The new Mining Charter, currently under review and set for release later in 2009, will provide greater clarity and information regarding the parameters of ownership of mines by historically disadvantaged South Africans (HDSAs), says law firm Tabacks mining law specialist Chris Stevens. This will assist Australian and other multinational mining houses in doing business in South Africa and in understanding their legal obligations.
The Mining Charter, published in 2004, focuses on broad-based socioeconomic empowerment. The targets of the Charter include 15% ownership of mines by HDSAs within the first five years from May 1, 2004; 40% of HDSAs in junior and senior management positions in five years; 26% HDSA ownership within ten years; and 10% HDSA participation by women within five years.
It is reported that the aims of the Charter are to promote equitable access to South Africa’s mineral resources in a substantial way, as well as for HDSAs to benefit from the exploitation of the nation’s mineral resources. The Charter also aims to use and expand the existing skills base of HDSAs to serve the com- munity and advance the social and economic welfare of the nation.
A scorecard for the Charter has been introduced and has been designed to facilitate the application of the Charter in terms of the requirements of the Mineral and Petroleum Resources Development Act of 2002.
Currently, Australian mining houses pursuing business opportunities in South Africa have to comply with a number of equity laws. Stevens explains that these companies usually form joint ventures with black economic-empowerment (BEE) entities, where there is 25% equity, plus one share. Otherwise, the BEE entity must have a majority shareholding position, ideally at 51%. Further, HDSA ownership is secured if there are HDSA-dedicated mining unit trusts.
For Australian mining houses to assist with the aims of broad-based BEE, the government insists that all stakeholders accept that transactions take place in a transparent manner and for fair market value. Stake-holders should also agree to achieve the 26% target timeously.
Meanwhile, Stevens says that the Mineral and Petroleum Resources Royalty Act of 2008 has been promulgated and will further affect Australian and multinational mining houses’ business operations in this country. The royalty is set to come into effect in March 2010, in respect of all mining oper-ations.
This Act provides that a royalty be raised on extractors of mineral resources, for the transfer of both refined and unrefined mineral resources, for the benefit of the National Revenue Fund.
The Act states that, in respect of any year of assessment, an extractor must submit a report advising the Minister of Finance of the volume of mineral resources transferred by the extractor; the gross sale of the extractor; and the percentage at which the royalty will be levied for the extractor.
The formula for calculating the royalty rate is based on earnings before interest and tax.
This Act was initially to be implemented in May 2009, but declining commodity process and demand had a significant effect on mining houses.
Therefore, the Treasury proposed that there be a delay in the implementation of the Act, as it estimated the delay would result in gross savings of about R1,8-billion for mining com- panies in 2009 and 2010.
The Act has reportedly been considered as controversial by some members of government and industry, but association body the Chamber of Mines (CoM) welcomed the release of the Mineral and Petroleum Resources Royalty Act and its associated Royalty Adminis-tration Act, in June 2008. The CoM said that the Act repre- sented the culmination of five years of research and engagement.
“Given the specific characteris-tics of mining, its importance as a large employer and its significant export earnings, it is vital that the new royalty system capture the key issues of stability, predictability and competitiveness. The CoM believes that the Act goes some way towards reflecting these important issues,” it said.
Stevens concurs that the Mining Charter and the Act under con- sideration are not perceived as a significant impediment to Australian mining houses, as is witnessed by the number of partnerships, joint ventures and mining operations in South Africa currently. The country is still an attractive destination for multinational mining entities.