Reviews and reports

Black economic empowerment status report

Assore is supportive of the broad-based economic imper atives contained in the Minerals and Petroleum Resources Development Act (the MPRD Act) and the Broad-based Socio-economic Empowerment Charter for the South African Mining Industry issued thereunder (the Mining Charter), and since their inception has embarked on initiatives aimed at meeting these requirements at its mining operations, as set out below.

The MPRD Act has changed the previous common law and statutory position in South Africa in terms of which mineral rights could be held privately. Instead, pursuant to the MPRD Act and with effect from 1 May 2004, the state has assumed sovereignty and custodianship of all mineral rights in South Africa and will grant prospecting rights and mining rights to applicants based on the merits of their applications (which  are designated as new-order rights). A transitional period  commencing in May 2004, and ending in May 2014 is provided for, during which holders of existing mineral and exploration rights (designated as old-order rights), upon meeting certain  requirements, may convert such existing in-use old-order rights into new-order rights, or in the case of unused rights, may apply for new-order rights.

The Mining Charter is intended to facilitate the entry of historically disadvantaged South Africans (HDSAs) into the  mining industry. The scorecard which the state has issued pursuant to the Mining Charter requires, inter alia, that mining companies achieve 15% HDSA ownership of mining assets within five years (ie 1 May 2009) and 26% within 10 years (ie 1 May 2014), which has been maintained by the Department of Mineral Resources (DMR), following a review of the Mining Charter in September 2010, as the target required to be achieved by mining companies. The Mining Charter also requires, inter alia, that mining companies provide plans and achieve employment equity at management level and procure goods and services from black empowered organisations on a preferential basis in accordance with the predetermined criteria set out in such plans. Since 2004, in view of meeting the Charter’s requirements, Assore, through its various group companies, has achieved the following milestones:

• concluded an empowerment transaction with Mampa Investment Holdings (being the commercial arm of the Mankwe Development Foundation) (Mampa) in April 2004, pursuant to which new-order mining rights for the chrome operations in Rustenburg Minerals Development Company (Proprietary) Limited (RMDC or Rustenburg Minerals) on the farms Zandspruit and Groenfontein were obtained;
• concluded empowerment transactions with the Bokamoso  Trust in February 2006 and March 2010; representing control of Assore’s issued ordinary shares of 3,26% and 11,02% respectively;
• through Assmang, applied for and obtained neworder mining rights on the iron ore deposits mined at Khumani. Conversion of the old-order rights to neworder rights on the manganese deposits at Black Rock (comprising Nchwaning and Gloria Mines) was obtained and applications for the conversion of all remaining oldorder rights to new-order rights, in particular, iron ore (Beeshoek), chrome ore (Dwarsrivier) and pyrophy lite (Wonderstone) which were submitted prior to 1 May 2009 and are being finalised;
• implemented a preferential procurement policy at all its operations (refer Preferential procurement); and
• developed social and labour plans (SLPs) for each of its operations, as well as local economic development (LED) projects which support the integrated development plan of the relevant local authority. The plans, which have received the approval of the relevant departments, include the construction of educational facilities, food security projects and presentation of programmes on adult education, health and safety and environmental awareness.

The extent of compliance with the Charter is reported on and monitored on a regular basis at the Excom level, specifically, on new-order mining rights, which are subject to audit by the DMR. No significant issues of non-compliance have been reported by the DMR.

Following the introduction of the MPRD Act, Assore has entered into the following empowerment-related transactions:

• In April 2004, an empowerment transaction was finalised with Mampa in terms of which Mampa acquired a 44% interest in RMDC. RMDC mines chromite in the Rustenburg area and was previously a wholly owned subsidiary of the Assore group. Mampa is represented on both the Management Committee and the board of RMDC and in October 2005, RMDC was successful in its application to convert all of its mining rights to new-order rights.
• In February 2006, the Assore group entered into empowerment transactions effecting the acquisition of 15,02% of its issued ordinary shares at that date by two BEE entities, namely:
  • Shanduka Resources, a subsidiary of Shanduka Group (Proprietary) Limited (Shanduka), a black-owned and managed investment holding company, which purchased 11,76% of Assore’s ordinary shares in issue at that date (refer Shanduka Resources below). In July 2011 (subsequent to the end of the 2011 financial year), shareholders were advised of the company’s intention to enter into its third empowerment transaction, the first phase of which was to provide financial assistance to a special purpose vehicle (SPV), in order for the SPV to buy back Shanduka’s interest in Assore, comprising 16 464 450 shares, representing 11,79% of the issued ordinary shares at June 2011. The transaction was approved by the requisite majority of shareholders at a general meeting on 10 August 2011, and as a result, these shares were warehoused in the SPV on 19 August 2011. The majority interest in the SPV will be controlled by a broadbased black-empowered trust; and
  • the Bokamoso Trust (refer "The Bokamoso Trust" below), which has been formed to benefit HDSAs and HDSA community groupings, residing in areas surrounding the group’s mining activities, which purchased 3,26% (4 568 550 shares) of Assore’s ordinary shares in issue at that date.
• In March 2010, Assore entered into its second empowerment transaction, in terms of which:
  • 13 618 265 shares, representing 9,88% of the issued ordinary shares at that date, were acquired by an entity in which the Bokamoso Trust (the Trust) and Assore have a 51% and 49% interest respectively; and
  • a pecific issue of 1 748 735 treasury shares was effected, which resulted in the Trust achieving control of 14,28% (19 935 550) of the issued ordinary shares after the transaction.

Note: The number of Assore ordinary shares in issue quoted in the report, prior to September 2010 have been multiplied by a factor of five, following the sub-division of five-for-one ordinary shares for each Assore share on 10 September 2010.

The control by HDSAs of Assore’s shares at 30 June 2011 is as follows:

The Bokamoso Trust

The Bokamoso Trust (the Trust) was established for the benefit of HDSAs and broad-based HDSA community groupings residing in the areas in which the Assore group’s mines and beneficiation plants are located. Assore has initiated a process through which it will identify HDSA trustees in accordance with the trust deed. The majority of the Board of Trustees is independent, and in terms of the second empowerment transaction, the Trust is entitled to an annual flow-through payment of at least R2 million per annum, to the beneficiaries irrespective of the commitments to the Assore group with regard to the funding of the transaction.

Assore concluded a relationship agreement with the Trust in order to regulate the respective relationship between the parties to ensure, in so far as is possible, the continued compliance by the Trust (as the Assore group’s BEE partner) with the direct ownership requirements of the Mining Charter.

Shanduka Resources

Shanduka Resources is a wholly owned subsidiary of Shanduka Group, a black-owned and managed investment holding company founded by Cyril Ramaphosa, James Motlatsi and several other black professionals.

On 19 August 2011, further to the approval of the shareholders of Assore and Shanduka, Shanduka Resources sold its interest in Assore to the SPV referred to above. The transaction (ie the third empowerment transaction) is intended to secure Assore’s empowered status for the long term, ahead of the 2014 target established in the Mining Charter. Shanduka acquired its interest in Assore in 2005 for approximately R280 million (R17 pe Assore share), and disposed of these in the amount of R2,7 billion (R163 per Assore share, representing a discount of 24,2% to the market price), realising a profit of approximately R2,4 billion. While the transaction provides Shanduka with the opportunity to diversify its own interests, the discount secured by Assore creates the necessary sustainability of the proposed broad-based BEE structure, to be finalised in the second phase of the transaction. The conclusion of this second phase will result in all of Assore’s BEE control being broad-based in nature, which will be of direct benefit to the communities in which the group operates.

Preferential procurement

Assore is committed to bringing previously disadvantaged South Africans into the mainstream of the economy by identifying, developing and availing business opportunities to BBBEE suppliers at all its operations. Without compromising on quality, Assore has adopted a policy of precluding vendors from supplying goods and services to its operations who do not have valid empowerment credentials. A summary of the percentage BBBEE procurement measured against total discretionary procurement is presented in the table below:

Assmang’s increased proportion of BBBEE expenditure is the result of continued focus on supplier selection and evaluation. The overall increased proportion of BBBEE expenditure for African Mining and Trust Company Limited (African Mining and Trust), Rustenburg Minerals is due to the group’s ongoing commitment to the implementation of the requirements of the Mining Charter and the DTI Codes of Good Practice. Expenditure at Rustenburg Minerals has increased, due to the development of its two underground shafts. The recently commenced open-cast mining operation at Zeerust gave rise to the significant increase in its discretionary procurement, while a temporarily expired supplier’s certificate at Wonderstone resulted in a decrease of the proportion of BBBEE expenditure at that operation