The new Mining Charter - the good, the bad and the ugly
The Charter is a mixed bag of the good, the bad and the ugly.
Some of the gains for the beleaguered mining companies include:
As expected, the "once empowered, always empowered" principle has garnered a little more traction with the regulator (subject to certain conditions), pursuant to the courts recognising the continuing consequences of previous BEE transactions. However, there is a catch! This recognition is only for the duration of the mining right and is not applicable upon renewal or transferable upon sale. According to the new Charter, a new mining right must have a minimum 30% BEE shareholding (previously it was 26%).
Nevertheless, there is a small silver lining: for pending applications lodged and accepted prior to the charter coming into effect‚ mining-rights holders have five years to adjust their empowerment shareholding to 30%. In an effort to boost investment in the moribund area of minerals exploration, the Minister of Mineral Resources is also on record as stating that new prospecting rights applicants will not be required to be empowered unless specifically otherwise required by the DMR
Fortunately, the strongly opposed “trickle dividend" of 1% of earnings to be paid to communities and employees in years in which no dividend is declared was abandoned.
Some of the losses are:
The 30% BEE shareholding must be distributed as follows:
20% of the shares must be owned by a BEE entrepreneur (as defined in the new Charter), of which 5% must be preferably held by black women. The word “preferably” indicates that this requirement is simply a guideline and is not mandatory;
a non-diluting 5% stake must be given to employees and 5% to communities – this can take the form of an equity equivalent stake, such as a trust or a similar vehicle. The new Charter refers to these stakes as a "carried interest", and simply stipulates that the cost of the carried interests shall(!) be recovered by the rights holder from the development of the asset. Guidelines as to what is envisaged in this regard are expected to be developed and promulgated in due course.
In respect of Procurement and Enterprise Development, compliance has become more difficult.
The old 2010 Mining Charter specified that mining companies must procure, from BEE entities, a minimum of:
40% of capital goods
70% of services
50% of consumables.
Moreover, multinational suppliers of capital goods had to contribute 0.5% of their annual income derived from South African mining companies towards socio-economic development of local communities into a Social Development Fund.
The new Mining Charter now stipulates that:
South African based facilities must be used for the analysis of 100% of each mining company’s mineral samples across the mining value chain. Ministerial consent must be obtained to use foreign based facilities.
Mining companies must procure:
- 80% of services from BEE Entities which must be South African companies; and
- 70% of mining goods which must be South African manufactured and produced by BEE Entities, Women, Youths or BEE Entrepreneurs.
Rights holders must also provide proof of local content for mining goods in the form of certification from SABS and in accordance with a standardised product codifying system developed by the DTI.
Other significant aspects are:
In respect of Mine Community Development:
Rights holders operating in the same area may collaborate on identified projects.
Approved social and labour plans must be published in English and one or two other languages commonly used within the mine community.
Insofar as Sustainable Development/Environmental Compliance is concerned, aspects relating to sustainable development/environmental compliance have been omitted from the new Charter. Sustainable Development/ Environmental Compliance obligations have also been excluded from the Scorecard, perhaps this is owed to the regulatory uncertainty caused by the Declaration.
Human Resources Development, on the other hand, has assumed a more important compliance role, in that mining companies are required to invest a minimum of 5% of leviable Human Resources on essential skills development activities such as, inter alia, science, technology, engineering and mathematic skills for the development of solutions in, inter alia, environmental conservation and rehabilitation.
It remains to be seen what constitutional / administrative challenges will be brought by stakeholders against the validity of the new Charter. Until then, let’s hope that foreign investment is not smoked out.