Asset 4.png


Mining Charter III explained: The nitty-gritty according to legal experts

FIN24 / 19 JUNE 2018 - 22.30 / STAFF REPORTER

The latest version of the Mining Charter is an overall improvement on the June 2017 version, but there are far-reaching changes – and the compliance obligations are more onerous and stringent than those stipulated in the 2010 Mining Charter.

This is according to mining experts at Webber Wentzelattorneys, who were responding to the revised broad-based black economic empowerment Mining Charter (Mining Charter III) published by Mineral Resources Minister Gwede Matashe on June 15 for public comment.


The latest revised version has been in the pipeline for a year.

The Webber Wentzel mining sector group says during this year, there were various high court applications, a change in administration at the Department of Mineral Resources (DMR) and an "investment standstill" in the local mining industry due to regulatory uncertainty.

'Beyond his powers'

According to Webber Wentzel, the Mineral and Petroleum Resources Development Act (MPRDA) only empowers the mining minister to "develop a broad based socio-economic empowerment charter".

It does not, however, grant the minister the power to alter, vary and/or revise such a charter. In the law firm's few, this was likely a conscious step by the legislature to ensure regulatory certainty.

Webber Wentzel believes the minister's amendment of the original Mining Charter, through the publication of the Mining Charter II and the Mining Charter III, was "beyond the scope of the empowering provision of the MPRDA" and therefore "ultra vires" (acting beyond his powers).

In the law firm's view, the MPRDA would therefore need to be amended before Mining Charter III takes effect.

Minister of Mineral Resources Gwede Mantashe gazetted the draft Mining Charter on Friday. The public have 30 days from the date of publication to submit comments. On Sunday Mantashe said an upcoming mining summit in early July would help 'sharpen' the charter, but likely not result in massive changes.


Proposals under Mining Charter III include that new mining rights must be held by entities with a minimum 30% shareholding by historically disadvantaged South Africans (HDSAs). In the 2010 charter, it was set at 26%.

Mining Charter III proposes that HDSA ownership 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.

Webber Wentzel points out that 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," they say.

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 six 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.

Further, under the proposals of Mining Charter III, holders of existing rights who have complied with the minimum HDSA ownership thresholds under the 2010 Mining Charter will have five years from the effective date of Mining Charter III to increase their HDSA shareholding to 30%.

Prospecting rights are subject to the same empowerment regime, which, in the view of the mining sector group, may be "impractical" and lead to less prospecting activity. "The continuing consequences of past empowerment transactions will be recognised - that is, the 'once empowered, always empowered principle' has been recognised, albeit subject to a mining company and the HDSA partner meeting certain criteria," the group says.

Further, a right holder may not rely on any previous HDSA ownership for the renewal of it mining rights.

The Webber Wentzel mining experts believe 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.

The group also says it seems as if Mining Charter III proposes a more sophisticated beneficiation offset programme and applies it 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.

Procurement and enterprise development

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 annual income derived from SA mining companies towards socio-economic development of local communities into a social development fund.

Under Mining Charter III, SA-based facilities must be used for the analysis of all mineral samples across the mining value chain. Foreign-based facilities can only be used with ministerial consent.

Mining Charter III also proposes that 80% of services must come from SA companies - 60% of which must be spent on BEE entrepreneurs; 10% on BEE women or youth-owned enterprises; and 10% on BEE compliant companies.

Additionally, 70% of "mining goods" must be spent on BEE entrepreneurs (21%), 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 standards on local content.

Employment equity

Under the 2010 Mining Charter, mining companies must achieve a minimum of 40% HDSA representation at the levels of 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 include that every mining company must achieve 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. There must also be 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.

It further proposes that there be 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.

Sustainable development

The Webber Wentzel mining sector group says there is "little to no" emphasis in Mining Charter III on sustainable development or environmental compliance aspects.

In its view, this omission may be due to the regulatory uncertainty around implementation and compliance.

Instead, it points out that Mining Charter III places the emphasis on human resources development



Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

29 views0 comments