The Draft 2018 Mining Charter
22 Jun 2018
On 15 June 2018, exactly one year to the day after the publication of the previous draft, the new South African Minister of Mineral Resources, Gwede Mantashe (the “minister”), published for public comment the Draft Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2018 (the “Draft 2018 Mining Charter”). Although there were some indications of the minister publishing the charter content in the form of delegated legislation, the minister has instead opted to retain the form of a charter and hopes to have his day in court in his appeal of the recent “once empowered, always empowered” High Court judgment.
Below are the most salient features of the Draft 2018 Mining Charter:
This is a carbon copy of the 2017 version, except for the following inculpatory statement, “[t]hrough its continued support and implementation of discretionary policies and practices, the mining and minerals sector, which dominated the South African political and socio-economic order, brought about inequalities in the mining industry”.
Broad-based black economic empowerment arrangements for prospecting right holders
Currently, there is no legal requirement for there to be historically disadvantaged South African (“HDSA”) shareholding for a prospecting right to be issued to an applicant, unless the minister requests that the empowerment objectives in the Mineral and Petroleum Resources Development Act, 2002 (“MPRDA”) be given effect to in terms of section 17(4) of the Act. The 2017 version determined that for new prospecting rights to be issued, there will be a requirement for the prospecting right to be held 50% plus one vote (ie, majority owned) by HDSAs.
The Draft 2018 Mining Charter now merely states that it will apply to prospecting rights as contemplated in section 17(4) of the MPRDA. On the face of it, this is consistent with the MPRDA and must be welcomed.
Although the Draft 2018 Mining Charter has excluded the 2017 version’s definition of “top up”, an existing right holder (defined as a holder of a mining right) who has “achieved and maintained” a minimum of 26% broad-based Black Economic Empowerment (“B-BBEE”) shareholding as at the date of the Mining Charter, 2018, will have five years (and not 12 months, as was the case in the 2017 version) to top up to 30% B-BBEE shareholding. The same applies to a holder who, at any stage during the existence of its right, achieved the 26% empowerment target but whose B-BBEE partner(s) have since exited. In this sense, the “once empowered, always empowered” principle is recognised, but nevertheless requires a top up, not from the existing level of empowerment, but rather from the former high water mark of 26%. In other words, an additional 4% empowerment transaction will be required. The continuing consequences of all historical transactions, on which a holder relied upon to reach the 26% empowerment target, are recognised and include transactions concluded on units of production. It also recognises that some mining companies achieved an empowerment status within a group context and not necessarily at asset or holder level.
The Draft 2018 Mining Charter does not deal with a holder who had already achieved 30% empowerment or more but has since dropped to below 26%.
If an existing holder has not achieved the 26% empowerment target by the date of commencement of the Mining Charter 2018, it will have to increase its B-BBEE shareholding from its current level (as opposed to previous highest empowerment status as is the case with the holders referred to above) to a minimum of 30% B-BBEE shareholding within five years.
Applications for mining rights that are pending at the commencement of the Mining Charter, 2018 will be granted if the applicants have 26% B-BBEE shareholding in place (in accordance with the 2010 Mining Charter) and will then have to top up to 30% within five years.
There appears to be no restriction in respect of:
- the commercial nature of the top up (ie, sale or subscription and dilution);
- the class of beneficiary of the top up (in other words, it can be a community, an entrepreneur or employees); or
- in respect of the level within the company at which the transaction is implemented (holding level or asset level).
Renewals and transfers
An existing holder will not be able to rely on the “once empowered, always empowered” principle in order to obtain new rights or to renew existing rights. Once a right is transferred to another in terms of section 11 of the MPRDA, all continuing consequences lapse and neither the new nor the erstwhile holder will be able to credit the continuing consequences of previous B-BBEE transactions.
The practical effect of this is worth noting: if a holder previously achieved the 26% empowerment target but its B-BBEE shareholding is now only 20%, then that holder will need to implement a 4% transaction within five years to comply with the “top up” requirement. Then, if the holder wants to renew its existing right or apply for a new right, it will need to implement a top up B-BBEE transaction so that by the time the renewal is granted, the holder will have 30% B-BBEE ownership.
B-BBEE for mining rights at 30%
For new mining rights to be issued, there will be a requirement for the mining right to be held 30% by B-BBEE shareholders, a minimum of 14% of which must be held by a B-BBEE entrepreneur.
The prescribed minimum 30% target must apply for the duration of the mining right. The holder will therefore have to maintain the target for the duration of the mining right, unless there is a disposal of unencumbered net value shares that have been held for a third of the duration of the relevant mining right by a B-BBEE shareholder that is a B-BBEE entrepreneur. The Draft 2018 Mining Charter therefore encourages a “lock-up” and requires B-BBEE entrepreneurs to value long-term investment. The draft also attempts to bind B-BBEE entrepreneurs to reinvest a minimum of 40% of the proceeds from disposed equity back into the mining industry. It is not clear how this requirement will be enforced.
The Draft 2018 Mining Charter also requires a B-BBEE entrepreneur’s shareholding to vest in prescribed percentages at specified dates over the term of the right:
- 15% in the first quarter (typically year 7.5) of the duration of the mining right;
- 50% in the second quarter (typically year 15) of the duration of the mining right;
- 70% in the third quarter (typically year 22.5) of the duration of the mining right; and
- 100% in the last quarter (typically year 30) of the duration of the mining right.
Employees must hold 8% of mining right holder shares
For new mining rights to be issued, there will be a requirement for 8% of the mining right to be held by employees. This is likely to be done in the form of Employee Share Ownership Plans (“ESOPs”).
Significantly, 5% of the employees’ stake will need to be free carry and non-transferable.
Communities must hold 8% of mining right holder shares
For new mining rights to be issued, there will be a requirement for the mining right to be held 8% by communities. This is likely to be done in the form of a community trust. Currently, there is no prescribed shareholding by communities in mining right holders.
Significantly, 5% of the employees’ stake will need to be free carry and non-transferable.
1% EBITDA payment to communities and employees
For new mining rights to be issued, there will be a requirement that 1% of Earnings Before Interest, Taxes, Depreciation and Amortisation (“EBITDA”) is paid to communities and employees as a trickle dividend from the sixth year of a mining right until dividends are declared or at any point in a 12-month period where dividends are not declared. Currently, there is no prescribed amount that needs to be paid to HDSA shareholders.
80% of services and 70% of goods to be procured from B-BBEE entities
The Mining Charter, 2018 will increase the target to procure services from B-BBEE entities from 70% to 80% and the target to procure goods from B-BBEE entities from 50% (in respect of consumer goods) and 40% (in respect of capital goods) to 70% (presumably in respect of both capital and consumer goods). The proposal to increase the services target to 80% and the consumer good target to 70% was already a feature of the 2016 and 2017 versions.
Up to 5% of the total procurement budget on mining goods and up to 10% of budget on services may be offset using supplier and/or enterprise development.
Board must be 50% HDSAs
The Draft 2018 Mining Charter increases the representation of HDSAs at board level from 40% to 50% and requires that 20% of those must be female. This was already a feature of the 2016 and 2017 version.
The Draft 2018 Mining Charter has decreased the representation of HDSAs (including women) at senior, middle and junior management levels as well as the representation of employees with disabilities.
Reprieve for junior miners
Junior miners may make representations to the minister regarding the extent to which the Mining Charter elements will apply to them.
- “BEE Entrepreneur” – a new definition has been included that substitutes the former definitions of “BEE Entrepreneur” and “Black Owned Company” in the 2017 version and retains the requirement of control by a black person (ie, 51% of exercisable voting rights and 51% of economic interest). However, the definition also includes, as a BEE Entrepreneur, an organ of state (excluding a mandated investment).
- “Beneficiation” – the definition contained in the Mineral and Petroleum Resources Development Amendment Bill, 2013 as opposed to the current MPRDA, has been inserted as the definition of beneficiation.
- “BEE compliant company” – the definition remains substantively the same as the 2017 version and refers to a company with a minimum B-BBEE level 4 status in terms of the B-BBEE Codes of Good Practice and a minimum of 26% black ownership.
- “Black Person” – this definition has been amended in two significant aspects. Firstly, the peculiar “after 27 April 1994 naturalisation clause” has been deleted. Secondly, the definition previously required a juristic person to be wholly owned by Africans, Coloureds and Indians to qualify as a Black Person, whereas the definition now reverts to the wording used in the definition of “historically disadvantaged person” in the MPRDA, requiring such persons to hold a majority (and not all) of the issued share capital or members; interest and able to control a majority of the members’ vote.
- “Historical BEE Transactions” – refers to “BEE Transactions” concluded prior to the coming into operation of the Mining Charter, 2018 but the Draft 2018 Mining Charter has not retained the 2017 version’s definition of a “BEE Transaction”.
- “Meaningful economic participation” – the definition contains some slight variations, but in essence retains the definition in the 2017 version. Participation will include the participation of B-BBEE shareholders in the voting on trading and marketing of the company’s mined product. The definition retains the notion of a “trickle dividend” and the Draft 2018 Mining Charter also includes a stand-alone definition for a “trickle dividend”.
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