Factors influencing financial structures in mining empowerment transactions

Abstract

Black Economic Empowerment (BEE) in the mining sector is dependent on regulatory imperatives and stakeholder interactions. Despite the regulatory drivers however, mining empowerment transactions, like any other financial transactions, must be based on sound economic and financial fundamentals so as to ensure their sustainability. The purpose of this research was to investigate the factors influencing financial structures in mining empowerment transactions in South Africa. BEE within the mining sector has been at the forefront of transformation and empowerment within the economy, however academic literature on the drivers or factors influencing mining empowerment transactions, their evolution and the roles played by mining stakeholders, is limited at best, hence the motivation behind the research. Exploratory research and qualitative analysis methodology were carried out in this research. Specifically, in-depth face-to-face interviews with eleven experts in the field of BEE transactions were performed. The results confirmed that: the financial vehicles available to BEE investors were dependent on the macro-environment of business; financier risk was a function of ineffectual deal structuring; the type and level of debt structuring was the key factor in financial structuring and greatly influenced the success of the deal; and, lastly, that joint ventures (JVs) were in essence strategic alliances to meet the fundamental objectives of mineral rights conversions and an increase of black capital in the economy, as opposed to partnerships based primarily on operational equality.