On Friday 15 April 2016 the Minister of Mineral Resources, published the new draft Reviewed Broad Based Black- Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016 ("Draft Mining Charter") for public comment. Interested and affected parties have 30 days from publication to comment on the Draft Mining Charter. Comments must therefore be in by 15 May 2016.

The Draft Mining Charter was published without consultation with the mining industry or trade unions. The intention seems to be to use the Draft Mining Charter to facilitate the consultation with stake holders. This approach gives the Government a strategic advantage over other stakeholders. Prior to analysing the details of the Draft Mining Charter and comparing it with the Amended Mining Charter, 2010 (read together with the Mining Charter, 2002), it is important to understand the context within which it was published. There are three themes to consider. First there is the alignment of the Draft Mining Charter to the Broad-Based Black Economic Empowerment Act, 2003 ("B-BBEE Act") and the Codes of Good Practice ("DTI Codes"). Second there is the issue of how compliance will be measured or determined. Finally, there is the ongoing litigation between the Chamber of Mines and the Department of Mineral Resources ("DMR") regarding, inter alia, the interpretation of the "once empowered always empowered" principle. 

Alignment with the DTI Codes

The purpose of the Draft Mining Charter is to give effect to the Mineral and Petroleum Resources Development Act, 2008, ("MPRDA"), the Constitution and harmonise Government's transformation policies. The preamble notes that limited progress has been made in embracing broad–based ownership to ensure meaningful economic participation of Black South Africans. 

The Draft Mining Charter aims at removing ambiguities in respect of interpretation and creating regulatory certainty. The Draft Mining Charter aims to be aligned to the provisions of the B-BBEE Act and the DTI Codes. The alignment of the Draft Mining Charter with the DTI Codes is a material aspect in understanding the legal context of the Draft Mining Charter and how it will influence the forthcoming consultations.

Section 3(2) of the B-BBEE Act provides that in the event of any conflict with any other law in force immediately prior to the date of commencement of the B-BBEE Act, the B-BBEE Act prevails. However, argument can be made regarding the applicability of section 3 (2) when interpreted with the provisions of section 10(2)(a) and (b) of the B-BBEE Act[1].

In terms of section 10(1) of the B-BBEE Act, an organ of state must apply the DTI Codes or any relevant sector code of good practice issued in terms of this Act when determining qualification criteria for the issuing of licences, concessions or other authorisations in respect of economic activity in terms of any law. This means that in so far as the Draft Mining Charter is used for the purpose of assessing whether mining companies comply with the requirements or conditions attached to their mining rights the Draft Mining Charter must be published as a sector code of practice under the B-BBEE Act.[2] 

The mining sector had until 15 November 2015 to submit a Mining Charter aligned with the DTI Codes for approval to the Minister of Trade and Industry, failing which the DTI Codes would have been applicable to the mining industry. However, in terms of a notice published at the end of October 2015, the DMR has been exempted from applying the BBBEE Codes for 12 months, pending the review and alignment of the MPRDA and the Amended Mining Charter, 2010, with the B-BBEE Act and the DTI Codes. 

There is no indication in the Draft Mining Charter that a mining sector code will be published in terms of the B-BBEE Act. In the absence of a sector code for the mining industry, the DTI Codes will apply to the mining industry.

Compliance

The criteria used to establish compliance in terms of the Draft Mining Charter is similar to those used in the B-BBEE Act and the DTI Codes. The Score Card and the BEE Status Levels in the Draft Mining Charter illustrates the manner in which BEE in the mining industry is being aligned with the DTI Codes. 

Ownership, housing and living conditions and human resources development elements are ring fenced or priority elements which require 100% compliance at all times.

In order to be compliant for mining purposes (retaining and obtaining mining rights), mining right holders must fully comply with the ownership, housing and living conditions and human resource development elements of the Draft Mining Charter and achieve at least a 50% compliance in respect of all the other elements, being procurement and supplier development, employment equity and mine community development. In terms of the Draft Mining Charter the 50% compliance equates to a level 5 Recognition Level under the DTI Codes.

The Draft Mining Charter has a specific focus on a three-tiered ownership compliance criterion that is unique to the industry. In terms of the Draft Mining Charter BEE shareholders, Communities and Employees must have a minimum shareholding of 5% each in the mining right holder. In respect of the communities and employees, the shareholding must be held by duly executed Trusts. The Trusts, including the BEE entrepreneur, will hold its 26% shareholding through a duly incorporated Special Purpose Vehicle. Clause 2.1(i) of the Draft Mining Charter also contemplates, if correctly interpreted, that a mining right holder must, with the concurrence of the BEE partners (i.e. the Trusts and BEE entrepreneur), consolidate its empowerment transactions with the prior written consent of the Minister of Mineral Resources.

The Draft Mining Charter is silent on the purpose of having different Status Levels. The alignment is somewhat artificial because the Draft Mining Charter is primarily used for awarding mining rights and establishing and assessing compliance with the conditions attached to the mining rights, as opposed to the procurement recognition system under the DTI Codes. 

Once empowered always empowered and retrospectivity

All targets stipulated in the Draft Mining Charter shall be applicable throughout the life of mine, unless the specific element specifies otherwise. 

The intention seems not to implement the Draft Mining Charter retrospectively straight away. Existing mining right holders are given three years to comply with the revised targets of the Draft Mining Charter. 

Specifically in respect of the ownership element, where a BEE partner or partners have exited, the equity was transferred to a non-BEE company, the mining right holder must within the three years align its empowerment credentials consistent with the Draft Mining Charter. It appears from a reading of clause 2.11 of the Draft Mining Charter that this would also apply to mining right holders that have existing BEE Partner(s) but is not empowered in line with the Draft Mining Charter. This would mean that to ensure compliance, all existing deals will need to be constructed in such a way that there is a minimum 5% shareholding across BEE entrepreneurs, employees and the community (held by a duly executed trust) which in turn, the 26% shareholding must be held by a special purpose vehicle duly.

This approach is consistent with the DTI Codes, which do not recognise the concept of "once empowered always empowered". The DTI Codes provide for limited recognition of ownership after the sale or loss of shares by Black participants. Black participation arising from continued recognition of Black Ownership cannot contribute more than 40% of the score on the DTI Codes' Ownership Scorecard. 

The issue of retrospective application of legislation is a contentious one. The effects thereof could be far-reaching for an industry that has seen better days as of late. The need to refinance empowerment transactions to cater for the compliance requirements under the Draft Mining Charter could prove potentially far-reaching for an industry that is running dry on investment. The Chamber of Mines will, in all probability  focus its arguments during the consultations on the retrospective effect of the Draft Mining Charter in circumstances where mining companies acted on a bona fide and reasonable understanding that "once empowered always empowered" would apply. The DMR, through the Draft Mining Charter, are perhaps making the argument that the Chamber of Mines has been wrong all along and must therefore take corrective measures. Although both arguments may seem fair and reasonable, whether the Draft Mining Charter will have retrospective effect from a legal technical perspective is a different debate that may have to be resolved in the courts. It is possible that the Minister may not cancel an existing mining right if the holder doesn't comply with the Draft Mining Charter.