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“Once empowered always empowered” and Mining Charter III revisited by the courts

By September 23, 2021June 19th, 2023B-BBEE, Corporate Finance, Economy, Mining, News

In what can be seen as a victory for the Minerals Council of South Africa, the Gauteng High Court (“the Court”) ruled this week against the Minister of Mineral and Energy Resources (“the Minister”).

The question in dispute before the Court concerned the ambit of the powers of the Minister in terms of the Minerals and Petroleum Resources Development Act (“MPRDA”) to make law in the form of subordinate legislation, and the legal nature and role of the Mining Charter III in the context of the MPRDA.  At issue was whether the Mining Charter III constitutes law or policy. The Minister argued that the transformation objects of the MPRDA cannot be achieved unless the Charter is binding subordinate legislation.

The Court said the flaw in this argument is that it ignores the enforcement structure provided for by the MPRDA. The Minister is able to enforce empowerment obligations through the issue of mining rights, which impose obligations on the rights holder in terms of the Act, not the Charter.

Certain key clauses of Mining Charter III set aside by the Court

The Court held that the Mining Charter III is not binding subordinate legislation, but an instrument of policy. The Court therefore unanimously concluded that section 100(2) of the MPRDA does not empower the Minister to make law.

The Court proceeded to set aside a number of key clauses of the Mining Charter III, including the clause which required mining rights holders to maintain black economic empowerment (BEE) ownership targets of 26% for pre-existing mining rights and 30% for new mining rights.

Also set aside were the Charter’s procurement, supplier and enterprise development targets, and some of its penalty and enforcement provisions.

“Once empowered always empowered” – when did the debate start?

The dispute over “once empowered always empowered” in the mining industry was revived in 2017 after then Mineral Resources Minister Zwane published a draft version of the Mining Charter III that required companies to maintain the minimum ownership level (which was increased to 30%) in perpetuity.  This meant that if a BEE partner had exited a partnership or if shares were sold to someone who was not historically disadvantaged, then the mining company would have to top up the BEE ownership level back to 30% within a 12-month period. The Department of Mineral Resources (which later became the Department of Mineral Resources and Energy (“DMRE”)) argued that true empowerment could only be achieved by topping up empowerment levels so as to perpetually maintain the 30% (initially 26%) level stipulated in the Charter.

The Mining Charters which were published in 2002 and 2010 did not stipulate the need for mining companies to perpetually keep empowerment levels at 26% once the original black shareholders left. These charters recognised that perpetual ownership would impose costs on all parties, which raises the hurdle for investment.

Increased regulatory uncertainty?

The Court recognised that security of tenure plays a central role in the achievement of transformation of the mining industry and to ensure further investment in mining. Security of tenure is essential to achieve the objects of equitable access and expansion of opportunities for historically disadvantaged individuals, promotion of economic growth in the industry, promotion of employment, sustainable development of the nation’s mineral and petroleum resources, and the contribution of rights holders to the socio-economic development of the areas in which they operate.

Mining rights granted by the DMRE invariably include the stipulation that the right holder must remain 26% (or 30%) black. This High Court victory may therefore be a hollow one for most mining companies.

A strong mining industry requires a solid foundation. However, this development may lead to greater uncertainty in the medium to long term, as it is likely that this decision may be appealed. South Africa’s current mining policy and stakeholder relationships have created a frail industry which has become unnerving to investors. Mining companies will still need to navigate the South African ownership “minefield” with caution, to ensure the best outcome for their stakeholders (including their communities and their employees).

Published: 20210921 Mining Charter Gauteng High Court