but we’re traders and this is our business!


Chris again.

This is a catastrophe in the making. One we’ve been watching for years now. Being an ex-South African myself it’s heartbreaking to see it unfold. Nevertheless as mentioned before we’ll have more on this for subscribers here.

I’ll leave you with a quote. Disturbing, but it leaves the reader with no doubt as to the true inevitable intentions:

“We are not calling for the slaughtering of white people, at least for now.” – Julias Malema, MP

– Chris

Article by Capitalist Exploits

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