It has been ten years since the South African Mining Charter was first put in place, in an attempt to accelerate transformation in the South African mining industry.

A top priority on the charter’s transformation list, which mining companies had to have complied with by May 1 this year, is the stipulation that historically disadvantaged South Africans (HDSAs) have a 26% share in mining companies.

The Department of Mineral Resources (DMR) commissioned auditing firm Moloto Solutions to conduct an audit on all South African mining companies regarding this compliance measure. The final audit report is expected to be completed by the end of the year.

In support of the department’s drive towards transformation, Mineral Resources Minister Ngoako Ramatlhodi stressed during his National Assembly Budget Vote speech in July that he was expecting “100% compliance” by mining companies. He stated that the DMR would not compromise its compliance expectations and indicated that measures would be taken against companies that failed to comply with the charter after the audit was completed.

At the media briefing leading up to his Budget Vote speech, he said that the department would be keeping a close eye on charter compliance. He added that the department would also issue directives to companies to encourage them to accelerate their compliance. “We can withdraw licences and we will do that, if need be,” he added.

Calling for Clarity
Moloto Solutions’ audit will involve routine inspections and, in cases of noncompliance, directives and orders will be issued to the mining right holders to rectify shortcomings within a stipulated timeframe.

However, industry commentators argue that a lack of clarity regarding the requirements of the charter has caused confusion and, owing to this, they doubt the audit will yield the results expected by the DMR.

Bowman Gilfillan head of public law Claire Tucker notes that the Mining Charter has fundamentally changed the mining industry since its inception ten years ago, as mining companies have implemented several initiatives to empower HDSAs.

She feels that, given the consequential advances in the industry, and the differing approaches to implementing charter stipulations, it is not useful to have an uncompromising compliance audit at this stage.

“Saying generally that companies are not complying with the charter is not a useful starting point,” she notes.

Tucker adds that the DMR has had a large degree of discretion in implementing the charter and, through its control of the licensing process, the DMR has been able to dictate the nature of empowerment across the sector.

Tucker believes the first step towards improving empowerment in the sector would be to clarify what the department’s expectations are. “This way, the industry can adjust to what is required and fully adhere to the policies.”

Once Empowered, Always Empowered
Law firm Malan Scholes partner Hulme Scholes supports Tucker’s views, adding that the DMR has to clarify if the ‘once empowered, always empowered’ rule applies to the 26% HDSA ownership stipulation and if this will be considered throughout the auditing process.

The ‘once empowered, always empowered’ rule refers to the notion that, should a mining company have complied with the 26% HDSA ownership requirement at any time during the ten years of the Mining Charter’s existence, then that compliance remains relevant at the time of the audit, even if that percentage of ownership is currently reduced or absent at the time of the audit.

Scholes points out that there is uncertainty as to whether companies had to have had a 26% HDSA ownership by May 1, or whether meeting the requirement anytime prior to May 1 will suffice.

“Conversely, in the absence of the ‘once empowered, always empowered’ rule, all mining companies would have had to have 26% HDSA ownership as at May 1, failing which mining companies would then be in breach of the charter.”

Scholes explains that a possible consequence of this interpretation – should a company not have had 26% HDSA ownership on May 1 – is that mining company’s prospecting rights or mining rights could be withdrawn by the Minister, after the procedure in Section 47 of the Mineral and Petroleum Resources Development Act (MPRDA) has been followed.

However, in July, The Star newspaper reported that Ramatlhodi had said he did not support the ‘once empowered, always empowered’ rule argued by mining companies, as it “defeated the spirit of transformation”.

“To conclude that such a rule cannot be read into the charter would lead to absurd consequences. Mining companies would continuously have to do transactions with HDSA to remain at a 26% ownership level at all times,” Scholes explains.

He adds that companies would then also have to impose uncommercial lock-up clauses in agreements with HDSA, or impose other conditions, such as those compelling HDSA shareholders to dispose of their shareholding in mining companies only to other HDSA.

Scholes further highlights that it is a rule in South Africa that any interpretation of a statute that leads to an absurd result must be subordinated to an interpretation that does not.

Accordingly, he suggests that the ‘once empowered, always empowered’ rule must be read into the charter, because, if it is not read into the charter, the outcome could lead to absurd results.

“The ‘once empowered, always empowered’ rule must be read into the charter to mitigate against absurdity. This will ensure that there are no negative consequences for mining companies that were not at the 26% HDSA ownership threshold by May 1,” suggests Scholes.

He points out that, if companies had achieved that threshold prior to May 1, and their HDSA shareholders have simply sold out for commercial reasons, companies should be considered as being compliant with the charter.

Tucker points out that if approved empowerment deals failed after DMR approval, the DMR should look carefully at the factors that led to the unravelling of these transactions and, therefore, to the companies being seen to have not complied with the stipulated 26% HDSA ownership.

By way of example, she points out that the 2008 global recession led to empowerment transactions funded through dividend flow failing, owing to a downturn in the industry. This caused a reduction in dividend flow, leading to a default on the loan by the empowerment partner for the share acquisition.

About the Mining Charter
Passed into law in 2004, the South African Mining Charter was developed and adopted as a tool to effect broader transformation in the mining sector. Its main intent was to avert the status quo, where HDSA are generally considered as a repository for cheap labour.

Therefore, the Mining Charter aimed to achieve its mandate by promoting equitable access to the nation’s mineral resources to all the people of South Africa – substantially and meaningfully expanding opportunities for HDSA, including women, to enter the mining and minerals industry and benefit from the exploitation of the nation’s mineral resources.

The charter also aimed to: promote equit- able access through existing skills for the empowerment of HDSAs, expand the skills base of HDSAs to serve the community, promote employment and advance the social and economic welfare of mining communities, and to promote beneficiation of South Africa’s mineral commodities.

The Mining Charter introduced nine elements that would create an enabling environment for the empowerment of HDSAs. These elements include: human resource development; employment equity; migrant labour; mine community development; housing and living conditions; procurement, ownership and joint venture; beneficiation; and reporting.

The charter set a target for all mining companies to have reached 15% HDSA ownership of mining assets by 2009, while envisioning that 26% ownership would have been reached by May 1. A review undertaken by the DMR found that HDSA ownership of mining assets reached only 8.9% by the 2009 deadline.

Following the unsatisfactory outcomes of the 2009 deadline – that were said to be a result of the lack of clarity on issues pertaining to broad-based socioeconomic empowerment of HDSAs – the South African government released its amended Broad Based Socio-Economic Empowerment Charter for the South African Mining Industry in September 2010. The document was known as the Amended Mining Charter.

According to the DMR, the amendments and clarifications contained in the Amended Charter are intended to “streamline and expedite attainment of its objectives” and to introduce “an element of sustainable growth in the mining industry, which seeks to ensure sustainable transformation of and growth in the industry”, whereas the original charter aimed to empower and improve the socioeconomic welfare of HDSAs.

“We need a strong, stable sector that has the ability to make long-term investment decisions. Therefore, we need a stable legal framework that creates a stable investment environment,” states Tucker.

She concludes that legislative uncertainty, such as the uncertainty surrounding the MPRDA, may result in an unsophisticated audit of the charter at year-end, which will affect investor confidence.