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Empowering The Mining Industry: Lessons From The Last 10 Years

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The South African mining industry adopted a historical broad-based socio-economic empowerment charter for the South African Mining Industry (Mining Charter) in October 2002.
Otsile Matlou
By Otsile Matlou, director and head of ENSafrica’s mining department

The Mining Charter was negotiated in a tripartite process involving government, labour and the industry representatives. This historical document was adopted in anticipation of the coming into force of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) as a mechanism for correcting the wrongs of the past.

Like other aspects of South African life under apartheid, the mining industry was regulated on a racially discriminatory basis. Apartheid-era legislation, like the Occupational Diseases in Mines and Works Act, 1973 (which allowed mines to expose black people to dusty and dangerous conditions) discriminated against black people. The benefits of the mining industry, especially ownership and control patterns, were skewed in favour of the minority white populace to the (almost) total exclusion of blacks.

When democracy came to South Africa in 1994, it was inevitable that the State would want some sort of suzerainty over mineral resources. It was also inevitable that the State would want to redress the imbalances of the past in the mining industry. The MPRDA and the Mining Charter were brought into force to do just that.

Ten years later, it is opportune to reflect on some of the lessons flowing from the transformative era in the history of the mining industry. In all fairness, it is safe to say the last twenty years of democratic rule (and, in particular, the last ten years since the MPRDA and the Mining Charter came into force) have produced unprecedented success stories.

The rise to prominence of black captains of the mining industry, including Patrice Motsepe of African Rainbow Minerals, Cyril Ramaphosa (hitherto of Shanduka and now the deputy president of the of South Africa), Sipho Nkosi of Exxaro, Bridgette Radebe of Mmakau Mining and Daphney Mashile-Nkosi of Kalagadi Manganese, is testament to the successes of the transformation of the mining industry.

The scheme of the Mining Charter requires every holder of a mining right to, inter alia, have at least 26% black ownership. The extent to which this has been achieved will inform the success story of the MPRDA and the Mining Charter. On the contrary, the extent to which this has not been achieved will reflect the failures of the last ten years. The Department of Mineral Resources (DMR) has commissioned an audit of the extent of transformation of the mining industry and the results thereof are expected imminently.

The DMR conducted a mid-term review of Mining Charter compliance in 2009/10 and, flowing from that, published an Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry in September 2010. The aim of this amended charter was to clarify the requirements and to ensure that the mining industry achieved the 26% ownership target by 2014.

A number of critical issues arise from the provisions of the MPRDA and the Mining Charter as well as the implementation thereof. This article seeks to pose some of the questions and to proffer answers to some.

The first question that arises is the following: Once a mining company has complied with the empowerment provisions of the MPRDA and the Mining Charter (by concluding a so-called black economic empowerment (BEE) transaction), must the company be ‘empowered’ for the duration of the mining right, or can the BEE partners exit, for value, at a later stage without compromising the BEE status of the company?

To answer this question, it is necessary to examine the provisions of the MPRDA and the Mining Charter. Section 23 of the MPRDA provides that the Minister of Mineral Resources must grant a mining right if the applicant has, inter alia, given effect to the object of empowerment. In other words, the applicant must comply with the requirements of the MPRDA and the Mining Charter before the minister can grant the mining right.

The requirement for empowerment is a pre-grant requirement and does not appear to be a post-grant requirement. There is nothing in the MPRDA that provides that the holder of a mining right must keep its ‘empowerment status’ until the lapse of the mining right. The Mining Charter is not helpful either.

The DMR, for its part and practically, holds the view that every holder of a mining right must, whilst that right remains in force, be ‘empowered’. This means that if the BEE partner exits for any reason, a substitute BEE partner must be found. Consider this example. Company X enters into a BEE transaction with BEE partner A. After five years, and because of the lucrative commodity markets, BEE partner A sells off its shares for substantial value. The question is whether Company A must do another BEE deal or not. The DMR would expect Company A to do so. If Company A does so, and sells 26% to BEE partner B, the original shareholders of Company A would have been diluted twice and would lose control of Company A. This situation is clearly untenable and will affect the attractiveness of South Africa as a mining destination.

The second question that arises is the following: Given that mining companies were expected to have a 26% BEE ownership in 2014, and assuming that all of them have reached that level, does this mean that the Mining Charter ownership requirement has been met and mining companies do not have to worry about it going forward? In other words, does BEE have a ten-year shelf life? It is not difficult to see the limitation of such an interpretation. The reality is that mining companies, both old and new, will apply for and be granted mining rights beyond 2014.

The third question relates to the Broad-Based Black Economic Empowerment Act, 2003 (BBBEE Act), which is a law dealing with empowerment in general, was amended in 2014 to include a so-called trumping provision (which provides that in the case of a conflict between the BBBEE Act and any other law dealing with empowerment, the BBBEE Act will prevail).

The reality is that the Mining Charter requirements are inconsistent with the requirements in the BBBEE Act and the Codes published thereunder. In regard to ownership, for instance, the Mining Charter requirement of 26% is higher than the Codes (which will require a 10% BEE ownership from entities that require licences from the State to operate).

Given this, will the trumping provision not undo the gains of the Mining Charter? Will it not lead to more uncertainty in regard to the BEE requirements for mining companies? It is clear that the DMR and the Department of Trade and Industry need to be aligned in regard to this so that a coherent message is communicated to the industry. Is the solution the amendment of the MPRDA to ‘trump’ the BBBEE Act?

The last question I will raise related to the lack of consistency in the way beneficiaries of empowerment are defined in the MPRDA, the Mining Charter, the BBBEE Act and Codes. There is also a lot of ambiguity as to who is entitled to benefit. Are South Africans of Chinese descent ‘black people’ for the purposes of the MPRDA and the Mining Charter? A court has held that they are ‘black people’ for the purposes of the BBBEE Act.

Are black children born outside of South Africa to South African parents (i.e. citizens by descent) entitled to benefit? Some officials in the DMR hold the view that these children cannot benefit unless they are born of political leaders.

In other words, if you are a black child born of South Africans who left South Africa for missionary/religious or other non-political reasons, then you are not historically disadvantaged! This view, which the DMR has not officially sanctioned or published, is inconsistent with the purpose of the MPRDA and the prescripts of our constitution.

What is to be done? The mining industry awaits the outcomes of the DMR’s audit of compliance with the Mining Charter with bated breath. Given the current situation in the mining industry; where some mining communities are unhappy with progress made; where the industry is troubled by unprecedented labour unrest; where the availability of investment is on the decline; where there is no clarity in regulation and where other mining destinations are positioning themselves ahead of South Africa; perhaps the time has come for South Africa to re-look at the mining industry carefully and holistically.

This should be done in an inclusive process designed to maximise the following: the return on investment for shareholders; the government revenues; participation of black people in the mining industry at all levels of the value chain; benefits accruing to communities and employees; the clarity and simplicity of regulation; and the capacity and skills of the regulators.

  • The views expressed in this article are the personal views of the writer and not of ENSafrica

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