Mining Charter alignment to cement impact of new BBBEE codes

While the mining industry, which is regulated by the Department of Mineral Resources, has, to date, been relatively shielded from the impact of the amended Broad-based Black Economic-Empowerment (BBBEE) Codes of Good Practice published and regulated by the Department of Trade and Industry, the consequences could be far-reaching once the Mining Charter is aligned with the revised codes, says law firm Fasken Martineau.

The process to align the Mining Charter with the revised codes, which came into force on May 1, is currently under way to create consistency across the various industries, say Fasken Martineau partner Paul Fouche and senior associate Lameeze Jean-Pierre, who note that all industry-sector codes, published in terms of the BBBEE Act, must be aligned with the revised codes by no later than November 1, 2015. Although the Mining Charter is not a sector code in terms of the BBBEE Act, there is likely to be a sense of urgency to achieve alignment.

The Mining Charter, which regulates BBBEE in the mining industry, imposes strict obligations on mining companies in respect of the suppliers from which they procure capital goods, consumer goods and services. Mining companies are required to procure a minimum of 40% of capital goods, 70% of services and 50% of consumer goods from BEE entities.

According to the Mining Charter, a BEE entity is “an entity of which a minimum of 25% +1 vote of share capital is directly owned by historically disadvantaged South Africans as measured in accordance with [the] flow through principle”.

However, the revised BBBEE codes not only require an ownership measurement, as the mining industry is currently subjected to, but also prioritise aspects such as enterprise and supplier development, and skills development.

“Suppliers in the mining industry would thus, in future, most likely have to comply with all the elements of the revised codes to retain a competitive BBBEE recognition level,” Fouche says, adding that the opportunity for suppliers in the mining industry lies in complying with the provisions of the revised codes in time for the alignment of these codes with the Mining Charter.

Those suppliers in the mining industry who can use first-mover advantage will have a significant competitive edge, he adds.

Jean-Pierre further notes that there will likely be a knock-on effect when suppliers in the mining industry comply with all the elements of the revised BBBEE Codes of Good Practice, as they will need to pursue skills development and enterprise-development initiatives, thus creating further development opportunities for mining communities.

Revised Requirements
The number of points required to qualify for the various BBBEE status levels has been increased in the revised codes, making it more onerous to achieve a favourable BBBEE status level rating, Fouche says.

“Where an entity would previously be a noncompliant contributor if it scored below 30 points, a score of less than 40 points will be now be regarded as noncompliant,” he points out.

The BBBEE scorecard still works on a points system calculated out of 109 points. However, whereas compliance was previously measured against seven elements, it is now measured against five elements: ownership (25 points), management control (19 points), skills development (20 points), enterprise and supplier development (40 points), and socioeconomic development (5 points).

Further, the revised codes have also introduced new concepts, which affect an entity’s ability to achieve BBBEE compliance levels required by customers, Jean-Pierre states.

In this regard, ownership and skills development, as well as enterprise and supplier development, have been identified as priority elements.

“Further, it is important to note that failure to meet a subminimum threshold target set for each of the three priority elements will result in the BBBEE status level of the entity being verified being discounted by one level, which could have a significant effect on a company’s ability to compete,” Jean-Pierre says. “In addition to having a favourable BBBEE status level, entities must also qualify as an empowering supplier partner to contribute to the BBBEE status of its customers.”

Fouche and Jean Pierre add that the changes brought about by the revised codes will result in a significant increase in regulatory requirements, which smaller businesses might find difficult to comply with.

“Failure to meet the subminimum for these elements would result in a business being less competitive, resulting in reduced profits and employment,” she concludes.