"We've seen enough examples of how it's gone very, very wrong," says Robert Godsell, the white chief executive of gold miner AngloGold Ashanti, one of South Africa's largest companies.
But the two sides bickered over the all-important details. Behind-the-scenes tensions burst into public view in late 2002. An internal government position paper leaked to the media argued that half of all new mining rights, and 30 percent of existing ones, should be black-owned within a decade. The Johannesburg stock market instantly plunged, led by mining companies. On London exchanges, the global financial center for mining, shares of companies connected to South Africa mining were routed.
After the market plunge, South African President Thabo Mbeki ordered his ministers to meet with industry leaders. Within days, senior executives of Anglo American and DeBeers hammered out a deal: There would be benchmarks for black equity in companies, but also broader measures of boosting black involvement, such as hiring and promotion of blacks, who account for 78 percent of the population. Other nonwhites, including mixed-race South Africans and those of Indian ancestry, which make up a combined 10 percent of the population, were included in the affirmative-action goals.
In London, Sir John Craven, chairman of Lonmin, watched the developments with apprehension. Mr. Craven had led a reorganization that had bolstered the company's stock price. Now he watched the shares fall 15 percent in two trading days. The middle-sized mining company had only one asset: majority ownership of a South African platinum mine.
Mr. Craven, who says he'd been only vaguely aware of the black empowerment laws, quickly realized what they meant for Lonmin. The stock plunge, he said, "was the catalyst" to get the company moving.
Mr. Craven reached out to a fellow South African, Brian Gilbertson, to help figure out how best to comply with the new rules. Mr. Gilbertson knew something about the South African mining industry's role in the country's ethnic and racial struggles from his days at a company called Gencor. Once a pillar of the apartheid establishment, the company committed itself to diversifying its work force and ownership after the ANC came to power. By 1995, its chairman, Mr. Gilbertson, stood with the country's first black president, Nelson Mandela, at the celebration of the 100th anniversary of the company's founding.
Mr. Gilbertson went on to become a major player in the global mining industry as Gencor merged with Billiton, which then merged with BHP in 2001 to form what was then the largest mining company in the world, the BHP-Billiton Group. Now he set his sights on helping Lonmin create a new black-owned company.
Messrs. Craven and Gilbertson dispatched a veteran Lonmin executive to Johannesburg and hired a J.P. Morgan Chase investment banking team, led by Arne Frandsen, a Danish national with extensive experience in South Africa. Then they put out word they were searching for black investors.
In September of 2003, Johannesburg business circles were buzzing with black empowerment deals, real and rumored. For six months, Lonmin reviewed 70 individuals and investor groups. Among them were a handful of rural residents from near Lonmin's mine who scraped together eight rands, or about $1.20, each to hire a minibus for the drive to Johannesburg to make their pitch. One prospective investor with close ties to government officials threatened to use his connections to derail any deal that didn't include him, according to two Lonmin executives. After some anxious deliberation, the company decided to risk ignoring him.
The "easy thing to do," according Mr. Craven, would have been to essentially auction a 15 percent stake off to whatever established black oligarch offered the best terms for a passive stake in the company's South African unit, known as Lonplats SA. But Lonmin officials wanted broader ownership.
With the help of Mr. Frandsen and long rounds of discussions with South Africa's mining ministry, Lonmin joined with several black-controlled investment funds and the Industrial Development Corp., a government agency. They agreed to set up a company called Incwala Resources to buy a stake in Lonplats.
Lonmin put $90 million into Incwala and owns 23.6 percent of the company, making it Incwala's largest shareholder along with the IDC, which took an equal stake. The remaining stake, 52.8 percent, is held by various black-controlled investment groups that obtained $183 million of financing with the help of Lonmin and other entities. A big chunk of the money is to be repaid to Lonmin from future revenue of the mine.
Among the black investors are the mine employee retirement fund and the Bapo Bo Mogale people, a local tribe that dominates the community surrounding the mine. Others include Dema Investments, a fund controlled by Zanele Mavuso Mbatha and Dawn Marole, two residents of Soweto, the onetime Johannesburg slum where Mr. Mandela grew up. The women, both former investment bankers, use Dema to represent 200 women in Soweto, including some that run feeding programs for the elderly and provide care for AIDS victims.
Some national union officials, such as Mr. Mantashe, sharply criticized the deal as forcing many of the black investors, particularly the workers retirement funds, to pay back loans before they can fully benefit from their stakes in Incwala.
Incwala officials respond that the employee funds begin receiving dividends immediately and have received very favorable terms on the loans.
Black at the bottom -- the company says it has more than 50,000 black stakeholders -- Incwala also remains white at the top despite a long and public search for a black chief executive. The company hired Mr. Frandsen, the white, Danish investment banker from J.P. Morgan, as CEO. Still, Incwala's black investors defend the decision. They say Mr. Frandsen has the deal-making background Incwala needs to grow beyond its initial investment in Lonmin.
The search for a black chief executive ran up against a new reality created by black empowerment, says Ms. Mbatha, a former Salomon Brothers Wall Street banker. Many successful and educated blacks feel they'll do better going into the black investing business than taking a job as a hired executive, even a well-paid one.
Ultimately, Lonmin hopes forming Incwala will help smooth the way toward receiving its mining rights under the new regulatory regime. Incwala holds half the seats on the board of the company that operates the mine. It's helping the company try to repair a relationship with the community surrounding the mine that has been troubled at times in the past. That won't be an easy job as Lonmin's mine aims to trim its work force of 20,000 -- 95 percent of which is black -- through mechanization.
Now in a black-empowered buyers' market, Incwala is looking to grow beyond Lonmin. Mr. Frandsen says he has lined up $200 million of committed financing for additional deals in the mining industry.