The gazetting of Mining Charter III, while welcomed as a step forward in creating certainty in the industry, has left gaps regarding its interpretation and its effects on mining communities, says black economic-empowerment advisory firm NPI Governance Consulting founder and CEO Israel Noko.
“At a time when there are regular community protests around mining operations and impacting on mining activities, aspects of the Mining Charter involving communities cannot be left unclarified.”
He notes that, according to the newly gazetted charter, there must be a minimum of 5% nontransferable carried interest, or a minimum of 5% equity-equivalent benefit to host communities from the effective date of a mining right.
“This could come as a relief for mining companies because the free carry concept was heavily criticised by the industry, as it would have meant that mining companies issue free-carried shares, but, in all likelihood, would have made new projects much tougher to finance.”
However, Noko stresses that the meaning of nontransferable carried interest still needs to be explained. “It is still unclear if this will complement mining companies that already invest in community development and are adhering to the social and labour plans as per their obligation under the Mineral and Petroleum Resources Development Act (MPRDA).”
Mining companies should also note that the charter stipulates that a mining right holder must ensure that any reduction in shareholding through the issuing of new shares will not reduce qualifying employees’ carried interest and host communities’ carried interest or equity equivalent benefit, he adds.
“Another interesting part of the charter is how the 5% nontransferable carried interest will be managed for communities.”
The charter states that the equity-equivalent benefit of 5% shall be housed in a trust or similar vehicle to the benefit of the host communities at no cost. It will be administered in terms of applicable legislation for the duration of the mining right. The trust or similar vehicle will comprise representation from host communities, such as community-based organisations and traditional authorities, as well as mining companies.
Noko cautions that trusts entail a lot of obligations and responsibilities, which result in more responsibilities and administrative requirements for mining companies.
“If these trusts are not set up under good corporate governance, the communities [may] mistrust the entire community-involvement process.”
Noko states that, inevitably, there will be some representatives on the board of trustees who may not fully understand their fiduciary responsibilities.
“If they’ve never sat on a board, then why are you appointing them? Do they understand what it means to apply good corporate governance or how to act in the best interest of the trustees?”
Noko believes that companies should step in to provide appropriate training interventions to ensure that the representatives understand their duties and that there is some counterbalance, such an independent board member not affiliated with the trust, the company or the community, who can act in the best interest of the trust.
“The reality is that a lot of these types of trusts have been abused – what is key to the success of the charter is probably going to be contained in the guidelines.”
He notes that issues pertaining to “fronting” and how to manage payments when there are no dividends available must be addressed in the guidelines.
Further, the clauses contained in trusts are “quite restrictive”, Noko notes.
“Can you really call it true black empowerment if a worker loses his shareholding because he or she is retrenched or if there is no mechanism for the shareholding to be passed on to the next of kin once the shareholder dies?”
Noko cites SA Breweries, which made allocations to staff members over a fixed period, but allowed them to retain their shareholding even on leaving the company.
He states that, until a trust has a board that understands its responsibilities and pays dividends to trustees, “it doesn’t serve its purpose”.
The charter also stipulates that a mining right holder must, in consultation with relevant municipalities, host communities, traditional authorities and affected stakeholders, identify host community development needs and fund distribution and governance of the equity-equivalent benefit.
Additionally, a host community development programme approved under this element will not replace social and labour plan commitments as contemplated in the MPRDA.