The recent publication of Codes of Good Practice for South Africa’s Mining Industry (the “Codes”) enacted under the Mineral and Petroleum Resources Development Act of 2002 (the “MPRDA”) could potentially destabilize accepted black economic empowerment (“BEE”) principles presently applied in the mining industry and threaten the security of tenure of title holders.
Non-compliance with the Codes would now render the license holding entity to be in breach of the MPRDA and could lead to the suspension or cancellation of mining permits. Refining licences, benefication licences and jewellery permits or any other mineral processing authorization issued by the South African Department of Minerals and Energy (“DME”) and the South African Diamonds and Precious Metals Regulator would now be granted or refused based on the principles of the Codes.
The principle concerns under the Codes relate to provisions which fail to award full credits to an entity entering into a sale with a BEE party if the BEE party still has debt associated with this purchase two years after the deal’s conclusion. BEE ownership (which must reach 26% by 2014) would thus only be recognized once the BEE party has paid back all transaction debts. Parties seeking to comply with BEE equity requirements would then be faced with a difficult choice: either write off the debt associated with BEE ownership, or be at risk of not fulfilling their BEE equity requirements.
Many of the compliance targets of the Codes (which include ownership, management control, employment equity and benefication, among others) are unclear and some of these targets could potentially entail large expenditures for mining entities. The ambiguities of these compliance targets and lack of materiality threshold measures in the context of a breach afford the DME a wide discretion to cancel or suspend mining licences under the MPRDA.
Following criticism from the industry, which was never given the opportunity to review or comment the Codes before they were enacted, leaders from the Chamber of Mines, the National Union of Mineworkers and the Department of Mining are joining a subcommittee to discuss the Codes to deal with the concerns of stakeholders in an effort to find common ground. The fact that the Codes have been referred back to the working groups may mean that there is still an opportunity to change them.