Law firm Dentons partner Brandon Irsigler says the Department of Mineral Resources (DMR) should not take the Minerals Council South Africa’s court application for a judicial review of Mining Charter 3 lightly, since the council is representative of the mining industry.
He noted, however, that taking a negotiated document like the charter on review is a major step in a process that has already created uncertainty for the mining industry for many years.
The Minerals Council on Wednesday announced that it had filed an application for a judicial review of the charter with the aim to have certain clauses set aside.
The council believes most aspects of the charter represent a reasonable and workable framework, but says the fact that the charter does not fully recognise the continuing consequences of previous empowerment transactions, particularly in respect of mining right renewals and the transfers of these rights, remains untenable.
In response, the DMR stated its intention to oppose the application.
Irsigler told Mining Weekly Online that the uncertainty, delay and costs should be carefully considered by the DMR when it considers whether or not to amend the charter.
He added that the Minerals Council would not have initiated the court action without the backing or consent of most of the industry. “This action has ostensibly been taken to retain its right to seek meaningful court intervention at a later date – not to begin driving a new action aggressively.”
He also pointed out that the council was relying on a previous High Court judgment that broadly endorsed the “once empowered, always empowered” principle.
The principle is articulated in the charter as promulgated, but only really applies to steady-state mining operations where the black economic empowerment (BEE) shareholders have exited before the charter was enacted. Such an operation does not need to acquire new empowerment partners for their mining rights to remain valid.
However, if a mining right holder changes equity ownership or transfers an already-empowered mining right, an additional empowerment of 4% is required. New mining rights acquired by a previously empowered company require fresh empowerment investment of 30%, which could be viewed as penalising expansion growth and investment by a company that previously empowered itself, while its BEE investors have chosen to exit.
Irsigler noted that all of this moves the needle from a strict once-empowered-always-empowered position. The increase of a relatively minor 4% equity empowerment requirement needs to be carefully thought through, he said, saying the DMR should consider whether the social benefit is worth the confusion and delay this causes local and international investors in corporate transactions?
“Does it attract global investment and create fresh opportunities for substantial empowerment investment into significant greenfield projects?”
He added that, secondly, a company whose BEE investors exit their investment pre or post the promulgation of Mining Charter 3 incurs different obligations.
“If the investor exited prior to the enactment date of September 27, 2018, the once-empowered-always-empowered principle is applied. Post promulgation, the company incurs substantial reporting and compliance obligations – some of which the company itself cannot control, as the issues in question vest with the companies’ shareholder.
“Again, the social benefit of the provision of information and a semblance of control by the DMR versus the uncertainty, delay and costs should be carefully considered.“
Irsigler, in his view, suggested that the once-empowered principle should be locked in – regardless of when the BEE entity exited its investment, without the needless reporting and further compliance obligations.
“The need for additional empowerment on transfer of a previously empowered right should be scrapped; a previously empowered company should receive credit for prior BEE transactions/scorecard achievements when seeking fresh mining rights or renewing an existing right; and onerous financial penalties for noncompliance with BEE undertaking and targets should be introduced, but mining rights should not be placed at risk of withdrawal.”
Moreover, Irsigler lamented that, at some stage, the country needs a charter that proclaims a fixed duration of around 15 to 20 years and the Minerals and Petroleum Resources Development Act needs to be amended to lock this in.
He said mining was the ultimate in long-term fixed asset investment.
“A regulatory environment that constantly tweaks the fundamental nature of investment – shareholding – needs to understand the impact steady accretive change has on investor sentiment and the effect this has on growing a super capital-intensive sunrise industry.”