Mining and Natural Resources Sector – Life after Lockdown and Covid-19

Mining and Natural Resources Sector – Life after Lockdown and Covid-19
28 Apr 2020

Mining and Natural Resources Sector – Life after Lockdown and Covid-19:Updated on 16 April 2020 to include the amendments to the Regulations issued in terms of the Disaster Management Act No 57 of 2002

It has been an extremely frenetic few weeks since the declaration of the “state of disaster”, and the Mining and Natural Resources Team (Warren Beech, Nicholas Veltman, Refiloe Vengeni, Eben van Zyl, Themba Khumalo and Bryan White) would like to thank you for your continued support during this difficult period, and we look forward to working with you as we navigate the post lockdown and COVID-19 landscape and its challenges.

While the lockdown has been extended and not yet lifted by the time that we send you this newsletter, it is important to start focusing on certain aspects that will be business critical, when the lockdown is lifted, and, ultimately, we are past the threat of COVID-19.

As we have continued to engage with clients across the spectrum, on a daily basis, certain recurring themes have come up and we want to share some of these themes with you, for consideration. We have addressed some of the themes in more detail because they have come up, frequently. For example, we have started with force majeure, and the mitigating steps that are required under South African Law. If this particular theme is not of interest to you, we continue and address health and safety, environmental, the amendments to the MPRDA, forcing employees to take COVID-19 tests, application of annual leave during the lockdown period, business interruption insurance, Tax, and UIF. Please feel free to reach out to any of the team members if you would like detailed advice regarding any of the themes. We have included some aspects for consideration relating to tax, which has been prepared by our colleague, Natalie Napier ([email protected]).

We have also addressed, briefly, the amendments to the Regulations published under the Disaster Management Act (“Regulations”) issued on 16 April 2020 by the Minister of Cooperative Governance and Traditional Affairs, at the end of this newsletter.

FORCE MAJEURE, MITIGATION AND POTENTIAL LITIGATION

One of the very first commercially related themes that arose, was whether the threat of COVID-19 and/or the declaration of the “state of disaster” and/or the “lockdown” constituted force majeure events.

A force majeure event is typically regarded as an unforeseen event or circumstance, which is beyond the control of the contracting parties and which ultimately renders contractual performance “impossible”.

Where agreements do not contain force majeure clauses, the legal principle of “supervening impossibility of performance” may be applicable.

Where agreements do not contain a force majeure clause which sets out what events constitute force majeure events, and the process to be followed by the parties, a party who is unable to perform under contractual provisions as a result of a supervening event must objectively prove that (a) as a result of the event, contractual performance is impossible i.e. it cannot simply be difficult or more costly to perform, and (b) the event was unforeseen, and the consequences of non-performance are unavoidable.

Typically the force majeure clause will (a) limit the affected party’s liability for non-performance, if a force majeure event occurs and/or (b) suspend performance of both parties’ obligations, without consequences / penalties until such time as performance can continue, and (c) allow the agreement to be terminated, without consequences or penalties, where performance cannot resume, within the period defined in the agreement (or a reasonable period, which will be determined based on the circumstances).

The declaration of the “state of disaster” under Section 27(1) of the Disaster Management Act, No. 57 of 2002 (“Disaster Management Act”) (as amended) on 15 March 2020, is the critical date i.e. force majeure could, in most cases, only appropriately be claimed, after this date.

A force majeure, in the context of COVID-19, can only be claimed if the consequences of the declaration of the “state of disaster” and/or the actual spread of the virus (and its consequences), renders contractual performance impossible (and as mentioned above, not merely difficult or more costly).

During the period of lockdown, i.e. from 24h00 on 26 March 2020 to 24h00 on 16 April 2020, it is likely that a defendable force majeure event has arisen.

In addition, in the event that COVID-19 spreads to such an extent, in South Africa, that the workforce is unable to effectively and efficiently perform their duties and functions in the course and scope of their employment, this could also constitute a justifiable force majeure event.

Historically, mining companies have, successfully relied on force majeure provisions in the face of viruses such as Ebola. The best example is that of Arcelor-Mittal, which applied force majeure provisions, in Liberia, in 2014, following the Ebola outbreak. Various other companies, such as Tawana Resources, stopped all non-essential field work. These cases are likely to influence how South African courts interpret and apply force majeure provisions, in relation to COVID-19.

The key question is whether or not a counter-party on whom a force majeure notice has been served, by the company, can claim that, unless the company applied for exemption as a supplier of essential goods or services, in terms of Regulation 11B(2) read with Annexure B to the Regulations, the company has failed to mitigate losses, as required, under South African Law.

It is unlikely that the counter-party would succeed on this basis for two primary reasons, namely (a) the goods and services set out in Annexure B to the Regulations identify essential goods or services, and permit these goods and services to be provided, during the period of “lockdown” but does not require these services to be rendered, in relation to private companies i.e. it permits the rendering of the essential goods and services, but does not require them to be rendered, and ultimately, it is the decision of the “head of institution”, under Regulation 11B(2) as to what essential services and goods are to be provided, during the period of “lockdown” by his/her institution, and (b) there are overarching, nationally applicable Health and Safety Laws which place significant responsibilities on the company in relation to not only its own employees, but other persons who may be affected by its activities.

As mentioned above, Regulation 11B(2) requires the company’s Chief Executive Officer or equivalent, to determine essential services to be performed by the institution (the company), and the essential staff who will perform those services.

The decision-making surrounding which services are essential services, and who are the essential staff required to render those services, must be (a) multi-disciplinary i.e. it must represent a full spectrum of persons, disciplines, etc. across the organisation, and (b) objectively justifiable, based on typical risk tolerance principles. The decision-making must also focus on how essential the services are to South Africa, within the context of COVID-19, and not just how essential it is to the company.

With regard to health and safety responsibilities, the Mine Health and Safety Act, No. 29 of 1996 (“MHSA”) applies to mines, as defined in the MHSA.

The MHSA places the primary responsibly for health and safety of employees and non-employees on the “employer” i.e. the entity which holds the right to prospect of mine. In terms of Sections 2 and 5 of the MHSA, the responsibilities apply to employees (as defined i.e. any person who is employed at or working at a mine), and non-employees (persons who may be directly affected by the activities at the mine). The broad responsibility is to take appropriate steps to ensure that persons are not exposed to any hazards to their health and safety.

The responsibilities therefore also extend to employees of service providers, “doorstep” communities, etc. who may be affected.

The responsibilities placed on the employer, are not absolute, but they are qualified with reference to what is “reasonably practicable”. The term “reasonably practicable” is defined to include four components, namely (a) the severity and scope of the hazard or risk concerned, (b) the state of knowledge reasonably available concerning that hazard or risk and of any means of removing or mitigating that hazard or risk, (c) the availability and suitability of means to remove or mitigate that hazard or risk, and (d) the costs and the benefits of removing or mitigating that hazard or risk.

The term “risk” is defined in Section 102 of the MHSA to mean “the likelihood that occupational injury or harm to persons will occur”.

The term “hazard” is defined in Section 102 to mean “… a source of or exposure to danger”.

The Occupational Health and Safety Act, No. 85 of 1993 (“OHSA”) contains similar provisions on Sections 8 and 9 of the OHSA, and where the company’s operation is not a “mine”, the OHSA will be applicable.

A counterparty would be faced with extreme challenges, should it attempt to argue that a party has not mitigated, in the face of the COVID-19 pandemic, where the company relies on a force majeure provision for the following reasons:

  • COVID-19 is an international pandemic;
  • A “state of disaster” has been declared under Section 27(1) of the Disaster Management Act, which is applicable to South Africa as a whole;
  • A “lockdown” has been declared, and certainly, for the period of the “lockdown”, it is probably impossible to perform at the levels contemplated in the contracts. Even if a company can perform at reduced levels i.e. carry on operations at reduced levels, the company, (or as a mining company), which takes its health and safety responsibilities seriously, must comply with the health and safety responsibilities in the MHSA and/or OHSA, taking the usual risk-based approach, which will in all probability indicate low risk tolerance, and therefore that it cannot perform under the relevant contracts for health and safety reasons;
  • If the Company Chief Executive Officer takes a decision, in terms of Regulation 11B(2) that it is not appropriate to continue with any services, provided that an appropriate, objective decision-making process has been followed, the company will have discharged its obligations to attempt to mitigate losses.

A company can justify a decision not to apply for exemption, for the various reasons set out above, including that, based on a risk tolerance approach, a company may not wish to accept the risk associated with ongoing operations.

The MHSA and OHSA place extensive health and safety responsibilities on the “employer”. The responsibilities under the MHSA and OHSA will continue to apply during the period of “lockdown”, if any work is being carried out.

It is vital for a company to implement its health and safety systems. In summary, the following process should be implemented:

  • Conduct an issue – based hazard identification and risk assessment which identifies the hazards and risks associated with not only COVID-19, but also the work that is going to be carried out;
  • Based on the above, implement appropriate measures i.e. codes of practice, standards, procedures and instructions. In this regard, the existing codes of practice, standards, procedures and instructions will continue to be applicable, but it may be necessary for specific measures to be implemented, through, for example, special instructions;
  • All employees (as widely defined) must receive health and safety training on points (a) and (b) above, and there must be ongoing communication regarding health and safety through, for example, daily bulletins, notice boards, health and safety meetings, etc.;
  • The appointed supervisors must be aware of the additional hazards and risks associated with the carrying out of work, during the period of “lockdown” and/or subsequent to that, as appropriate;
  • Implementation of an over inspection system, which includes planned task observations, various inspections at workplaces, etc.;
  • Implementation of a contractor management system, which incorporates points (a) to (e) above, with specific reference to the contractor employees.

HEALTH AND SAFETY

As mentioned above, the MHSA and OHSA place extensive health and safety responsibilities on the “employer”. The responsibilities under the MHSA and OHSA will continue to apply during the period of “lockdown”, if any work is being carried out.

It is vital for a company to implement its health and safety systems. In summary, the following process should be implemented:

  • Conduct an issue – based hazard identification and risk assessment which identifies the hazards and risks associated with not only COVID-19, but also the work that is going to be carried out;
  • Based on the above, implement appropriate measures i.e. codes of practice, standards, procedures and instructions. In this regard, the existing codes of practice, standards, procedures and instructions will continue to be applicable, but it may be necessary for specific measures to be implemented, through, for example, special instructions;
  • All employees (as widely defined) must receive health and safety training on points (a) and (b) above, and there must be ongoing communication regarding health and safety through, for example, daily bulletins, notice boards, health and safety meetings, etc.;
  • The appointed supervisors must be aware of the additional hazards and risks associated with the carrying out of work, during the period of “lockdown” and/or subsequent to that, as appropriate;
  • Implementation of an over inspection system, which includes planned task observations, various inspections at workplaces, etc.;
  • Implementation of a contractor management system, which incorporates points (a) to (e) above, with specific reference to the contractor employees.

The Department of Employment and Labour issued Regulations on 23 March 2020, in Government Gazette No. 43126, in relation to occupationally-acquired COVID-19.

All employers and medical service providers are required to follow the specifications of these Regulations for occupationally-acquired COVID-19, which has been classified as a compensatable disease.

A company should engage with the various appointed Occupational Medical Practitioners (“OMPs”), to ensure that the Medical Surveillance Programme that has been implemented in compliance with Sections 12 and 13 of the MHSA, are operational and that the OMPs are familiar with the requirements regarding the identification of occupationally-acquired COVID-19, and submission of claims. The OMPs should also engage with the Rand Mutual Assurance Company Limited (“RMA”) where the particular operation falls under the jurisdiction of the RMA.

Section 11(5B) requires an employer to notify the Principal Inspector of Mines of any accident or occurrence at a mine that results in, amongst others, illness.

Section 11(5) of the MHSA requires every employer to conduct an investigation into every “serious illness” and “health threatening occurrence”, and at the conclusion of the investigation, submit a report to the Principal Inspector of Mines.

There is a misalignment between the provisions of Section 11(5B) of the MHSA which only refers to “illness”, while Section 11(5) of the MHSA refers to a “serious illness” which is defined in Section 102 of the MHSA to mean an illness resulting from occupational exposure that affects the health of a person to the extent that it incapacitates the affected person from resuming that person’s normal or similar occupation for four days or more.

Mining companies should engage with the Principal Inspector of the Mine Health and Safety Inspectorate, in the region, to ascertain whether all clinically diagnosed cases of COVID-19 should be reported in terms of Section 11(5B) of the MHSA, or whether only “serious” cases should be reported. It should also be clarified whether, in respect of each “serious” clinically diagnosed case of COVID-19, it is necessary for the mining company to conduct the investigation contemplated in Section 11(5) of the MHSA, and to submit the appropriate report.

Health and safety is extremely important, and all companies should implement an extensive Management of Change process, for the start-up of operations and/or the resumption of normal operations, post lockdown and once the threat of COVID-19 has past. Most companies have already developed a Management of Change Programme, focused on December shutdowns, and this will be an ideal starting point.

ENVIRONMENT

The Minister of Environment, Forestry and Fisheries, Ms Barbara Creecy issued Directions in terms of Regulation 10(8) of the Regulations issued in terms of Section 27(2) of the Disaster Management Act, on 31 March 2020.

These Directions include that the Directions apply to licenses and Environmental Authorisations as contemplated in NEMA, the National Environmental Management: Waste Act, No. 59 of 2008 (“NEM:WA”), and the National Environmental Management: Air Quality Act, No. 39 of 2004 (“NEM:AQA”).

Directive 5.1 provides that the timeframes are extended or deemed to be extended by the number of days of the duration of the “lockdown” period with effect from 27 March 2020. The extended timeframes include any timeframes prescribed in terms of the Environmental Impact Assessment Regulations, any Environmental Authorisations, etc. and all reporting timeframes.

For the duration of the “lockdown” therefore (whether the initial “lockdown” or any extended “lockdown”), timeframes under the Environmental Laws and/or the Environmental Authorisations are extended.

Companies must however still comply with the other terms and conditions of environmental authorisations and the Environmental Laws.

With regard to environmental aspects, where practically possible, the operations must comply with the environmental authorisations that have been granted (regardless of the form of the environmental authorisation), and where the licence conditions cannot be complied with, comprehensive documents and notes must be kept, so that the relevant operation can justify non-compliance, when matters normalise. There are important licence conditions, which may have an impact on COVID-19, such as dust monitoring, etc. This is also probably an essential service.

It is also important for the operations to be mindful of the “Duty of Care” that continues to apply under Sections 28(1) and 28(1A) of the National Environmental Management Act, No. 107 of 1998.

It is suggested that companies consider the directives, particularly in relation to the submission of new environmental authorisation applications for new projects, and the management of already issued environmental authorisations, in relation to existing projects.

AMENDMENTS TO REGULATIONS IN TERMS OF THE MINERAL AND PETROLEUM RESOURCES DEVELOPMENT ACT, NO. 28 OF 2002

Proposed Regulations were published in November 2019. The finalised regulations were published and came into effect on 27 March 2020.

The Regulations are primarily focused on consultations required and in particular the inclusion of the concept of “meaningful consultation”. This concept is linked directly to Environmental Impact Assessment Public Participation Processes.

The Regulations also make provision for potential involvement of the Regional Manager in consultation processes, and engagement with mine communities. In future, processes surrounding the Social and Labour Plan, will also be more rigorous.

Further, the Regulations address internal appeals, the process contemplated in Section 52 of the MPRDA, and formal engagement with mining communities.

The Regulations have far-reaching consequences in relation to all aspects associated with applications for prospecting and mining rights, and existing holders of such rights.

FORCING EMPLOYEES TO TAKE A COVID-19 TEST

The Regulations promulgated in terms of Section 27(2) of the Disaster Management Act, provide that no person who has been confirmed as a clinical case or as a laboratory confirmed case as having contracted COVID-19, or who is suspected of having contracted COVID-19 or who has been in contact with a person who is a carrier of COVID-19 may refuse consent to submission to a medical examination, or admission to a health establishment or a quarantine isolation site, or submission to mandatory prophylaxis, treatment, isolation or quarantine.

Both the MHSA and OHSA place extensive responsibilities on employers to ensure, to the extent reasonably practicable, that the workplace is safe, and without risk to health.

The Guideline issued by the Department of Health (“the Guideline”) also indicates that prevention is better than cure, and that persons who are suspected of having contracted COVID-19, should, ideally, be prevented from accessing the relevant facility (workplace).

Employers can force employees to undergo testing in order to maintain a healthy and safe working place.

This is of course subject to South Africa’s Privacy Laws, and any testing must be in strict compliance with the Guideline, and the provisions of the Notice issued by the Department of Employment and Labour classifying occupationally-acquired COVID-19 as a compensatable disease.

Employers in the mining industry may also be required to report the “serious illness” to the Mine Health and Safety Inspectorate of the Department of Mineral Resources and Energy, based on the provisions of Section 11(5B) of the MHSA.

THE “LOCKDOWN” IS PART OF ANNUAL LEAVE

The Department of Employment and Labour published a Directive on Covid-19 and implications on the leave provisions as set out in the Basic Conditions of Employment Act 75 of 1997 (“BCEA”), on 26 March 2020.

All employees in South Africa, as a condition of their employment, are entitled to leave provisions as set out in the BCEA.

In addition, an employee’s employment contact typically sets out the employee’s entitlement to leave.

In both the BCEA and the employment contract (generally), the employer is allowed to determine when the employees can take their annual leave, from an operational perspective (for example, during the December / January break).

Therefore, during the lockdown period, an employee may be requested by the employer to take annual leave from his/her annual leave credits.

However, the employee may not be forced to take his/her annual leave. If an employee elects not to utilise his/her annual leave, the employee can be placed on unpaid leave.

This is based on underlying purpose of an employment contract which is for the employee to provide his/her services to the employer in return for remuneration. The “no work/no pay” rule applies.

TAX IMPLICATIONS

When the Budget Speech was delivered in February, it was recognised that the year ahead would be challenging, although there was a degree of optimism that the budget could be achieved and that the measures suggested by Minister Mboweni were reasonable in the circumstances. The economic environment has, however, dramatically shifted not only locally but globally. It seems likely that we can expect changes to be made to the budget and tax landscape going forward. Indeed, there have already been significant and unprecedented developments in relation to the deferment of employees’ tax and provisional tax in the case of smaller and medium sized businesses. But this will further limit the collection of much needed revenue to support our economy. To counter this shortfall, it is probable that the collection of additional revenue will become more important and that SARS will take additional measures to meet targets. Taxpayers can therefore expect that SARS will be increasingly rigid in its approach and that any non-compliance will be grounds for action by SARS against taxpayers. It will become a very fine balance between revenue collection and continued operation of businesses. Going forward, taxpayers can therefore expect that there will be changes in budgetary projections, the nature and format of the annual tax legislative proposals and the collection efforts by SARS. However, taxpayers do have rights and in difficult times, these should not be ignored and will have to be upheld in the face of such uncertain times.

BUSINESS INTERRUPTION AND RELATED INSURANCE CLAIMS AS A RESULT OF COVID-19 / THE “LOCKDOWN”

Like force majeure, COVID-19 and/or the “lockdown” could be an insurable event in terms of a company’s insurance policies, including its business interruption cover.

These policies may include cover for the business interruption caused by the “lockdown”, and the disruption caused by suppliers / service providers who have been forced to shut down during the “lockdown” period.

Each insurance policy will have its own requirements, and we suggest that companies review their insurance policies, including their directors and officers liability provisions, to consider whether these provisions also apply to circumstances where, for example, it is alleged that the “head of the institution” did not exercise his/her discretion appropriately, in designating the business or part of the business as “essential services” as contemplated in Section 11(b)(2) of the Regulations.

Most importantly, companies should review the exclusions in their policies to determine whether the circumstances surrounding the “lockdown”, and COVID-19, more generally, are excluded from their cover.

UIF AND RELATED

On 25 March 2020, the Minister of Employment and Labour, Mr Themeblani Nxesi, signed a directive in terms of the Disaster Management Act in order to assist employers and employees whose companies have been shut down as a result of the COVID-19 pandemic. A special benefit under the Unemployment Insurance Fund (“UIF”) has been created, and is regulated by the directive, in order to mitigate the impact of the 21-day national lockdown on workers, business and the economy. The C19 TERS benefit is effective from 26 March 2020 for a period of 3 months. In order to qualify for the C19 TERS benefit, a company must have closed its operations for a period of three months or less as a direct result of the COVID-19 pandemic, be registered for UIF, and comply with the application procedure for the financial relief scheme.

On 8 April 2020, this directive was amended by the Minister of Employment and Labour to give clarity to a number of clauses in the directive. Amongst other things, under the amended directive, if a business has partially closed as a result of the Covid-19 pandemic, its employees now qualify for the C19 TERS Benefit. The amendment has additionally removed the requirement of financial distress in order to qualify for the C19 TERS Benefit.

Further, the amended directive has clarified that the salary to be taken into account will be capped at a maximum amount of R17 712,00 per employee, and employees will be paid in terms of the income replacement rate sliding scale (38%-60%) as provided in the UI Act. The amended directive further clarified that should an employee’s income determined in terms of the income replacement sliding scale fall below R3500, the employee will be paid a replacement income equal to the amount. It should be noted that employees are not entitled to more remuneration than that which they would normally receive.

AMENDMENT TO THE REGULATIONS – 16 APRIL 2020

The Regulations were amended again on 16 April 2020 by the Minister of Cooperative Governance and Traditional Affairs. The purpose of the amendment is to take into account the extension of the lockdown, which has been extended to 30 April 2020.

Importantly, the amendments incorporate two new insertions into the Regulations relating to energy, petroleum products and mining.

Regulation 11J provides that collieries that supply Eskom must operate at full capacity and that refineries, smelters, plants and furnaces must operate at full capacity.

Regulation 11K(1) provides that mining operations (other than those referred to in Regulation 11J) as referred to in paragraph 22 of Part B of Annexure B, must be conducted at a reduced capacity of not more than 50% during the period of lockdown.

Paragraph 22 has been amended from “Gold, gold refinery, coal and essential mining” to “Gold, gold refinery, coal and mining” i.e. the word essential has been removed. The impact of this appears to be that all mining (other than those referred to in Regulation 11J) is now declared an essential service and these mining companies may operate at a reduced capacity of up to 50%. It is not clear whether it is still necessary for these mines to apply for exemption, and whether it is necessary to issue the permits as contemplated in Regulation 11B(3), but it is suggested, out of caution, that the permits should be issued, to avoid any potential events at road blocks etc.

Regulation 11K(2) sets out certain conditions to the increasing of operational capacity, including: (a) rigorous testing and screening; (b) provision of quarantine facilities; (c) data collection; and (d) transportation during the lockdown.

The content of this newsletter is not intended to constitute legal advice, and if you require legal advice in relation to any of the themes, please contact us.

The Mining and Infrastructure Team staying #RelevantResponsivePractical

See also:

(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.)
Warren Beech
Warren Beech

Warren Beech is a Partner and the Head of Mining at Eversheds Sutherland. He is based in the Johannesburg office and has been practicing for over twenty years, during which...

Nicholas Veltman
Nicholas Veltman

Nicholas Veltman is a Partner at Eversheds Sutherland's mining department. He deals principally with issues relating to mining law, and construction and engineering. He has extensive experience in general corporate...

Refiloe Vengeni
Refiloe Vengeni

Refiloe Vengeni offers multi-disciplinary legal services within the mining industry. This includes representing clients at investigations and inquiries conducted in terms of health and safety legislation. In addition, she assists...

Eben van Zyl
Eben van Zyl

Eben is a senior associate in Eversheds Sutherland's mining group. He provides multi-disciplinary legal and related services, primarily to the mining and construction industries. Eben focuses on mining health and...

Themba Khumalo
Themba Khumalo

Themba is a partner at Eversheds Sutherlands' litigation department, specialising in general litigation, personal injury and public liability related matters. Themba has a particular interest in general litigation, public liability...

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