The new “top-up” provision in the latest Mining Charter gazetted on June 15, may prove to be unconstitutional and may lead to further expensive legal action by the mining industry, states Fasken Martineau partner and global mining group member Nicola Jackson.

In a statement published on June 15, Jackson notes that “the industry’s key concern . . . has been the targets set for ownership and whether the concept of ‘once empowered, always empowered’ will be recognised”.

Jackson states that “the latest . . . charter has set the target for black ownership at 30%, and emphasises that the owners [comprise] black entrepreneurs, employees and communities”. Further, she notes that black entrepreneurs must hold a minimum of 14% of the 30% black ownership requirement in a mining company, while employees and the community must each hold 8% of the remaining 16%.

She points out that the new charter has excluded mention of the “once empowered, always empowered” concept, and has instead introduced the controversial “top-up” provision.

Mining companies have to ensure their corporate structures include black entrepreneurs, employees and communities. But now, they also have to re-empower their corporate structures when empowerment shareholders sell their stake in the company. “Companies are then obliged to top-up the black ownership portion, which usually comes at a discount, if not free carry.”

The mining industry has maintained that previous black economic-empowerment (BEE) deals should be recognised in the ownership calculation. “Government remains of the view that such transactions should not be recognised. This has already led to legal action,” Jackson says, referring to the Chamber of Mines (CoM) launching a declaratory application in the High Court last year. She adds that the publication of this revised charter could now render the CoM’s argument a moot point.

In her statement at the time, Jackson predicted that “‘radical economic transformation’ or not, [Fasken Martineau] anticipate that the Mining Charter will not be well received by investors and that industry will, once again, be forced to turn to the courts”. Not long after, on Monday June 26, the CoM approached the Gauteng High Court for an urgent interdict to prevent the implementation of the new charter.

“In terms of the revised charter, previous empowerment deals will not be taken into account when determining whether the 30% black ownership target has been met. Mining companies which currently do not meet this 30% black ownership target have 12 months to ensure their empowerment credentials are consistent with the . . . charter or risk losing their mining rights,” Jackson comments.

She suggests that it is arguable that this new top-up provision is unconstitutional as it attempts to impose retrospective obligations on the mining right holder. “There are general presumptions against interpretations that favour retrospective application. People should be able to conduct their affairs knowing what the law is at that given time and not be unfairly prejudiced down the line due to changes to the legislation,” she points out.

This means that, where mining right holders have been granted mining rights in terms of the Mineral and Petroleum Resources Development Act (MPRDA), additional obligations cannot be retrospectively imposed on them.

Further, she states that the Mining Charter remains a nonbinding policy guideline and cannot be elevated to subordinate legislation that obliges a mining right holder to maintain a specific black ownership level.

“Even if the MPRDA was amended to incorporate reference to the charter – which appears to be the direction government is taking – the argument still stands that the retrospective nature of the impact of the amendments would be unconstitutional.”

Jackson also notes that government has not adequately considered the practical difficulties of the top-up provision. “In particular, if one looks at listed companies, the whole purpose of these legal entities is that their shares can be freely traded on a regulated securities exchange.” As such, it may be practically and legally difficult to implement a policing mechanism to ensure the black ownership shareholding does not drop below the specified level on a freely traded exchange.

The industry is also concerned with the employment equity and procurement targets, which are said to be raised to unattainable and unsustainable levels. The charter’s new procurement targets stipulate that 70% of all goods be sourced from BEE entities, that 80% of services be performed by BEE entities and that 100% of all mineral samples be analysed by local firms.

Meanwhile, the employment equity targets prescribe that boards comprise 50% black persons with exercisable voting rights, that employees at the executive directors’ level, senior management level, middle management and junior management level comprise 50%, 60%, 75% and 88% black persons, respectively. Additionally, half of the prescribed percentage must be black women, for example, 50% of the board should comprise of black persons, of which 25% should be black women.

Jackson notes that the industry also did not anticipate the introduction of a requirement on all future prospecting rights. The charter now requires new prospecting right applicants to have a minimum of 50% plus 1 black shareholding, which must include voting rights.

The increased taxes and levies, said to amount to about R3-billion a year, will also place a burden on an already ailing industry, while the R2-billion for human resource development already committed to by the industry, will be diverted into a new tax collection entity.

Jackson states that, while the publication of the new charter may appear to provide certainty, many in the industry think this is not really the case as the framework still affords too much discretion to the officials entrusted with its implementation. “There is concern some of these officials may be politically driven, rather than simply carrying out their governmental administrative duties.”

This, she theorises could, in turn, fuel corruption and drive away much-needed investors in the sector, and is one of the reasons why some are calling for a complete overhaul of the mining legislation.