Law firms see benefits of gazetted Mining Charter 3, MPRDA amendment Bill removal

28th September 2018 By: Simone Liedtke - Writer

Law firms see benefits of gazetted Mining Charter 3, MPRDA amendment Bill removal

Mineral Resources Minister Gwede Mantashe
Photo by: Dylan Slater

JOHANNESBURG ( – To effect the necessary changes that are needed for South Africa’s economy to grow, government and industry will, moving forward, have to focus on economic assessments, instead of policy development, says law firm Webber Wentzel partner and mining sector head Jonathan Veeran.

Following the gazetting of Mining Charter 3 by Mineral Resources Minister Gwede Mantashe, on Thursday, Veeran pointed out that, when policy is developed, particularly in South Africa, it cannot be done in the absence of a thorough economic, industry and government assessment.

This was the case with the charter, Veeran told Mining Weekly Online, adding that there was a limited role and input from the departments of Energy and Trade and Industry in the formulation of the latest iteration of the charter.

Policy cannot be developed in isolation, he elaborated, adding that inputs from various government departments need to be taken into consideration. There needs to be a coordinated policy, in which cohesion between different parts of the market and economy, are considered, he said.

“You have to look at it as a supply chain effect, because if you remove [or affect] one of the cogs, you’re going to have a knock-on effect downstream,” Veeran stated.

Coupled with the Minister’s announcement on Thursday, Mantashe told media that a formal request has been submitted to the Speaker of the National Assembly and the National Council of Provinces chairperson for the withdrawal of the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill.

In place of the amendment Bill, a new legal framework will be developed for the sustainable development of the petroleum and gas sectors, respectively.

The removal of the amendment Bill, Veeran explained to Mining Weekly Online, was a good development on the mining front.

Law firm Strata Legal MD Brandon Irsigler agreed with the sentiment, dubbing it “an excellent move”.

He explained to Mining Weekly Online that, in particular, the removal of the amendment Bill removed the notion that certain minerals can be designated of strategic value to the State, allowing their export to be throttled by Ministerial proclamation.

This, he said, would come as a relief for producers and investors in the coal industry, in particular.

“The existing clear route to obtain a mining right is retained, and the administratively impossible restrictions on consents required on the change of shareholding in mining companies are now gone,” he clarified.

On the whole, Veeran considered the removal of the amendment Bill as positive from a mining perspective, but warned that industry would need to be cautious, especially considering that oil and gas is closely linked with mining.

The removal of the amendment Bill, he elaborated, or the conclusion of oil and gas rights, as well as the execution of all pending applications for extraction and production drives on the basis of the MPRDA, as it stands today, will have an effect on the industries involved.

“What we need to do is to encourage more investment into that industry, and into South Africa, so that people can come and explore our coast,” he said.

With the newly gazetted charter, Irsigler pointed out that a much higher degree of regulatory certainty has been introduced, both in terms of content and by the provision of a detailed scorecard and clear lines of breach.

He explained to Mining Weekly Online that advisers would be in a better position to answer their clients’ hard commercial questions, which he said could only be good for investment.

Veeran further commented on the charter’s elements, noting the exclusion of the 1% ownership element for qualifying employees and communities, that had been included in previous iterations of the draft charter.

In the case of existing ownership rights, these have been capped at 26%, and would only need to comply with the 30% requirement upon renewal.

An existing mining right holder’s black economic empowerment (BEE) shareholding, in turn, will be reassessed when the mining right is transferred or renewed, law firm Herbert Smith Freehills partner and Africa co-chair Peter Leon said in a separate statement.

“This may well conflict with the Gauteng High Court’s decision earlier this year that the MPRDA does not permit the Mineral Resources Minister to reconsider empowerment for renewal applications,” he pointed out.

Companies with pending applications for mining rights are also not exempted and are required to top up to 30% within five years of the right being granted.

This 30% BEE shareholding will be distributed through a minimum of 5% nontransferable carried interest to qualifying employees; a minimum of 5% nontransferable carried interest to host communities, or a minimum 5% equity equivalent benefit; as well as a minimum of 20% effective ownership in the form of shares to a BEE entrepreneur, 5% of which must ideally be for women.

While this does result in some difficulties in terms of new rights, Veeran explained that the shareholding requirements provide flexibility, as mining companies now have an opportunity to exercise an alternative mechanism, in the form of an equity equivalent programme.

However, the position in respect of applications for new mining rights is not clear, argued Leon.

“Although it is encouraging to see that the Minister has decided to remove a mining company’s obligation to issue free-carried shares, it remains to be seen what is meant by a nontransferable carried interest.”

Mantashe at the media briefing, on Thursday, in Pretoria, explained that successful applicants would be able to recoup this through their mining operations.

While it is unclear how they would be able to do so, Leon said it would be positive for mining companies to have an opportunity to recover some contribution for these shares.

Irsigler, meanwhile, pointed out that the needle has only moved up 4%, from 26% to 30%, for BEE shareholding but that investors would most likely require clarity that 30% is the maximum and that a black mining investor base will be sufficiently established by operation of the MPRDA in that black co-investment in mining assets becomes the norm, and not a legal requirement.

“It’s hugely helpful that the duration of equity ownership and other benefits that should accrue to black investors, are articulated,” he commented.

Additionally, Veeran believes the Department of Mineral Resources’ (DMR's) approach to communities is a “proactive approach”, with the overall charter being “more realistic in terms of compliance”.

The Minerals Council South Africa (MCSA) has, meanwhile, acknowledged the publication of the charter and said that it would study the document and consult with members.

Further, trade union Solidarity has welcomed the gazetting of the new charter after three years of industry uncertainty.

While the union is “not comfortable” with certain clauses, it believes the final version is “a huge improvement on the original version”, which was debated under the leadership of former Mineral Resources Minister Mosebenzi Zwane.

“Solidarity is particularly pleased that white females have again been included in the definition of ‘previously disadvantaged South Africans’ and that the employee share ownership is nonracial in nature,” Solidarity general secretary Gideon du Plessis said in a statement.

He emphasised that the promotion of nonracialism is one of the goals of the charter.

Solidarity further pointed out that the final charter necessitated a balancing act to accommodate various interests, with all players now needing to embrace and develop those aspects in the charter.

“It is also important to note the transition clauses that provide ample time for compliance with most of the charter’s requirements and certain key requirements will only be applicable when an application for a new mining right is submitted,” Du Plessis said.

He explained that it has to be understood that achieving stability in and around mines is one of the charter’s underlying goals, adding that “this comes with a price”.

“Therefore, the proposed community projects are important, because an investor-friendly charter means nothing if estranged and unhappy mining communities threaten to stop production.

“Hopefully, healthy labour relations, because employees now become real shareholders, and a decline in community protest action, will be the positive results for the sector,” he said.

Irsigler, meanwhile, welcomed the process involved in the release of the latest charter, when compared with previous mining charters, noting that it was a step in the right direction towards rebuilding trust between government and the resources sector.

“The DMR and the Minister played open cards with the industry, workers, communities and the media and stuck to its deadlines,” he enthused.

The draft Mining Charter was first debated with a representative mining industry body – the MCSA. It was then released for public comment to a wider group of stakeholders, with the final version carefully edited to reflect a variety of practical concerns raised, Irsigler noted.