A Mining Charter of compromise

A Mining Charter of compromise

On 27 September 2018, the Minister of Mineral Resources, Gwede Mantashe, published the Mining Charter, 2018. In language similar to previous charters, the Mining Charter, 2018 aims to give effect to meaningful economic participation, integration into the mainstream economy and effective ownership of the country’s mineral resources to historically disadvantaged persons.

The Mining Charter, 2018 begins by distinguishing between the ownership structures of existing and new holders of mining rights. To this extent, it recognises the 26% BEE shareholding which was required by the previous Mining Charter and states that existing mining right holders which complied with the 26% requirement are to be recognised as compliant for the duration of the mining right. Mining companies whose BEE partners exited prior to the Mining Charter, 2018 are also recognised as compliant for the duration of the mining right. However, such recognition will not apply upon renewal of the right.

On the other hand, new mining rights are required to have a minimum 30% BEE shareholding. This shareholding is to be distributed as follows: a minimum of 5% to be held by employees of the mining company (usually by way of ESOPs or employee share incentive schemes), another minimum of 5% to be held by mining communities and a minimum of 20% ownership to BEE entrepreneurs, 5% of which must preferably be for women. The 30% BEE target applies for the duration of the mining right.

The envisaged mining community shareholding is to be held by way of a trust or ‘similar vehicle’ set up for the benefit of host communities. This trust will be responsible for the community development programme, amongst other things. The community development programme appears to be intended to complement and not replace the Social and Labour Plan (required in terms of the Mineral and Petroleum Resources Development Act, 2002 (“MPRDA”)). It is unclear whether communities that have either grouped themselves under formal community property associations or incorporated their communal structure in the form of a company are what is contemplated by ‘similar vehicle’.  Would these community associations and companies suffice for purposes of holding the 5% allocated BEE shareholding? Or would these entities instead be required to abandon the existing structures in favour of the prescribed community trust? The Charter does not provide any clarity in this respect.

The Mining Charter, 2018 appears to promote beneficiation. To this end, percentage points (up to 5% of the equity equivalent of a BEE entrepreneur shareholding) may be claimed by a mining right holder for achieving beneficiation. Such mining right holder is also required to submit a Beneficiation Equity Equivalent Plan to the Department of Mineral Resources (“DMR”) for approval.

Other relevant provisions include the requirement of a minimum of 70% total mining goods spend to be on goods manufactured in South Africa and a minimum of 80% of total spend on services to be sourced from South African based companies. Local content is also promoted with a new requirement for mining right holders to provide proof of local content for mining goods in the form of SABS (South African Bureau of Standards) certification.

The Mining Charter, 2018 also gives a nod to the Employment Equity Act,1998 and the equality clause in section 9of the Constitution by requiring a minimum of 50% composition of board members of mining companies to be historically disadvantaged persons, 20% of which must be women. At executive director level, there must be a minimum of 50% of historically disadvantaged persons, 20% of which must be women. 60% of middle management must be historically disadvantaged persons, of which 25% must be women. Lastly, 70% of junior management level must be comprised of historically disadvantaged persons, of which 30% must be women. Disabled employees are also recognised and are required for be a minimum of 1.5% of the workforce in mining companies.

Interestingly, and one might even say progressively, the Mining Charter, 2018 introduces a new ‘regime’ aimed at junior miners which will be applicable to new mining rights. The effect of this regime is that miners with an annual turnover of less than R10 million are exempt from certain provisions of the Mining Charter, 2018, such as those relating to employment equity and procurement. This may be seen as an attempt by the DMR to facilitate easier access (and growth) of junior miners into the mining industry.

It is unclear whether this version of the charter contemplated in section 100(2) of the MPRDA will indeed achieve meaningful participation of historically disadvantaged persons in the mining industry – an industry that has always been reluctant to achieve transformation. Indeed, the Mining Charter, 2018 itself notes that the DMR’s assessment findings revealed that mining companies saw compliance was a box-ticking exercise and did not fully embrace the spirit of the Mining Charter. While increasing the BEE equity shareholding was necessary, it is yet to be seen whether this will in actual effect lead to the overall transformation of the mining industry.

 

Authors:

Athi Jara, Director

Mihlali Sitefane, Senior Associate