Mining Charter ‘merely draft’ – law firm

Much controversy surrounds the April 2016 publication of the draft reviewed Mining Charter, but law firm Werksmans Attorneys reminds concerned stakeholders that it is still “merely in draft form”.

Extensive comments were furnished from various industry stakeholders after the publication of the draft reviewed Mining Charter. Furthermore, there has been extensive deliberation between the Chamber of Mines and the Department of Mineral Resources (DMR).

The firm notes that concern is being expressed that many of these comments and deliberations will be ignored and that the DMR will be publishing the charter in a very similar form to the draft that was published for comment last year.

Owing to the level of uncertainty as to the content and timing of the proposed new Mining Charter, there is little that companies can do to align themselves with the new proposals, says Werksmans. There may also be legal challenges to the revised charter, which could delay implementation of the revised Mining Charter for a substantial period.

However, Werksmans director and mining resources head Chris Stevens notes that, while the final version of the charter is yet to be published, that does not mean that concerns about the draft’s content are unwarranted. He believes that these concerns should be taken into account before the final version is gazetted, owing to the tremendous impact the charter will have on industry and investment in South Africa.

“The real-world implications of the revised charter will be fairly substantial for mining companies if it is published in the form in which it was published for comment in April 2016,” he warns, adding that there are many aspects relating to ownership that are problematic for mining companies.

Such problems include no recognition of the ‘once empowered, always empowered’ principle, leaving mining companies that fall short of the stated targets with three years to increase their black shareholding to 26%.

Further, of this percentage, no less than 5% of equity shares are to be distributed to workers, black entrepreneurs and the community. “In addition, the Mining Charter also creates obligations for black economic-empowerment (BEE) partners by requiring them inter alia to form trusts, with adequate representation from traditional authorities and unions, as well as special purpose vehicles with registered memoranda of incorporation.”

Stevens points out that an obligation has been created for a broad-based BEE transaction to be concluded for each mining right granted, “which will be extremely impractical where several mining rights constitute one mine”.

Moreover, the retroactive imposition of the requirements of the draft reviewed Mining Charter on previous BEE transactions might result in many mining companies being in breach, despite having previously complied with the ownership requirements.

“Procurement percentages for BEE entities in relation to capital goods, consumables and services have been made more onerous. In addition, the revised charter introduces the requirement for all mining right holders to use South Africa-based facilities to analyse 100% of a mining and/or exploration company’s mineral samples.”

The draft Mining Charter also increases employment equity targets across the board and introduces a requirement that mines contribute 1% of yearly turnover to mine community development. Mining companies’ financial obligations regarding home-ownership options for employees are also dramatically increased, as they are required to subsidise the buying of houses and issue guarantees on behalf of employees.

“In terms of Section 2(11) of the draft Mining Charter, all existing mining right holders have a maximum of three years to comply with the targets contained in the amended charter from the date of its publication,” Stevens notes.

explains that the Mining Charter derives from Section 100 of the Mineral and Petroleum Resources Development Act (MPRDA) No 28 of 2002. Section 100(2)(a) states that to ensure the attainment of government’s objectives of redressing historical, social and economic inequalities, the Mineral Resources Minister must – within six months from the date on which the Act takes effect – develop a broadbased socioeconomic empowerment charter that will provide a framework for targets and timetables affecting the entry and active participation of historically disadvantaged South Africans (HDSAs) in the mining industry. This is meant to ensure that HDSAs benefit from the exploitation of mining and mineral resources.

However, it may well be that many mining companies will find it extremely difficult to comply, especially where they have become noncompliant, owing to HDSA shareholders having sold off their shareholding, he notes.

“The charter is meant to set out how the objectives in Sections 2(c), (d), (e), (f) and (i) of the MPRDA can be achieved. The first Mining Charter was published on August 13, 2004, and was a five-year plan detailing the conversion of old order rights to new form rights until April 30, 2009.”

This charter was updated with the amendments to the BroadBased SocioEconomic Empowerment Charter for the South African Mining and Minerals Industry, published on September 20, 2010.

“Many of the provisions of this second Mining Charter had targets for 2014, which has now come and gone, and government, thus, intends publishing the third version of the charter.”

Stevens says it is not absolutely necessary that the charter is reviewed every few years, but that it is seemingly government’s intention to set short-term targets, to be reached within three to five years, and then review the charter depending on the progress achieved.