South Africa: The 2018 Mining Charter

Last Updated: 8 October 2018
Article by ENSafrica Natural Resources Department

Most Read Contributor in South Africa, September 2018

On 27 September 2018, the South African Minister of Mineral Resources, Gwede Mantashe (the "Minister"), published the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2018 (the "2018 Mining Charter"). It is indicated that "implementation guidelines" are to be published in the near future. What follows is a summary of a few of the salient features of the 2018 Mining Charter.

Ownership

The "once empowered, always empowered" principle has been accepted but still in a qualified fashion, which will unfortunately lead to further litigation and legal uncertainty. Existing mining right holders who achieved a minimum of 26% broad-based black economic empowerment ("B-BBEE") shareholding will be recognised as compliant for the duration of the mining right, implying but without stating expressly that such recognition will lapse upon the expiry of the mining right, suggesting that such a holder will need to re-empower upon renewal. This is unfortunate and renders the 2018 Mining Charter susceptible to legal challenge. The Minister has removed the requirement in the draft 2018 Mining Charter for such holders to "top-up" B-BBEE shareholding to 30% within a period of five years.

Existing mining right holders whose B-BBEE partners exited prior to the commencement of the 2018 Mining Charter will be recognised as compliant for the duration of the mining right and such recognition will not be applicable upon renewal. The requirement to re-empower upon renewal is likely to be challenged on the basis that it is not contemplated in the renewal requirements prescribed in the Mineral and Petroleum Resources Development Act, 2002 ("MPRDA").

The recognition of continuing consequences of all historical B-BBEE transactions, which formed the basis upon which "new order mining rights" (it is not clear whether converted mining rights have been excluded by omission or design) were granted, will not be transferable and will not apply to:

  • an application for a new mining right (which will oblige mining companies to undertake a potential onerous and impractical corporate re-structuring to comply with the "new mining rights" requirements of the 2018 Mining Charter regardless of what their current empowerment status or structure is. An existing holder with, for example, a 20% B-BBEE entrepreneur shareholder will need to incorporate a new company to hold the new mining right and this subsidiary will need to be empowered in accordance with 30% B-BBEE requirement distributed in accordance with the prescribed share percentage distribution of 5% (ESOP)/ 5% (community trust) / 20% (B-BBEE entrepreneur) which would also ignore the fact the 2018 Mining Charter recognises the flow-through principle; or
  • renewal of a mining right (which as stated above is unfortunate).

A pending application lodged and accepted prior to the commencement of the 2018 Mining Charter will be processed in terms of the 2010 Mining Charter (ie, 26% B-BBEE shareholding), subject to the mining right holder increasing B-BBEE shareholding to 30% within a period of five years from the effective date of the mining right.

A new mining right must have a minimum of 30% B-BBEE shareholding distributed in the following manner:

  • a minimum of 5% non-transferable carried interest to qualifying employees;
  • a minimum of 5% non-transferable carried interest or "equity equivalent benefit" to host communities; and
  • a minimum of 20% effective ownership in the form of shares to a B-BBEE entrepreneur, 5% of which must preferably be for women.

The previous draft version of the 2018 Mining Charter required a share percentage distribution of 8% (ESOP)/ 8% (community trust) / 14% (B-BBEE entrepreneur).

The nebulous concept of a "carried interest" is defined to mean shares issued at no cost and free of any encumbrance. But the definition also states that "the cost for such shares must be recovered" by the right holder "from the development of the asset". The 2018 Mining Charter also prohibits any dilution the shares issued to employees and communities. The concept of a "free carried interest" contained in the previous draft 2018 Mining Charter was considered to be inimical to investment, contrary to certain provisions of the MPRDA, conflicting with the Companies Act, 2008, in that it results in inequality of treatment of shareholders and a constitutionally impermissible deprivation of property and an expropriation of property without compensation.

The "equity equivalent" to host communities is a monetary donation to be administered as an amount equivalent to the value of 5% of the issued share capital in the mining right holder at no cost to a trust or similar vehicle set up for the benefit of host communities. The trust or similar vehicle will be responsible for developing and implementing a host community development programme which is to be approved under this element and does not replace social and labour plan commitments of the mining right holder. The 2018 Mining Charter also prohibits dilution of the equity equivalent benefit.

The prescribed minimum 30% target must apply for the duration of the new mining right. The holder will therefore have to maintain the target for the duration of the new mining right, unless there is a disposal by the B-BBEE entrepreneur of unencumbered net value shares which have been held for a third of the duration of the relevant new mining right. The 2018 Mining Charter therefore encourages a "lock-up" and requires B-BBEE entrepreneurs to value long-term investment.

While the Minister has removed the requirement in the draft 2018 Mining Charter that a B-BBEE entrepreneur would have to reinvest a minimum of 40% of the proceeds from disposed equity back into the mining industry, it still seeks to regulate the decisions of a B-BBEE entrepreneur by confusingly stating that "a mining right holder of the minimum 20% shares ... shall not be diluted below 51% ownership and control by BEE Entrepreneur". Such a requirement, albeit useful for a mining right holder since it seeks to prohibit a flow-through dilution, will be unenforceable against the B-BBEE entrepreneur. There is also a new requirement for an agreement to be concluded between the shareholders providing for exit mechanisms for the BEE Entrepreneur and arrangements for the settlement of the B-BBEE entrepreneur's remaining financial obligations. The 2018 Mining Charter requires this agreement to be submitted to the Department of Mineral Resources ("DMR"). It is not clear whether this agreement has to be lodged prior to the granting of a new mining right in order for the DMR to include compliance with this agreement as a term of the new mining right. The 2018 Mining Charter seeks to vest a new power in the hands of the DMR to regulate the disposal of B-BBEE related shareholding, a power currently not afforded to it in the MPRDA.

The 2018 Mining Charter also requires 50% of the B-BBEE shareholding to vest within two thirds of the duration of the right. This will result in an additional cost to the right holder given that shares have to vest at set intervals undermining the viability of new mining projects.

The Minister has removed the requirement in the draft 2018 Mining Charter to pay 1% of Earnings Before Interest, Taxes, Depreciation and Amortisation ("EBITDA") to communities and employees as a trickle dividend.

Mindful that the 2018 Mining Charter requires the ownership of qualifying employees and B-BBEE entrepreneurs to be in the form of shares in the group, it is interesting that it permits "BEE shareholding... on units of production .... or assets". This may be an indulgence for mining companies that would like to donate waste rock dumps to communities for them to extract value from processing the dumps.

Usefully, the 2018 Mining Charter recognises that mining projects are often owned in group structures in order to raise finance and therefore permits the application of the flow-through principle, except that for existing empowered (or partly empowered) mining right holders who apply for new mining right, it does not appear (either by omission or design) that the flow-through principle applies.

Procurement and employment equity

The procurement and employment equity targets as against the original Mining Charter, 2010 Mining Charter and 2017 Mining Charter are set out in the tables available here.

Overall, employment equity targets have remained largely the same but the most significant changes relate to female representation in respect of which there have been increases to accommodate for the fact that white females can now seemingly contribute to those targets.

While the Draft 2018 Mining Charter contained no transitional arrangement period for compliance with the employment equity targets, a period of five years is now provided for to align with the employment equity targets and a five-year plan indicating progressive implementation of the provisions of the employment equity targets must be submitted to the DMR within six months of the publication of the 2018 Mining Charter.

The procurement targets for mining goods remains the same as those in the Draft 2018 Mining Charter. The procurement targets for mining services also remains the same as those in the Draft 2018 Mining Charter, with a slight adjustment made only to the proportion of services to be supplied by women-owned and controlled companies and youth. The concern therefore remains that the requirement to purchase mining goods from B-BBEE suppliers and the requirement to have these mining goods manufactured in South Africa. In respect of the latter, the 70% requirement is also unrealistic for mining of certain minerals, particularly those that require the buying of very large capital equipment from offshore sources which are the sole source of supply of such equipment.

The offset against 10% of the procurement budget on services available to mining right holders by investing in enterprise and supplier development of services remains the same. The offset against the procurement budget on mining goods has been increased from 10% in the draft 2018 Mining Charter to 30%. The transitional arrangement period for compliance with the procurement targets remains five years as provided for in the draft 2018 Mining Charter.

Junior miners

While the draft 2018 Mining Charter provided for junior miners to make representations to the Minister regarding the extent to which the Mining Charter elements will apply to them, the 2018 Mining Charter now provides that for mining rights granted after commencement of the 2018 Mining Charter junior miners with an annual turn-over of less than ZAR10-million will be exempt from complying with the empowerment equity requirements when there are less than 10 employees and are exempt from complying with the inclusive procurement, enterprise and supplier development requirements. Junior miners with an annual turnover of more than ZAR10-million but less than ZAR150-million must comply with employment equity at group level and the inclusive procurement requirements. For all junior miners with an annual turnover of less than ZAR150-million, the 30% ownership requirement is "undefined" (we assume this to mean that there is no prescribed class and proportion of B-BBEE shareholders to make up the 30%).

Application to holders of licences under the Precious Metals Act and the Diamonds Act

While the Precious Metals Act, 2005 and the Diamonds Act, 1986 currently require the South African Diamond and Precious Metals Regulator to have regard to the requirements of the 2018 Mining Charter, the 2018 Mining Charter provides for the specific application of certain of the elements of the 2018 Mining Charter with variations and exemptions depending on the size of the licence holder. Enterprises with a turnover less than ZAR1-million are exempt from the 2018 Mining Charter in its entirety. Enterprises with a turnover of more than ZAR50-million must comply with the 2018 Mining Charter in its entirety.

Legal status of the 2018 Mining Charter

While the definition of "Mining Charter, 2018" refers to the 2018 Mining Charter as being "developed in terms of section 100 of the MPRDA", section 100 of the MPRDA does not provide for the development of a further charter by the Minister. For this reason, the 2018 Mining Charter is susceptible to judicial review if challenged on the basis that the Minister lacks authority in terms of the MPRDA for the Minister to develop such a Charter.

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