Minerals Council Challenges Aspects Of DMR’s 2018 Mining Charter

In response to the Department of Mineral Resources (DMR) draft Mining Charter 2018 published on 15 June 2018, The Minerals Council South Africa states that while there is “a material improvement on the 2017 Mining Charter”, the council believes that much more work needs to be done to create a Mining Charter that promotes competitiveness, investment, growth and transformation for the growth and prosperity of South Africa.

However, given that the Mining Charter contained elements that it considered “unconstitutional and contrary to the South African Company Law”, the Minerals Council did not support those elements that did not promote competitiveness. “Without competition, investment in the new exploration and mining will be limited and the current mining sector will continue to decline.”

The council also disagreed with the free carried 5% interest granted to each of labour and communities. Given South Africa’s mature mining sector, a 10% total free carried interest on new mining rights would materially undermine investment, by pushing up investment hurdle rates and ensuring that many potentially new projects became unviable, the council said.

“Imposition of a free carried interest is a public policy choice, which must be weighed against the critical need to attract investment for growth and employment creation. Therefore, the Minerals Council believes that there are other measures to ensure benefits to communities and employees that would not undermine the viability of mining in the future and will continue to engage with the DMR on potential measures.”

Moreover, the council disapproved of the 1% EBITDA target to communities and labour as proposed by DMR, which was not agreed upon as a recommendation by the Charter Task Team.

For mining companies in new rights applications to carry a 10% free-carried interest and an EBITDA-based income stream for communities and labour, comes in addition to the industry’s Social and Labour Plan requirements, skills development requirements (R7bn per annum), the existing royalties (R6bn per annum) and corporate taxes, the Council stated in a statement.

The lack of recognition of the need to phase-in or graduate the Charter’s requirements for junior and emerging mining companies was disappointing, noted the council.

“While the Minerals Council supports transformation of all elements of the exploration and mining value chain, the application of a 30% black ownership target to new Greenfields prospecting rights will result in a continuation of limited exploration, the lifeblood of new projects for the industry.”

The Minerals Council will continue to engage the DMR and other stakeholders. It will make a comprehensive submission to the DMR (including at the Mining Summit) on the key issues that need to be changed or resolved in order to achieve competitiveness, growth and transformation, said the Council in a statement.

Ultimately, “we are all seeking a Mining Charter that all stakeholders can support and defend.”

Interested parties have 30 days to respond to the draft Mining Charter.