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The requirement for empowerment in the South African mining sector: looking for legal certainty from the courts

Tuesday 21 September 2021

Mmaphuti Morolong
Fasken, Johannesburg
mmorolong@fasken.com

Godfrey Malesa
Fasken, Johannesburg
​​​​​​​gmalesa@fasken.com

Mining charters for the South African mining and minerals industry

The Mineral and Petroleum Resources Development Act 2002 (MPRDA) is the primary legislation governing mining in South Africa. Section 100(2) thereof empowered the Minister for the Department of Mineral Resources and Energy (the ‘Minister’)  to:

‘develop a broad-based socio-economic empowerment Charter that will set the framework for targets and [a] time table for effecting the entry into and active participation of historically disadvantaged South Africans into the mining industry, and [to] allow such South Africans to benefit from the exploitation of the mining and mineral resources and the beneficiation of such mineral resources’.

The Broad-Based Black Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, commonly known as the Mining Charter, is a government document setting out black economic empowerment (BEE) targets and the blueprint for the transformation of the mining industry. It was first developed in 2004 (the ‘Original Charter’), and amended in 2010 (the ‘2010 Mining Charter’), as a tool to drive transformation in the industry. The third iteration of the Mining Charter (‘Mining Charter III’) was gazetted on 27 September 2018. 

A common thread across all the charters is that mining right holders are required to empower historically disadvantaged South Africans (HDSAs) and must accordingly ensure that HDSAs hold a prescribed percentage shareholding in the company that holds the mining right (the ‘empowerment requirements’). More specifically, the Original Charter and 2010 Mining Charter required mining right holders to achieve a minimum target of 26 per cent shareholding by HDSAs to enable meaningful economic participation by HDSAs. The target had to be achieved by 2014.

Mining Charter III adds to this and provides amongst others, as follows:

  • Existing mining right holders who have attained the HDSA shareholding target before the commencement of Mining Charter III will be recognised as compliant with the empowerment requirements for the duration of the mining right.
  • Existing mining right holders who attained the target at any stage during the existence of the mining right and whose HDSA partner exited before the commencement of Mining Charter III will be recognised as compliant with the empowerment requirements for the duration of the mining right, but such recognition will not be applicable on the renewal of the mining right.
  • The holder of a mining right granted after 27 September 2018 must achieve a minimum 30 per cent HDSA shareholding. These shares must include ‘economic interest’ and the proportional voting rights per mining right or in the mining company that holds the mining right. The 30 per cent HDSA shareholding must be distributed as follows:

    – a minimum of 5 per cent non-transferable carried interest to qualifying employees[1] from the effective date of the mining right;

    – a minimum of 5 per cent non-transferable carried interest or a minimum of 5 per cent equity equivalent benefit to host communities[2] from the effective date of a mining right; and

    – a minimum of 20 per cent effective ownership in the form of shares to BEE entrepreneurs[3], 5 per cent of whom must preferably be women.

Court challenge

Mining Charter III is being challenged before the courts. On 26 March 2019, the Minerals Council South Africa launched a review application to review and set aside specific clauses of Mining Charter III including:

  • the requirement for a new mining right holder under Mining Charter III to continuously replenish its HDSA shareholding after its HDSA partner exits. In this regard, the Council is of the view that the requirement to replenish the HDSA ownership is not provided for in the MPRDA;
  • the provision that the recognition of compliance with the empowerment requirements (once empowered always empowered) in respect of an existing mining right lapses on the transfer of an existing mining right;
  • the Minister’s prescription of the manner in which the HDSA shareholding of a mining right holder should be held; and
  • the provision that failure to comply with the ownership elements of the Mining Charter (as set out in clause 9) shall be in breach of the MPRDA therefore subjecting the mining right to the suspension and cancellation processes under the MPRDA.

In addition, the applicant argues that:

  • the Minister lacks the power to publish Mining Charter III in a manner that suggests that it is a legislative instrument, and doing so amounted to the Minister assuming the functions of the legislature; and
  • the clauses are unauthorised by section 100(2) of the MPRDA and therefore the decision to publish them as part of Mining Charter III was materially influenced by an error of law. 

The review application was heard by a full bench of the High Court of South Africa in May 2021 and judgment has been reserved.

Notwithstanding the alleged unlawful nature of Mining Charter III (generally and in respect of specific clauses thereof), unless (and until) otherwise determined by the courts, Mining Charter III as well as all decisions made in terms of the charter remain valid and enforceable until set aside by a court. 

Conclusion

Although the consultative process of the Mining Charter III has introduced some degree of certainty into the sector, it is anticipated that uncertainty will continue until the courts’ final ruling on the Review Application, which will bring legal certainty on whether the Mining Charter III is law or policy. 

Should the courts rule that the charters are policy and not law, then the charters will not be legally binding in the sense of being directly legally enforceable and producing obligations which mining companies must at all times meet.  It would mean that the Minister may not apply the charters as hard and fast rules. The Minister may in such circumstances have regard to the charters as a guide, but not as a decisive factor.

Mining Charters have been a substantial source of uncertainty and a great cause of debate. Finality on the Mining Charter III court challenge is accordingly highly anticipated by the whole South African mining industry.

 

[1] ‘Qualifying employees’ for the purposes of the ownership element refers to employees of a mining company, excluding employees who already hold shares in the same company as a condition of their employment agreement.

[2] ‘Host community’ refers to a community within a local or metropolitan municipality adjacent to the mining area, as defined in the MPRDA.

[3]BEE entrepreneur’ refers to a historically disadvantaged person or enterprise that is at least 51 per cent owned by historically disadvantaged persons (excluding host communities and qualifying employees) with at least 51 per cent of exercisable voting rights and 51 per cent of economic interest.