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Update: Once Empowered Always Empowered Legal Challenge

LEXOLOGY / 18 AUGUST 2020 - 15.44 / FASKEN - GODFREY MALESA AND MMAPHUTI MOROLONG

It was reported on 12 August 2020, that the Minister of Mineral Resources and Energy ("Minister") has withdrawn the notice of appeal to the Supreme Court of Appeal, in respect of the declaratory order of the High Court of South Africa, Gauteng Division, Pretoria, dated 4 April 2018 in the matter of Chamber of Mines of South Africa v Minister of Mineral Resources and Director- General, Department of Mineral Resources.

In a majority decision, the High Court found against the Minister, and effectively recognised the principle of ‘once empowered, always empowered’. It held that a mining right holder has no obligation to “top-up” the reduction in the [then] 26% Historically Disadvantaged South African ("HDSA") ownership (which was required by the 2010 Mining Charter) on the exit of the HDSA shareholder. Our bulletin on the High Court ruling is available here.

Dissatisfied with the decision, the Minister filed papers to appeal the High Court’s decision at the Supreme Court of Appeal, but has now subsequently withdrawn the notice to appeal.

The withdrawal of the appeal by the Minister means that the High Court order is undisputed law. The High Court found that once the 26% HDSA ownership has been achieved, neither the Original Mining Charter nor the 2010 Mining Charter requires the holder of a mining right to continue to enter into further HDSA empowerment transactions to address losses in HDSA ownership, unless such an obligation is specified in the terms and conditions of the mining right. Therefore, the Department of Mineral Resources and Energy may not compel or direct the holder of a mining right to meet the requirements of the Original Mining Charter or the 2010 Mining Charter in relation to this 26% HDSA ownership after the HDSA shareholder exits.

Notwithstanding that the majority decision of the High Court is now undisputed law, it is worth noting that the majority judgment is limited to interpreting the provisions of the Original Mining Charter and the 2010 Mining Charter and does not deal with current Mining Charter, which the Minister published on 27 September 2018 ("Mining Charter 2018"). The ownership element of Mining Charter 2018 provides for the recognition of historical transactions. In this regard, an existing mining right holder (the holder of a mining right granted prior to 27 September 2018), that achieved a minimum of 26% Black Economic Empowerment (BEE) shareholding, is recognised as compliant with the BEE ownership element of the Mining Charter for the duration of the mining right. In addition, if a minimum of 26% BEE shareholding was achieved and the BEE shareholders exited prior to 27 September 2018, the historical transaction is also recognised, and the holder of the mining right is regarded as compliant for the duration of the mining right. However, such recognition is not applicable upon renewals and transfers of the mining right.

The Minerals Council South Africa has instituted a judicial review challenge seeking the review and setting aside of certain clauses of the Mining Charter 2018 and specifically clauses imposing new BEE ownership obligations on holders of existing mining rights in the case of renewals and transfers of their existing mining rights. In a recent ruling in relation to the Minerals Council’s challenge, the High Court ordered that mining affected communities and trade unions who were previously party to the legal challenge to the draft Mining Charter 2017 should be joined to the Minerals Council’s application, before the court can consider the merits of the matter.

Our bulletin on the Mineral Council’s challenge is available here and our bulletin on the recent court ruling is available here

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