Court challenge to Mining Charter reveals continuing industry concerns - Polity

16 April 2019 - The recent announcement by Minerals Council South Africa (MCSA) that it was legally challenging the latest Mining Charter indicates that despite the industry’s generally favourable response to it, there remain substantial objections.

Peter Fabricius

The recent announcement by Minerals Council South Africa (MCSA) that it was legally challenging the latest Mining Charter indicates that despite the industry’s generally favourable response to it, there remain substantial objections.

Mining Minister Gwede Mantashe’s latest Mining Charter, published on September 27 last year, was regarded by the MCSA – formerly the Chamber of Mines, and representing about 90% of mining companies – as an improvement on previous iterations of the charter.

But MCSA CEO Roger Baxter explained that the industry’s main problem was that the charter still “does not fully recognise the continuing consequences of previous empowerment transactions, particularly in respect of mining right renewals and transfers of these rights…”

This provision would have “a severely dampening effect on the attractiveness of mining in the eyes of investors..” It would also be a breach of the declaratory order on this issue issued by the North Gauteng High Court on 4 April 2018.

That order had upheld the Chamber of Mines/MCSA’s contention that if a mining company had at any point attained the 26% of black economic empowerment ownership required by the original Mining Charter of 2004, it should retain its empowerment credentials even if its BEE  ownership level subsequently fell below 26%- for example if BEE  shareholders sold their shares.

In other words the court upheld the “once empowered, always empowered” principle by ordering the mining minister to “recognize the continuing consequences of previous empowerment transactions,” in the MCSA’s words.

The MCSA – then still the Chamber of Mines – had applied for this court order in 2016 after the government had revised the Mining Charter in 2010 and had tried to limit the principle of ‘continuing consequences’ to ownership deals concluded before 2004. The Chamber of Mines argued that the BEE ownership requirements could not be retrospectively changed.

The June 2018 draft Charter published by Minister Gwede Mantashe partly accepted this ruling. It said a mining company which had ‘at any stage’ achieved a 26% BEE shareholding would still be ‘recognised as compliant’ even if its BEE shareholders later exited. Yet it also decreed that all mining companies would have to top up their BEE shareholdings to 30% over five years.

The Minerals Council rejected this top-up requirement because it said it would violate the April 2018 North Gauteng High Court order which had determined that the government could not retrospectively diminish the rights that mining companies had secured on the basis of the 2004 and 2010 Charters.

Mantashe’s latest, September 2018, Mining Charter partly addressed this major concern of the mining industry by removing the requirement for mining companies to top up their BEE shareholding to 30% – but only for existing mining rights.

 It did not extend the once-empowered, always-empowered principle to the renewal or transfer of mining rights. So if a mining company renews or transfers its mining right to another company, the existing BEE ownership of the right will then have to be increased from, say, 26% to 30%.

And the company will also have to comply with the new requirement of at least 20% ownership by a BEE entrepreneur plus 5% each for the community and the employees. This could mean that a mining company which already has 26% ownership by a BEE entrepreneur will have to add to that the five percent each for the community and the employees, and so in fact cede 36% of ownership to BEE partners.

And if a mining company’s BEE shareholders have already sold out, the mining company will get no BEE credits upon renewal or transfer. It will have to increase BEE ownership from zero to 30%.

These are the main provisions of the September 2018 charter which the MCSA is now challenging in court. However Baxter pointed out that it was still negotiating with the government over this and other objections to the new charter and these negotiations could still bear fruit. But it had meanwhile brought the court challenge to meet a legal deadline for doing so.

Baxter pointed out in his statement that the Minerals Council and its members “remain fully committed to transformation of the mining sector in South Africa, with the aim of achieving job creation, economic growth, competitiveness and social upliftment and development.”

But he added that the September 2018 Charter’s failure to fully recognize past empowerment credentials on renewal or transfer of mining rights would be detrimental to the sustainability of the mining industry.

In a comprehensive report on the new charter to be published by the IRR this week, mining analysts agree with the MCSA that these provisions could significantly hamper investment. Patrick Leyden, a director and mining expert at the law firm, Herbert Smith Freehills, points out, for example, that mining companies which face imminent renewal of their mining rights (which usually extend for about 30 years) will have to bear the immediate burden of increasing BEE ownership by another four percent.

And if their BEE partners have already exited, they will have to cede a full 30% immediately.

And he adds that the obligation to top up BEE ownership to 30% on transfer of mining rights will make such sales less attractive for investors and discourage mergers and acquisitions.

This is all happening at a time when many mining companies are struggling to survive, while President Cyril Ramaphosa is trying to attract a huge surge of at least $100 billion in new investment over the next five years.

Peter Fabricius is a consultant to the Institute of Race Relations (IRR), a liberal think tank that promotes economic and political freedom. Go to https://irr.org.za/ 

http://www.polity.org.za/article/court-challenge-to-mining-charter-reveals-continuing-industry-concerns-2019-04-16

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