The reviewed draft Mining Charter is a stark indictment of the Department of Mineral Resources (DMR), says law firm Cliffe Dekker Hofmeyr (CDH) mining head Allan Reid, who stresses that the revisions essentially constitute an “unrealistic wish list”.

He points to the local industry’s R37-billion loss last year, owing to depressed commodity prices, adding that the Fitch Group’s research arm, BMI Research, predicts that, globally, mining capital expenditure could decline further over the next three years.

“The political climate is at its worst since 1994, unemployment has reached record levels and, against this backdrop, the DMR seeks to impose a Mining Charter that is . . . ignoring the realities facing the mining industry,” he says.

Mineral Resources Minister Mosebenzi Zwane published the controversial Reviewed Draft Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry in a gazette notice in April last year, allowing 30 days for public comment.

In November, the DMR deputy director-general Mosa Mabuza briefed Parliament on the revisions made to the draft charter, commenting that the DMR had considered all stakeholders’ inputs before revising the draft. The Chamber of Mines (CoM) disputed this, stating that industry’s views had been ignored.

The CoM and the DMR have been quarrelling since March 2015, following the DMR’s release of results for its ten-year review of charter compliance. At the time, the DMR reported an average of 20% black ownership in mining companies. This contradicted the CoM’s finding of 38%.

The discrepancy was the result of the CoM’s application of the ‘once empowered, always empowered’ principle. This holds that a company, having entered into a black- economic-empowerment (BEE) partnership, can claim empowerment status, even if the black shareholders had since sold their shares.

The CoM approached the High Court in June 2015 for a declaratory order to provide guidance on the assessment of the ownership element in the Mining Charter.

Reid explains that the application was postponed sine die – without a prescribed date for resumption – to allow for further consultation between the DMR and the CoM. “Given that the DMR has since ignored submissions made to it regarding the reviewed charter, the CoM will have little alternative but to apply for a new hearing date in 2017.”

He adds that, while tensions between an industry body and the industry regulator are inevitable, tensions between the CoM and the DMR have reached a point where constructive engagement is becoming difficult.

Legislative Issues
The revisions to the draft charter include increased procurement from black companies; the establishment of a Mining Transformation and Development Agency (MTDA) to replace the Social Development Fund and the Ministerial Skills Development Fund; and a new requirement that 0.15% of annual turnover be dedicated to research and development.

Moreover, most of the contentious stipulations of the initial draft, including those pertaining to black ownership, were left unchanged. The initial draft required a 26% black ownership quota for each mining right, rather than for each mining company. It also stipulated that the empowerment stake be housed in a single special-purpose vehicle for black entrepreneurs, workers and communities, each controlling at least 5% of the ultimate 26%. Finally, it required that the ownership quota be maintained perpetually, scrapping the principle of ‘once empowered, always empowered’.

Reid declares that the 1% of annual turnover payable by mining companies for community development and the 1% of turnover payable by multinationals for goods and services supplied to mining companies to fund the MTDA “are no more than additional taxes that will make South African companies even less competitive in terms of economic viability and . . . attracting investment”.

Further, the stipulations regarding ownership, housing and living conditions, as well as human resources development, are now ringfenced, or priority, elements, that require 100% compliance at all times. Failure to comply can result in the suspension or cancellation of mining rights, in terms of Section 47 of the Mineral and Petroleum Resource Development Act (MPRDA).

“The ringfencing of various elements and the increased procurement targets, which have been set without regard for whether these skills, goods or services are available and appropriate, are reckless and inviting the industry to fail,” Reid states.

He adds that the DMR has seemingly forgotten that the primary responsibility for housing rests, constitutionally, on the State. “The attempt to abrogate this responsibility by placing it on the already burdened shoulders of mining companies puts the viability of the industry in jeopardy.”

The initial draft charter was meant to align the Mining Charter with the Department of Trade and Industry’s (DTI’s) Broad-Based Black Economic Empowerment Codes of Good Practice (DTI codes). However, Reid highlights that both the initial draft and the current version have been haphazardly aligned with the codes in terms of measuring BEE compliance.

Further, he says “using the DTI codes as a point of reference when pegging targets to be set in the reviewed charter has merit”, but stresses that the DMR should not strive for full alignment with the DTI codes at all costs, particularly as the reviewed charter deals with industry-specific challenges that cannot be adequately addressed by the general DTI codes.

This is especially important because noncompliance with the transformation objectives of the DTI codes does not result in the suspension or cancellation of a company's licence to operate. However, in terms of Section 47 of the MPRDA, noncompliance with the Mining Charter can result in such sanction. The implication of aligning the draft Mining Charter with the general DTI codes in terms of measuring BEE compliance, therefore, is far from negligible.

“What is required is for the DMR to engage in meaningful consultation with the CoM and other stakeholders to produce a document that is unambiguous, viable and achievable,” he concludes.

While not exhibiting, CDH will send a strong contingent to the 2017 Investing in African Mining Indaba, as the event held from Februrary 6 to 9, in Cape Town, serves as a focal point for the congregation of leaders in the fields of mining, finance, law and corporate advising.