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January 17, 2022updated 21 Jan 2022 10:12am

Once empowered, always empowered: tensions rise in South African mining

A recent high court judgement set aside key provisions relating to Black empowerment in South Africa’s controversial Mining Charter III.

By Heidi Vella

South Africa is the world’s largest producer of platinum, and has built a legacy as one of the most productive mining countries in the world, but this identity has been challenged lately. In recent years, gold production has dwindled, with investment in exploration across the entire mining sector reaching an all-time low of 0.76% of global exploration spend, prompting the government to aim toto increase this to 5% in five years. 

Regulatory uncertainty is often cited as a reason for this fall in investment. Therefore, when the long-awaited South African Mining Charter III, also known as the Broad-based Socio-economic Empowerment Charter for the Mining and Metals Industry, was first published in 2018, it was hoped investor confidence would return to the sector. 

Under the previous charter, 26% of company shares must be held by Black citizens as part of a Black empowerment agenda to counteract the fallout of apartheid rule in South Africa. The new charter states that these should be held in perpetuity, meaning black-owned shared could only be sold on to other black citizens. This doubling down led The Minerals Council of South Africa, the leading industry trade body, to declare the charter would have the effect of ‘diluting shareholders and stifling investment in the sector.’

The charter also required miners to buy 70% of goods and 80% of services from Black-owned companies, which many industry groups feel is unrealistic. It also appeared to give the mining minister carte blanch for revising and reviewing the obligations imposed under it that could have serious implication for mining licences, and has sewn discontent among the mining industry.

Legal uncertainty

“The difficulty the industry had with the charter was that it contains sanctions – specifically section 47 of the Mineral and Petroleum Resources Development Act 2002 (MPRDA), which allowed the Minister of Mineral Resources to cancel a mining right if the terms of the charter are not adhered to,” explains Director Kathleen Louw of Werksmans law firm based in Johannesburg. “The main outcry from the sector was that the Charter is a policy document and not legislation, which are notably different.”

This was also the notable finding of a lawsuit filed by the Minerals Council against The Minister of Mineral Resources and Energy, and thirteen others, including the South African Diamond and Precious Metal Regulator, Mining Affected Communities United in Action, and Women Affected by Mining United in Action. 

During the case, the Minerals Council argued the new charter created confusion around the level of enforcement that was allowed if companies were unable to comply with certain aspects, a point of particular importance, as the charter stated it was ‘effective immediately’. As such the Mineral Council asked for several provisions, including the procurement and continuation of shareholdings requirements, to be set aside. 

On 21 September 2021, the Gauteng High Court delivered a unanimous judgment that the charter is policy and not legislation or subordinate legislation – as long contended by the Department of Mineral Resources and Energy (DMRE). Finding essentially that it does not empower the Minister to make law, the requested provisions were set aside. 

The other thirteen parties in the case did not oppose the relief sought by the Minerals Council in the judicial review but chose to note that there was inadequate consultation with them and their members prior to the publication of the 2018 Charter.

Speaking after the judgement, senior executive at the Minerals Council, Tebello Chabana said: “We have known since 2004 that the mining charter is policy. So the legal status of the charter for us hasn’t changed…. it is a policy instrument that we welcome, by the way, that we support, despite the challenges that we’ve had with some of the previous [versions].”

Greater certainty and the limits of legal power

The judgement, according to Louw, gives new certainty to the mining industry, for now at least. It means that mining right holders may, but are not legally obliged to, comply with the remaining requirements imposed under the Charter. And if they previously satisfied the empowerment requirements, they won’t need to again. 

Importantly, in its judgement the court reaffirmed the “once empowered, always empowered” principle in relation to Black ownership. Louw also added that the ruling could make it easier for Black shareholders to sell their shares, whereas the perpetuity provision could have the opposite effect, by limiting to whom they could sell their interests.

“The mining charter went against that principle – which is that once you are in power you remain in power, regardless of whether you remain shareholders,” says Louw. 

The original 2004 Mining Charter was created under Section 100(2) of the MPRDA to distribute the benefits from mining more widely among South. It was signed by the minister at the time and all stakeholders in the industry, including major miners, who agreed upon its contents. The second Charter however, was published unilaterally by the Minister in 2010 and didn’t go through the same process of consultation.

This is where the government went down the ‘wrong route’ says Peter Leon, partner and Africa Chair, at South African law firm, Herbert Smith Freehills LLP.

“They started using the charter as a regulatory instrument, rather than a social compact,” he explains. “Unlike the original charter, it was simply imposed by the Minister of Mineral Resources, without being signed-off by any of the other parties.”

He adds that the mining industry before were willing to live with this ‘up to a point’ but the binding Charter III was a ‘step too far’.

The future of South African mining

The government has said it will not appeal the case outcome, ‘which is significant and positive,’ says Leon. However, because the minister doesn’t believe the Charter has done enough to create prosperity for disadvantaged communities, there are reports it will seek to implement the provisions set aside in law instead. 

 “We have agreed that the Mining Charter remains the tool to drive transformation. It cannot be theoretical, it must be practical,” Minister of Minerals and Energy, Gwede Mantashe said at Mining Indaba recently. 

Leon believes that if the government were to incorporate the set aside provision in law, this could be ‘very negative’ for the industry. This process, if pursued, is expected to take around eighteen months and will include consultations, several hearings, and any legislation will need to comply with the Constitution.

Though it’s unlikely the industry would be supportive of such a move, Chabana in a recent interview said the Mineral Council does welcome certainty within the sector.

“If the DMRE wants to put in place a set of rules going forward that are clear, that are concise and that provide clarity for future investors, so be it. But it’s always important that the investors must know where they stand. If I do A, B, C, D, will that mean E – or not?” she said. 

The Council has said it will participate fully in any process that follows the court judgement. But for now, it seems, despite the clarification, the industry has not quite achieved the regulatory certainty it so craves. 

 

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