South Africa: The Draft 2018 Mining Charter

Last Updated: 10 July 2018
Article by Lloyd Christie and Ntsiki Adonisi-Kgame

Most Read Contributor in South Africa, October 2018

On 15 June 2018, exactly one year to the day after the publication of the previous draft, the new South African Minister of Mineral Resources, Gwede Mantashe (the "minister"), published for public comment the Draft Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2018 (the "Draft 2018 Mining Charter"). Although there were some indications of the minister publishing the charter content in the form of delegated legislation, the minister has instead opted to retain the form of a charter and hopes to have his day in court in his appeal of the recent " once empowered, always empowered" High Court judgment.

Below are the most salient features of the Draft 2018 Mining Charter:

Preamble

This is a carbon copy of the 2017 version, except for the following inculpatory statement, "[t]hrough its continued support and implementation of discretionary policies and practices, the mining and minerals sector, which dominated the South African political and socio-economic order, brought about inequalities in the mining industry".

Broad-based black economic empowerment arrangements for prospecting right holders

Currently, there is no legal requirement for there to be historically disadvantaged South African ("HDSA") shareholding for a prospecting right to be issued to an applicant, unless the minister requests that the empowerment objectives in the Mineral and Petroleum Resources Development Act, 2002 ("MPRDA") be given effect to in terms of section 17(4) of the Act. The 2017 version determined that for new prospecting rights to be issued, there will be a requirement for the prospecting right to be held 50% plus one vote (ie, majority owned) by HDSAs.

The Draft 2018 Mining Charter now merely states that it will apply to prospecting rights as contemplated in section 17(4) of the MPRDA. On the face of it, this is consistent with the MPRDA and must be welcomed.

Top up

Although the Draft 2018 Mining Charter has excluded the 2017 version's definition of "top up", an existing right holder (defined as a holder of a mining right) who has "achieved and maintained" a minimum of 26% broad-based Black Economic Empowerment ("B-BBEE") shareholding as at the date of the Mining Charter, 2018, will have five years (and not 12 months, as was the case in the 2017 version) to top up to 30% B-BBEE shareholding. The same applies to a holder who, at any stage during the existence of its right, achieved the 26% empowerment target but whose B-BBEE partner(s) have since exited. In this sense, the "once empowered, always empowered" principle is recognised, but nevertheless requires a top up, not from the existing level of empowerment, but rather from the former high water mark of 26%. In other words, an additional 4% empowerment transaction will be required. The continuing consequences of all historical transactions, on which a holder relied upon to reach the 26% empowerment target, are recognised and include transactions concluded on units of production. It also recognises that some mining companies achieved an empowerment status within a group context and not necessarily at asset or holder level.

The Draft 2018 Mining Charter does not deal with a holder who had already achieved 30% empowerment or more but has since dropped to below 26%.

If an existing holder has not achieved the 26% empowerment target by the date of commencement of the Mining Charter 2018, it will have to increase its B-BBEE shareholding from its current level (as opposed to previous highest empowerment status as is the case with the holders referred to above) to a minimum of 30% B-BBEE shareholding within five years.
Applications for mining rights that are pending at the commencement of the Mining Charter, 2018 will be granted if the applicants have 26% B-BBEE shareholding in place (in accordance with the 2010 Mining Charter) and will then have to top up to 30% within five years.

There appears to be no restriction in respect of:

  • the commercial nature of the top up (ie, sale or subscription and dilution);
  • the class of beneficiary of the top up (in other words, it can be a community, an entrepreneur or employees); or
  • in respect of the level within the company at which the transaction is implemented (holding level or asset level).

Renewals and transfers

An existing holder will not be able to rely on the "once empowered, always empowered" principle in order to obtain new rights or to renew existing rights. Once a right is transferred to another in terms of section 11 of the MPRDA, all continuing consequences lapse and neither the new nor the erstwhile holder will be able to credit the continuing consequences of previous B-BBEE transactions.
The practical effect of this is worth noting: if a holder previously achieved the 26% empowerment target but its B-BBEE shareholding is now only 20%, then that holder will need to implement a 4% transaction within five years to comply with the "top up" requirement. Then, if the holder wants to renew its existing right or apply for a new right, it will need to implement a top up B-BBEE transaction so that by the time the renewal is granted, the holder will have 30% B-BBEE ownership.

B-BBEE for mining rights at 30%

For new mining rights to be issued, there will be a requirement for the mining right to be held 30% by B-BBEE shareholders, a minimum of 14% of which must be held by a B-BBEE entrepreneur.

The prescribed minimum 30% target must apply for the duration of the mining right. The holder will therefore have to maintain the target for the duration of the mining right, unless there is a disposal of unencumbered net value shares that have been held for a third of the duration of the relevant mining right by a B-BBEE shareholder that is a B-BBEE entrepreneur. The Draft 2018 Mining Charter therefore encourages a "lock-up" and requires B-BBEE entrepreneurs to value long-term investment. The draft also attempts to bind B-BBEE entrepreneurs to reinvest a minimum of 40% of the proceeds from disposed equity back into the mining industry. It is not clear how this requirement will be enforced.

The Draft 2018 Mining Charter also requires a B-BBEE entrepreneur's shareholding to vest in prescribed percentages at specified dates over the term of the right:

  • 15% in the first quarter (typically year 7.5) of the duration of the mining right;
  • 50% in the second quarter (typically year 15) of the duration of the mining right;
  • 70% in the third quarter (typically year 22.5) of the duration of the mining right; and
  • 100% in the last quarter (typically year 30) of the duration of the mining right.

Employees must hold 8% of mining right holder shares

For new mining rights to be issued, there will be a requirement for 8% of the mining right to be held by employees. This is likely to be done in the form of Employee Share Ownership Plans ("ESOPs").

Significantly, 5% of the employees' stake will need to be free carry and non-transferable.

Communities must hold 8% of mining right holder shares

For new mining rights to be issued, there will be a requirement for the mining right to be held 8% by communities. This is likely to be done in the form of a community trust. Currently, there is no prescribed shareholding by communities in mining right holders.

Significantly, 5% of the employees' stake will need to be free carry and non-transferable.

1% EBITDA payment to communities and employees

For new mining rights to be issued, there will be a requirement that 1% of Earnings Before Interest, Taxes, Depreciation and Amortisation ("EBITDA") is paid to communities and employees as a trickle dividend from the sixth year of a mining right until dividends are declared or at any point in a 12-month period where dividends are not declared. Currently, there is no prescribed amount that needs to be paid to HDSA shareholders.

80% of services and 70% of goods to be procured from B-BBEE entities

The Mining Charter, 2018 will increase the target to procure services from B-BBEE entities from 70% to 80% and the target to procure goods from B-BBEE entities from 50% (in respect of consumer goods) and 40% (in respect of capital goods) to 70% (presumably in respect of both capital and consumer goods). The proposal to increase the services target to 80% and the consumer good target to 70% was already a feature of the 2016 and 2017 versions.
Up to 5% of the total procurement budget on mining goods and up to 10% of budget on services may be offset using supplier and/or enterprise development.

Board must be 50% HDSAs

The Draft 2018 Mining Charter increases the representation of HDSAs at board level from 40% to 50% and requires that 20% of those must be female. This was already a feature of the 2016 and 2017 version.

The Draft 2018 Mining Charter has decreased the representation of HDSAs (including women) at senior, middle and junior management levels as well as the representation of employees with disabilities.

Reprieve for junior miners

Junior miners may make representations to the minister regarding the extent to which the Mining Charter elements will apply to them.

Definitions

  • "BEE Entrepreneur" – a new definition has been included that substitutes the former definitions of "BEE Entrepreneur" and "Black Owned Company" in the 2017 version and retains the requirement of control by a black person (ie, 51% of exercisable voting rights and 51% of economic interest). However, the definition also includes, as a BEE Entrepreneur, an organ of state (excluding a mandated investment).
  • "Beneficiation" – the definition contained in the Mineral and Petroleum Resources Development Amendment Bill, 2013 as opposed to the current MPRDA, has been inserted as the definition of beneficiation.
  • "BEE compliant company" – the definition remains substantively the same as the 2017 version and refers to a company with a minimum B-BBEE level 4 status in terms of the B-BBEE Codes of Good Practice and a minimum of 26% black ownership.
  • "Black Person" – this definition has been amended in two significant aspects. Firstly, the peculiar "after 27 April 1994 naturalisation clause" has been deleted. Secondly, the definition previously required a juristic person to be wholly owned by Africans, Coloureds and Indians to qualify as a Black Person, whereas the definition now reverts to the wording used in the definition of "historically disadvantaged person" in the MPRDA, requiring such persons to hold a majority (and not all) of the issued share capital or members; interest and able to control a majority of the members' vote.
  • "Historical BEE Transactions" – refers to "BEE Transactions" concluded prior to the coming into operation of the Mining Charter, 2018 but the Draft 2018 Mining Charter has not retained the 2017 version's definition of a "BEE Transaction".
  • "Meaningful economic participation" – the definition contains some slight variations, but in essence retains the definition in the 2017 version. Participation will include the participation of B-BBEE shareholders in the voting on trading and marketing of the company's mined product. The definition retains the notion of a "trickle dividend" and the Draft 2018 Mining Charter also includes a stand-alone definition for a "trickle dividend".

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
ENSafrica
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
ENSafrica
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions