Reviewed mining charter published amid threats of court application to stop its implementation

26 Jun 2017

The Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2017 (the 2017 Mining Charter) was published on 15 June 2017 and has been met with severe criticism.  The 2017 Mining Charter is applicable immediately and gives holders of existing rights only 12 months to comply with certain of its provisions, including, the requirement for existing rights holders to top-up their black shareholding to the new minimum of 30%.

However, various affected parties including the South African Chamber of Mines have threatened a court application aimed at interdicting the operation of the 2017 Mining Charter pending a court application to have the 2017 Mining Charter reviewed and set aside for (amongst other things) a lack of meaningful consultation and on the basis that its provisions are too vague to be enforceable or are irrational.  Certain of the provisions may also be unconstitutional.  As a result the 2017 Mining Charter faces an uncertain future.  If the interdict and/or the review application succeed, the status quo will remain (i.e the 2010 Mining Charter will continue to apply).

The 2017 Mining Charter repeals previous iterations of the Mining Charter and introduces new definitions, terms and targets.   It also seeks to regulate a range of aspects related to mining operations which are already subject to specific legislation and regulation such as environmental matters, health and safety, social and labour plans etc. Its key features include:

Fundamental changes to the ownership rules some of which are difficult to understand:

• New ownership threshold: Holders of existing prospecting and mining rights must have a minimum of 30% black ownership. All new prospecting rights holders are required to be 50+1 % black owned.
• Top-up requirement: The holder of an existing prospecting or mining right who has maintained a minimum of 26% black ownership is required to increase its black ownership to a minimum of 30% within 12 months of the publication of the 2017 Mining Charter (i.e. no later than 15 June 2018).  This must be “given” proportionally to existing black partners.
• “Active” and “direct control” by black partner: The 30% black owners are required to “directly and actively control their share of equity interest in the Holder including the transportation as well as trading and marketing of a proportionate share of production”, it is unclear what costs the black partner would bear in return for this “share” of the mine’s production, nor how this separation could practically be undertaken.
• Historical BEE Transactions not recognised: The 2017 Mining Charter specifically rejects the principle of “once empowered always empowered”.   All existing mining right holder have 12 months to put in place a 30% black ownership structure.  After 15 June 2017, Historical BEE Transactions may not be used apply for a new mining right or prospecting right or for the renewal of such rights, or for an application in terms of section 11 of the MPRDA.  30% or 50%+1 % black ownership will be required for all such applications.
• 1% payment to the black shareholders: The holders of the new mining rights are required to pay a minimum 1% of annual turnover in any given financial year to black shareholders. This minimum 1% of the annual turnover is over and above any distributions to the shareholders of the holder. The extra 1% payment to black shareholders is payable as long as the holder subject only to solvency and liquidity even if there is no dividend declared or the market conditions do not permit such payment (e.g. in cash preservation times).
• Black owned companies have a preferential option: A holder who sells any South African mining asset must give black owned company/s a “preferential” option to purchase the assets.
• Community ownership to be managed by state agency: 8% of the ownership of new mining rights must be in the hands of “Mine Communities”, this is included in the 30% black ownership.  From a date still to be declared this shareholding must be managed by a “Mining Transformation and Development Agency” to be formed by the State. As such, the State will effective become a shareholder in the mining company.

Increased procurement, supplier and enterprise development targets

• A minimum of 70 % of total mining goods procurement spend must be on South African manufactured goods.  This spend is further broken down into targets from black owned companies; 26 % black owned manufacturing companies and black female owned companies.
• A minimum of 80% of services must be procured from South African based companies.  Again, this spend is further broken down into targets from black owned companies; 26 % black owned manufacturing companies and black female owned companies.
• All samples must be tested in South Africa.
• The 2017 Mining Charter provides for a transitional period of 3 years to achieve the revised procurement targets.

Employment Equity

• New and higher targets for black representation at board and management level. For example, the 2017 Mining Charter requires a board and executive/top management to consist of a minimum of 50% Black Persons. At junior management, a minimum of 88% is required to be black employees, 44% of which must be female Black Persons.

For more information on the practical implications of the 2017 Mining Charter, contact partners Charles Young, Claire Tucker or Wandisile Mandlana.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)