Following a gestation period of exactly one year, which saw a swathe of urgent High Court applications, a change in administration at the Department of Mineral Resources (DMR) and an investment standstill in South Africa due to regulatory uncertainty, the Minister of Mineral Resources, the Honourable Samson Gwede Mantashe (Minister) published the revised Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry (Mining Charter III) on Friday 15 June 2018 for public comment. Mining Charter III will purportedly be published under section 100(2) of the Mineral and Petroleum Resources Development Act, 2002 (the MPRDA).1
While on the whole, Mining Charter III is an improvement on the June 2017 version, it does contain far reaching changes and introduces more onerous and more stringent compliance obligations than those currently stipulated in the Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry (the 2010 Mining Charter).
Below, we compare the obligations under the 2010 Mining Charter against the amendments under Mining Charter III - categorised by key themes and then we provide some insights on the next steps for business.
Ownership
Requirements under the 2010 Mining Charter
26% of the shares in Global Mining Companies must be held by Historically Disadvantaged South Africans (HDSAs). Further, such ownership must accord with the principle of "meaningful economic participation" which requires that:
- BEE transactions must be concluded with BEE entrepreneurs, workers ESOPs and communities (BEE beneficiaries);
- Barring any unfavourable market conditions, BEE beneficiaries must enjoy some form of trickle dividend throughout the term of the BEE transaction;
- BEE transactions must be structured in a manner which allows for a percentage of the cash flow to be used to service the debt incurred through the BEE transaction, while the remaining percentage is paid to the BEE beneficiaries;
- The BEE beneficiaries are to have full shareholder rights;
- Ownership must vest within the time frames agreed with the BEE beneficiaries, taking into account market conditions; and
- BEE entities must be able to leverage equity in proportion to their vested interests over the life of the BEE transactions.
Proposals under Mining Charter III
New rights
New mining rights must be held by entities with a minimum 30% HDSA shareholding.
HDSA ownership must be allocated in shareholding blocks of not less than 8% to host communities and qualifying employees as well as a minimum of 14% ownership to BEE entrepreneurs. However, 5% of each of the 8% blocks must take the form of a "non-transferable free carried interest". The intention, meaning and implications of this provision are not immediately clear, it does indicate that shares will be located to these entities and future funding obligation will be carried by the other shareholders.
The holder of a new mining right must pay an annual trickle dividend equal to 1% of EBITDA to its qualifying employees and host communities from year 6 of the mining right in years where dividends are not declared.
The BEE entrepreneur is obliged to re-invest 40% of earnings gained through the sale of its equity back into the mining industry. The BEE entrepreneur shareholders' shares in the mining company must vest within specified timeline and in accordance with specific annual threshold percentages.
Existing rights
Holders of existing rights who have complied with the minimum HDSA ownership thresholds under the 2010 Mining Charter will have 5 years from the effective date of Mining Charter III to increase their HDSA shareholding to 30%.
The continuing consequences of past empowerment transactions will be recognised (i.e. the "once empowered, always empowered principle" has been recognised albeit subject to a mining company and the HDSA partner meeting certain criteria). Further, a right holder may not rely on any previous HDSA ownership for the renewal of it mining rights. It would also seem that the "continuing consequence" of past empowerment transactions are not transferable suggesting that should an existing mining right holder apply for an additional right it would be subject to the empowerment regime applicable to the holders of New Mining Rights.
Beneficiation offset
A more sophisticated beneficiation offset programme seems to be have been devised and applies to mining companies which supply ore to local beneficiators at a discounted price, invest in local beneficiators or undertake some beneficiation operations on their own.
Pending applications
Pending applications referring to applications for mining rights submitted to the DMR which have yet been granted as at the effective date of Mining Charter lll will be adjudicated under the 2010 Mining Charter, with a minimum of 26% BEE shareholding. The holder must increase the BEE shareholding to 30% within 5 years from the effective date of the right.
Prospecting rights
Prospecting Rights are subject to the same empowerment regime, which may be impractical and lead to less prospecting activity.
Procurement And Enterprise Development
Requirements under the 2010 Mining Charter
Mining Companies must procure, from BEE entities, a minimum of: 40% of capital goods; 70% of services; and 50% of consumables. In addition, multinational suppliers of capital goods must contribute 0.5% of its annual income derived from South African Mining Companies towards socio-economic development of local communities into a Social Development Fund.
Proposals under Mining Charter III
South African based facilities must be utilised for the analysis of 100% of each mining company’s mineral samples across the mining value chain and ministerial consent must be obtained to use foreign based facilities. Mining Companies must procure:
- 80% of services from South African companies; (60% of which must be spent on BEE entrepreneurs, 10% on BEE women or youth owned enterprises and 10% on BEE compliant companies); and
- 70% of "Mining Goods" (21% on BEE entrepreneurs, 5% on BEE women or youth owned enterprises and 44% on BEE compliant companies);
- multinational suppliers of capital goods must contribute 0.5% of annual turnover to the Mandela Mining Precinct for Research purposes; and
- rights holders must verify local content for capital and consumer goods in line with SABS South African National Standard on local content standards.
Employment Equity
Requirements under the 2010 Mining Charter
Mining companies must achieve a minimum of 40% HDSA representation at the following levels: executive management; senior management; middle management; and junior management.
A minimum of 40% of the mining company's core and critical skills must be black people. Mining companies must identify and fast-track their existing talent pools to ensure high level operational exposure in terms of career path programmes.
Proposals under Mining Charter III
1.5 job reservation for employees with disabilities. Every mining company must achieve a minimum threshold of black people representation as follows:
- a minimum of 50% black people (20% of which must be black females) proportionally represented at the executive director's level as a percentage of all executive directors;
- a minimum of 50% of black employees (of which 20% must be black females) in senior management as a proportional representative percentage of all senior management;
- a minimum of 60% of black employees (of which 20% must be black females) in middle management as a proportional representative percentage of all middle management; and
- a minimum of 70% of black employees (of which 25% must be black females) in junior management as a proportional representative percentage of all junior management.
Human Resource Development
Requirements under the 2010 Mining Charter
In addition to the mandatory skills levy provided for under the Skills Development Levies Act, 1999 (SDLA), the mining industry must spend 5% of annual payroll on essential skills development activities including support for South Africa based academic institutions and research initiatives.
Proposals under Mining Charter II
In addition to the mandatory skills levy provided for under the SDLA, the mining industry must spend 5% of annual payroll on essential skills development activities including:
- 3.5% must be expended on essential skills development; and
- 1.5% must be expended on South African Public Academic Institutions Science Councils or research entities.
Mine Community Development
Requirements under the 2010 Mining Charter
Mining companies must invest in ethnographic community consultative and collaborative processes prior to the development/implementation of mining projects in said communities.
In collaboration with the relevant communities, mining companies must conduct an assessment to determine the developmental needs of the mining communities and contribute towards community development in line with Integrated Development Plans, the cost of which should be proportional to the size of the investment.
Proposals under Mining Charter III
Mining right 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.
Housing and Living Conditions
Requirements under the 2010 Mining Charter
Mining companies must implement measures to improve the standards of housing and living conditions for mineworkers by, inter alia, converting or upgrading hostels into family units, attaining the occupancy rate of one person per room and facilitating home ownership options for all mine employees in consultation with organised labour.
Proposals under Mining Charter III
Mining companies must improve the standards of housing and living conditions for mine workers as stipulated in the Housing and Living Conditions Standard for the Mining and Mineral Industry.
Sustainable Development/Environmental Compliance
- Mining companies are required to implement the Stakeholders' Declaration on Strategy for Sustainable Growth (the Declaration);
- Sustainable Development included as a weighted element in the Scorecard, obligating mining companies to comply with approved Environmental Management Plans; and
- 70% of a mining company's research and development budget must be spent in South Africa, 35% of which must be spent on South African historically disadvantaged institutions.
Proposals under Mining Charter III
There is little to no emphasis on sustainable development/ environmental compliance aspects. This omission may be due to the regulatory uncertainty around implementation and compliance with the Declaration. The Declaration created a broad set of obligations without defining any compliance criteria.
Sustainable Development/ Environmental Compliance obligations are completely excluded from the Scorecard. Emphasis is placed on human resources development and mining companies are required to invest 1.5% of leviable Human Resources amount of 5% towards South African Public Academic Institutions, Science Councils or research entities for the development of solutions in environmental conservation and rehabilitation, amongst other skills.
Potential next stepsCommenting on the Mining Charter III
Interested and affected parties must submit written representations on the draft Mining Charter III within 30 days of publication.
General Litigation and Arbitral Proceedings
Court processes to challenge the validity of the Mining Charter III from an administrative and constitutional law perspective.
Potential claims under investment treaties based on a breach of South Africa's core investment protection obligations and, potentially, other international investment law obligations.
Corporate structuring to facilitate compliance with Mining Charter III's ownership requirements
Potential restructuring of BEE deals to ensure compliance with the additional HDSA ownership and "mandated structures" regime imposed by the Mining Charter III.
Potential restructuring of Employee Share Ownership Schemes and Community Trusts to comply with ownership elements.
Implementation of schemes under which new entrants into the mining sector to comply with HDSA ownership requirements under Mining Charter III.
Human Resources Development and Employment Equity
Revision of human resources policies as well as social and labour plans to ensure compliance with Human Resources Development and Employment Equity elements.
Potential restructuring of Employee Share Ownership Schemes to comply with ownership elements; and careful planning of negotiations with organised labour at Chamber of Mines (central) level and mine levels to meet new expectations regarding ownership, recruitment and housing and living conditions.
Revision of hazard identification and risk assessments relating to job categories and requirements to ensure that person with disabilities can be accommodated, revision of Codes of Practice, policies and training including an assessment of emergency procedures and protocols where persons with disabilities may need different/ additional assistance in the event of an emergency.
Mine Community Development and Housing & Living Conditions
Development of alternative schemes to comply with Mine Community Development element and Housing and Living Conditions elements.
