"Lessons learnt from implementing the Mining Charter are the basis for sharpening tools of implementation"

Minister Mosebenzi Zwane on the occasion of the Budget Vote 29: Mineral Resources, National Assembly, Cape Town.

The tools have indeed been sharpened as evidenced by the reviewed Broad Based Black-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016 (Mining Charter III) which is designed to strengthen its efficacy in bringing about meaningful transformation within the mining industry. However, are the targets set out in the Mining Charter III realistic? Will mining companies attain the objectives?

The Mining Charter III has introduced new terms, definitions and targets in the hope that aligning the various legislative frameworks within the mining industry will provide regulatory certainty. Some of the targets have been radically amended, whilst others remain unchanged. A summary of the key amendments to the Mining Charter III are:

Ownership

Stakeholders are required to achieve a minimum of 26% black ownership to enable meaningful economic participation. A mining company must achieve the 26% ownership target in respect of each mining right, therefore there must be a Broad-Based Black Economic Empowerment (BBBEE) transaction for each mining right granted and issued by the Department of Minerals Resources (DMR).

A minimum of 5% of the 26% stake must be distributed equitably among workers, black entrepreneurs and the communities. This stake must be held in trust.

As with historic transactions, a mining company may no longer issue 26% shares to one black entrepreneur. In order to meet the minimum requirements, the BBBEE transaction should afford meaningful participation to workers, black entrepreneurs and communities.

It is evident that the scope of transformation vehicles to be utilised by various stakeholders have been expanded to include affected workers and communities.

Procurement and supplier development

The procurement targets have increased to 60% for capital goods, 80% for services and 70% for consumer goods.

Half of the procurement spend (calculated in percentage) must be given to small business development companies that are BEE compliant. The main focus in terms of procurement is to gauge and involve small BEE entities and to widen the market for enterprise development.

In addition, although there has been continuous debate on the issue, the DMR has nevertheless proposed the establishment of a Mining Transformation and Development Agency (MTDA).

Multinational companies supplying goods and services to the mining industry will pay 1% of their turnover generated from local mining companies to the new MTDA.

No certainty or clarity has been provided in respect of the new MTDA or what specific role the agency will play in terms of skills, enterprise and supplier development.

Employment equity Employment equity is predominantly premised on the Employment Equity Act 55 of 1998 to achieve equity in the workplace, and to ensure that there is equitable representation on all occupational levels within the workplace.

In terms of the Mining Charter III, the employment equity targets for executive management have increased to a minimum for 50% black representation, 60% for senior management, 75% for middle management and 88% for junior management. In terms of all the occupational levels, there must be a proportional representation of black females in line with the actively employed population.

Human resource development

The human resource development targets remain unchanged – it is still mandatory for mining companies to invest 5% of their annual payroll in essential skills development and includes bursaries, literacy and numeracy skills and should be reflective of the demographics.

A new component introduced by the Mining Charter III is the Ministerial Skills Development Trust Fund which will receive a portion of the 5% annual payroll. The Mining Charter III suggests that the trustees for the Ministerial Skills Development Trust Fund should include stakeholders from organised business, organised labour and government.

Mine community development

Mine community development is largely premised in the Social and Labour Plan document (SLP) of the mining right holder. The mining right holder is required to identify poverty eradication projects, also known as local economic development projects (LED projects) which are aimed at community upliftment and development. These should be in line with the Integrated Development Plans (IDP) for each municipal area.

The 2010 Mining Charter did not prescribe the minimum financial requirements towards LED projects. It was largely dependent on the community's needs as documented in the IDP versus the costs of the project and the financial capability of the mining right holder.

The Mining Charter III has provided some clarity in this regard. Mining companies must contribute a minimum of 1% of their annual turnover towards local community development and labour-sending areas.

Housing and living conditions

In order to improve the standards of housing and living conditions for mine workers, mining companies should have, by 2014:

  • converted or upgraded hostels into family units;
  • attained an occupancy rate of one person per room; and
  • facilitated home ownership options for all mine employees.

By now, mining companies should have gained some traction in terms of the standards of housing and living conditions for mine workers. Technically speaking, there should no longer be mine workers living in hostels. The Mining Charter III has provided various home ownership options such as mining companies.

  • offering different building packages to interested employees;
  • subsidising interested workers who want to buy houses; and
  • partnering with finance institutions to issue guarantees for home ownership on behalf of the mine employees.

In terms of the transitional arrangements, the existing mining right holders have been given a maximum of three years to comply with the revised targets, from the date of publication of the Mining Charter III.

In terms of transformation, the Mining Charter objectives are crystal clear in terms of achieving sustainable growth and meaningful participation within the mining industry. However, the reality has been and, in large measure, continues to be that the mining industry has suffered great difficulty in achieving the compliance targets set out in the 2010 Charter. Moreover, the mining industry is facing significant challenges of its own such as, inter alia, low commodity prices, decline in productivity, instability in the labour market and securing foreign investment.

Therefore, taking into account these overarching factors, it can be argued that imposing radical targets and obligations on mining companies will eventually have far-reaching negative consequences rather than achieving the intended outcome.

The manifest purpose and vision of the Mining Charter III will be frustrated if there is a continued increase of targets that, realistically, are unachievable. Whether mining companies will be able to comply with the Mining Charter III targets , and how the DMR will deal with failure to meet requirements, will be revealed after the first reporting year as provided for by section 28(2)(c) of the Mineral and Petroleum Resources Act 2002, as amended.