Somalia: Revised Mining Charter Published For Comment

On 15 April 2016, the Department of Mineral Resources published the Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016 (Draft Mining Charter) for public comments. In this article, we provide a brief overview of the major changes proposed by the Draft Mining Charter.

Introduction

The Draft Mining Charter, if passed, will replace the Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2010 (Mining Charter).

The Mining Charter is published under the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) and sets out certain targets for the active participation of historically disadvantaged South Africans (HDSAs) in the mining industry in South Africa.

The government will take into account the extent to which an entity is compliant with or will be compliant with the Mining Charter when considering an application for a mining right or production right. Accordingly, the Mining Charter is also applicable to producers of petroleum in South Africa.

Compliance with the Mining Charter

In 2014, the government conducted an assessment to determine the level of compliance with the Mining Charter. Some of the key findings of this assessment include that:

• the mining industry is still a long way from being fully transformed;
• the mining industry appears to have taken a compliance-driven approach to the Mining Charter, designed only to protect the "social licence to operate";
• communities surrounding mining operations continue to live in abject poverty; and
• there has been limited progress with the meaningful economic participation of Black South Africans, in particular (i) the economic benefits of Black shareholders tend to only service the loan and there is no cash-flow directly to these shareholders and (ii) the interests of mineworkers and communities are held in "nebulously defined" trusts, which constrain the flow of benefits to the intended beneficiaries – as a result of this there have been increasing tensions between the mining industry and its workers and host communities.

The Draft Mining Charter seeks to address these findings.

Proposed changes

One of the major changes proposed by the Draft Mining Charter is the inclusion of additional requirements for the ownership element.

The minimum ownership target of the Draft Mining Charter is 26% Black ownership, the same as the requirement under the current Mining Charter. However, whereas the current Mining Charter does not specify how the shareholding should be structured, the Draft Mining Charter includes additional requirements relating to the broad-based black economic empowerment (BEE) structure. By way of example, the Draft Mining Charter requires inter alia that:

• a minimum of 5% of the shares be equitably distributed amongst workers, Black entrepreneurs and the community;
• community stakes be held in trusts that include representation from the traditional authorities;
• workers' stakes be held in trusts (in the form of employee stock ownership plans) that include representation from the trade unions;
• the 26% Black shareholders register a special purpose vehicle (SPV) to manage their shareholding; and
• there must be a BEE transaction for each mining right granted and an SPV for each BEE transaction.

It is not unusual for the community and worker shares to be held by a trust. However, it appears that the Draft Mining Charter requires a single SPV for Black shareholding in a mining company. This is not common in BEE structures at present.

Usually, law in South Africa is not retrospective. In this case, the Draft Mining Charter proposes that all existing mining right holders must align the BEE transactions concluded prior to the coming into operation of the Draft Mining Charter with the Draft Mining Charter. The Draft Mining Charter also proposes that, where a BEE partner has exited, a BEE contract has lapsed or a previous BEE partner has transferred shares to a non-BEE entity, the mining right holder must within three years from the date of publication of the Draft Mining Charter revise its BEE credentials to be consistent with the Draft Mining Charter.

The table below provides an overview of some of the major differences between the Mining Charter and Draft Mining Charter.

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