10 things you need to know about the draft mining charter 2018

10 things you need to know about the draft mining charter 2018

On 15 June 2018, the Minister of Mineral Resources (Minister), Gwede Mantashe published the draft Broad Based Socio-Economic Empowerment Charter for the Mining and Mineral Industry, 2018 (Draft Mining Charter, 2018) for public comment.

Following an extension by the Minister, interested and affected parties have until 31 August 2018 to submit written representations

In a nutshell, the purpose of the Draft Mining Charter is to “facilitate sustainable transformation, growth and development of the mining industry” in South Africa.

The Draft Mining Charter and all its predecessors have been met with criticism by industry, labour and communities.

Below, we list ten things you need to know about the Draft Mining Charter, 2018.

  1. The mining charter is a tool for transformation

The Mining Industry cannot escape the constitutional mandates for transformation and the need to create access to the mining industry for historically disadvantaged South Africans.

This mandate is sometimes lost in all the technicalities. Many discussions are not premised on the need for transformation, but on the difficulties surrounding transformation. In our constitutional dispensation, transformation is one of the big goals and so it must be pursued, positively.

 

  1. The mining charter is not primary legislation

 The primary legislation in the mining industry is the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) which came into force on 1 May 2004. Section 100(2) of the MPRDA contemplates that the Minister needed to develop a broad-based socio-economic charter within 6 (six) months of 1 May 2004.

Any piece of legislation enacted by Parliament is primary legislation. The mining charter contemplated in section 100 is not enacted by Parliament. Instead, the power to develop and publish the charter was given to the Minister who forms part of the executive branch of government. Therefore, the Minister can only act within the parameters of the powers granted to him by Parliament in the MPRDA.

The exact nature of the charter in section 100 has been a subject of great speculation and legal argument. Our courts are currently considering the juristic niche of the charter contemplated in section 100.

Although the current charter is in draft form, once it is officially gazetted, its legal force will be contended with. Its legal force is ultimately rooted in its nature.

  1. The mining charter is not only concerned with ownership

Contrary to popular belief, the mining charter has six elements, one of which is ownership. These are:

  • Ownership;
  • Inclusive procurement, supplier and enterprise development;
  • Human resource development;
  • Employment equity;
  • Mine community development; and
  • Housing and living conditions.

The ownership element is not the only element.

  1. New Mining Rights must have a minimum of 30% BEE shareholding

 A new mining right must have a minimum of 30% BEE shareholding and the shareholding must be distributed in the following manner:

  • a minimum of 8% of which 5% is non-transferable free carried interest to qualifying employees;
  • a minimum of 8% of which 5% is non-transferable free carried interest to host communities; and
  • a minimum of 14% shares to a BEE entrepreneur.
  1. Existing Mining Rights

 The iteration preceding the Draft Mining Charter, 2018 did not recognise the continuing consequences historical transactions where mining right holders concluded BEE transactions, and the BEE partners have since exited; or where asset transactions were concluded.

 The Draft Mining Charter, 2018 recognises these transactions; and mining right holders need to top-up to a minimum of 30%.

  1. Trickle dividends are payable to communities and employees

 Mining right holders must pay a trickle dividend equal to a minimum of 1% of Earnings

Before Interest, Taxes, Depreciation and Amortisation (EBITDA) from the sixth

year of a mining right to qualifying employees and host communities respectively, until dividends are declared.

  1. 70% of total mining goods procurement spend must be on South African manufactured goods

Mining right holders must procure a minimum of 70% of total mining goods from South African manufacturers. This 70% procurement spend must be apportioned in the following manner:

  • 21% of the total mining goods procurement budget must be spent on South African manufactured goods by Black entrepreneurs;
  • 5% of the total mining goods procurement budget must be spent on South African manufactured goods by BEE women entrepreneurs or 51% youth owned and controlled enterprises; and
  • 44% of the total mining goods procurement budget must be spent on South African manufactured goods by a BEE compliant company.
  1. Half the Boards of mining companies must be Black

 The Boards need to be made up of at least 50% Black people with exercisable voting rights, and 20% of which must be Black women.

  1. Licence holders under the Precious Metals Act also have obligations

 A licensee under the Precious Metals Act (the downstream diamonds and precious metals industry) must achieve a minimum of 18% Black shareholding. In addition, the licensee must comply with the rest of the requirements under the various elements.

  1. You have an opportunity to make submissions

 You have an opportunity until 31 August 2018 to make written representations on the contents of the Draft Mining Charter, 2018.

Authors

Athi Jara , Director, LNP Attorneys Inc
Mihlali Sitefane, Senior Associate, LNP Attorneys Inc