South Africa: What You Need To Know About The 2017 Mining Charter

Last Updated: 22 June 2017
Article by Otsile Matlou, Lloyd Christie and Ntsiki Adonisi-Kgame

Most Read Contributor in South Africa, July 2017

On Thursday, 15 June 2017, the Minister of Mineral Resources, Mosebenzi Zwane (the "Minister") gazetted the Broad-Based Black Socio-Economic Empowerment Charter for the South African Mining and Minerals industry, 2017 (the "2017 Mining Charter"), which comes into effect on the date of publication.

Within hours of the gazetting of the 2017 Mining Charter, the Chamber of Mines of South Africa (the "Chamber") issued a public statement confirming that it rejects the unilateral development and imposition of the 2017 Mining Charter on the industry, and is of the view that the process that was followed by the Department of Mineral Resources (the "DMR") in developing its version of the 2017 Mining Charter has been seriously flawed. The Chamber also confirmed that it will seek an interdict to suspend the implementation of the 2017 Mining Charter and further, to take it on review.

While the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry, 2004 (the "Original Mining Charter") and the Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Metals Industry, 2010 (the "2010 Mining Charter") refer to historically disadvantaged South Africans ("HDSAs"), which it defined as South African citizens disadvantaged by unfair discrimination before 1994, the 2017 Mining Charter aligns this category of persons with the term "Black Persons", which is the same definition as the one for "Black People" used in the Broad-Based Black Economic Empowerment Act, 2003 (the "B-BBEE Act").

Some of the key features of the 2017 Mining Charter relating to ownership, procurement and employment equity are as follows:

New prospecting rights to be granted only to entities that are majority Black-Owned (50% + 1 vote Black Person shareholding)

Under the Original Mining Charter and the 2010 Mining Charter, there was no requirement for prospecting right holders to give effect to any ownership requirements that were applicable to mining right holders. The Mineral and Petroleum Resources Act, 2001, (the "MPRDA") currently provides that the Minister has a direction to make a request in terms of section 17(4) of the MPRDA for a prospecting right holder to give effect to the empowerment object in section 2(d) of the MPRDA, having regard to the type of mineral concerned and the extent of the proposed prospecting project in question.

New mining rights to be granted only to entities that are 30% Black-Owned in prescribed categories of shareholders

The Original Mining Charter set a 15% five-year target and 26% 10-year target for mining companies in respect of HDSA ownership for equity or attributable units of production. The 2010 Mining Charter set a 2014 deadline for the attainment of the 26% ownership target. The new 30% Black ownership requirement must be distributed as follows: 8% to an employee share ownership plan; 8% to mine communities in the form a community trust and 14% to black entrepreneurs (defined to mean Black-Owned companies or Black Persons). Subject to the solvency and liquidity requirements in the Companies Act, 2008, a mining right holder must pay a minimum of 1% of its annual turnover in any given financial year to the Black Person shareholders, prior to and over and above any distributions to shareholders of the mining right holder.

Existing prospecting right and mining Right holders to top up in 12 months

A holder who concluded a "Historical BEE Transaction" (a transaction concluded prior to the coming into operation of the 2017 Mining Charter that achieved a minimum 26% Black shareholding or more), must "top up" its Black shareholding to 30% at the holder level by 15 June 2018.

80% of total spend on services and 70% of total spend on mining goods to be sourced from prescribed categories of South African-based companies

A minimum of 21% of total mining goods (previously understood as capital goods and consumer goods) procurement spend must be set aside for sourcing "South African Manufactured Goods" (defined to mean goods where at least 60% of the value added during the assembly and/or manufacturing of the product is realised within the borders of the Republic) from "Black-Owned Companies" (50% +1 vote shareholding or similar interest controlled by Black Persons).

A minimum of 5% of total mining goods procurement spend must be set aside for sourcing South African Manufactured Goods from Black-Owned Companies which are owned and controlled 50% + 1 vote by female Black Persons and/or "youth" (defined as Black Persons between the ages of 18 and 35 years).

A minimum of 44% of total mining goods procurement spend must be set aside for sourcing "South African Manufactured Goods from BEE Compliant Manufacturing Companies" (which are defined as companies that manufacture goods, that have a minimum B-BBEE level 4 on the Department of Trade and Industry B-BBEE Codes and that are 26% Black-Owned).

A minimum of 65% of total spend on services must be sourced from Black-Owned Companies.

A minimum of 10% of total spend on services must be sourced from Black-Owned Companies which are owned and controlled 50% + 1 vote by female Black Persons.

A minimum of 5% of total spend on services must be sources from Black-Owned Companies which are owned and controlled 50% + 1 vote by youth.

This proposal (without the breakdown in categories) to increase the services procurement target from 70% to 80% and the mining good procurement target from 50% to 70% (albeit this was phrased only in relation to consumer goods with capital goods at a lower proposed target from 40% to 60%) was already a feature of the earlier draft version of the 2017 Mining Charter, which was published on 15 April 2016.

Increased employment equity thresholds

The board and executive/top management of a holder must be composed at a minimum of 50% Black Persons with exercisable voting rights, 25% of which must be female Black Persons.

The senior management of a holder must be composed at a minimum of 60% Black Persons of which 30% must be female Black Persons.

The middle management of a holder must be composed at a minimum of 75% Black Persons of which 38% must be female Black Persons.

The junior management of a holder must be composed at a minimum of 88% Black Persons of which 44% must be female Black Persons.

A minimum of 3% of the holder's employees must constitute employees with disabilities, reflective of national and/or provincial demographics.

Core and critical skill positions (high-level technical skills across all organisational levels within both production and operational parts of the Holder's value chain) must be held 60% by Black Persons.

These new thresholds were already a feature of the draft version of the 2017 Mining Charter which was published on 15 April 2016, except that the disability and core critical skills thresholds were increased in the 2017 Mining Charter.

Non-compliance

Non-compliance with certain of the identified targets will, according to the 2017 Mining Charter, be regarded as a breach of the MPRDA, entitling the Minister to suspend mining operations and to cancel rights granted in terms of the MPRDA as well as to take steps towards criminal prosecution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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