Points of contention in South Africa’s revised Mining Charter

The recently amended Broad-based Socioeconomic Empowerment Charter for the South African Mining Industry (the “Mining Charter”) was unveiled by South Africa’s minister of the Department of Mineral Resources on Sept. 13, 2010.

It appears at first glance that the vision behind the country’s Mining Charter to achieve a globally competitive mining industry that can benefit all South Africans and “to facilitate transformation, growth and development of the mining industry” has been achieved.

However, we may be faced with certain regulatory hurdles not addressed by the Mining Charter, but which would have to be addressed in the soon-to-be-amended Mineral and Petroleum Resources Development Act of 2002 (MPRDA).

One of the Mining Charter’s key objectives is to achieve a 26% ownership by historically disadvantaged South Africans (HDSA) of mining companies by 2014, which is an objective that remained unchanged in the revised Mining Charter. The Mining Charter requires black economic empowerment (BEE) beneficiaries to have “full shareholder rights” and ownership shall vest within the time frames agreed with the BEE entity, taking into account the marketing conditions.

In addition, the revised Mining Charter specifies that mining companies were allowed to offset up to 11% of their HDSA ownership requirements against the value of their beneficiation activities.

Mining companies are now required to procure 40% of their capital goods from HDSAowned suppliers by 2014. In addition, the revised charter specifies that multinational suppliers of capital goods are required to contribute a minimum of 0.5% of their locally generated annual income towards a “social-development fund” for the benefit of local communities, as well as procure 70% of services and 50% of consumer goods from BEE entities by 2014.

The Mining Charter makes provision for sustainable growth in the mining industry in that there will be a considerable improvement of the industry’s environmental management, health and safety, and skills.

The continuing consequences of all previous deals concluded prior to the promulgation of the MPRDA would be included in calculating such credit/offsets in terms of market share as measured by attributable units of production. The consequence of noncompliance under the new revised Mining Charter, is that companies found not complying could face penalties including the revoking of a mining company’s licence.

Another point of contention is that the minister may amend the Mining Charter as and when the need arises. No further explanation is provided as to how, when and why such amendment could occur, thus leading to unease and fear of arbitrary decisions.

As part of transforming the industry, the department has placed a six-month moratorium on all new applications for prospecting mining licences. The moratorium, which took effect from Sept. 1, 2010, will allow the departments to review gaps and inefficiencies in the administrative process.

The next step for the Department of Minerals and Resources is to bring the codes of good practice, which were suspended last year after their release and subsequent condemnation by the mining community, in line with the Mining Charter. Furthermore, the minister has promised urgent amendments to the MPRDA before the end of the year to address several ambiguities and gaps. — Dimitri Cavvadas is a corporate commercial lawyer qualified in South Africa and the U.K., and a partner at Fasken Martineau’s Johannesburg office. He specializes in mergers and acquisitions and capital markets within the resources sector. Mutoba Mpinga is a consultant lawyer at Fasken Martineau’s Johannesburg office. Based in Lubumbashi, she represents Fasken in the Democratic Republic of the Congo, advises mining companies, and has experience with cross-border transactions involving both private and public companies listed on the TSX and the AIM. They can be reached at dcavvadas@jnb.fasken.comand mmpinga@jnb.fasken.com.Visit www.fasken.comfor more details.