A little over a year ago, the 2016 Mining Charter was released by the Department of Mineral Resources (“DMR”). For additional notes on the 2016 Reviewed Broad-Based Black-Economic Empowerment (“BBBEE”) Charter for the South African Mining Industry, 2016 (“2016 Mining Charter”), read our article here.
It may seem that the Mining Charter was last reviewed a few minutes ago, however, there have been tremendous changes in the South African political and economic arenas, and with these changes there tend to be amendments to legislation and regulations in order to adapt to this ever-changing environment.
On 15 June 2017, the Minister of Mineral Resources, Mr. Mosebenzi Zwane, revealed the reviewed Broad-Based Black Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (“the 2017 Mining Charter”). There has been many different opinions and comments thereon, especially since there are court procedures seeking to clarify elements of the previous Mining Charter still pending. The Mining Charter of 2017 introduces new definitions, terms and targets in order to “effect the coordination of these policies, which is intended to ensure meaningful participation of Black Persons in accordance with the objects of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (“MPRDA”), and the Mining Charter and provide for policy and regulatory certainty sought to invest in the development of the industry” as mentioned in the preamble of the new charter.
Significant provisions in the 2017 Mining Charter
Although not an extensive list of amendments, I will broadly outline some of the more important changes and provisions below:
1. A Holder of a new prospecting right must have a minimum of 50% + 1 Black Person (as defined in the Broad-Based Black Economic Empowerment Act No 46 of 2013) shareholding per prospecting right or in the company which holds the right and which shareholding shall include voting rights.
2. A Holder of a new mining right must have a minimum of 30% Black Person shareholding per right or in the mining company which holds the right, which shareholding shall include economic interest plus a corresponding percentage of voting rights.
3. The 30% Black Persons’ shareholding must be distributed in the following manner:
3.1. A minimum of 8% of the total issued shares of the Holder shall be issued to an employee stock ownership plan (ESOP) (or any similar employee scheme structure);
3.2. A minimum of 8% of the total issued shares of the Holder shall be issued to Mine Communities (in the form of a community trust); and
3.3. A minimum of 14% of the total issued shares of the Holder shall be issued to BEE Entrepreneurs.
4. The BEE Entrepreneurs shall be allowed to dilute a maximum of 49% shareholding in the Prospecting Right Holder, provided that, 100% of the proceeds from the dilution are used by the BEE Entrepreneurs to develop another asset.
5. The shareholding of the Mining Community must be held in a trust created and managed by the Mining Transformation and Development Agency, from a date to be published by the Minister.
6. The Mining Transformation and Development Agency shall report to the Minister on an annual basis regarding management of the abovementioned mining community trusts.
7. The 30% Black Persons’ shareholding must be held in an entity or by a person which is separate from the right Holder.
8. A Holder who claims the recognition of historical BEE Transactions, is required to top up its Black Person shareholding from the existing level to a minimum of 30% Black Person shareholding at the Holder level within the 12 (twelve) month transitional period. Such top up need not be in proportion to the shareholding distribution as set out in paragraph 3 above.
9. An existing Holder who, after the coming into operation of the Mining Charter of 2017, has maintained a minimum of 26% Black Person shareholding shall be required to top up its Black Person shareholding to a minimum of 30% within the 12 (twelve) month transitional period. Such top up need not be in proportion to the shareholding distribution as set out in paragraph 3 above.
10. An existing Holder who has acquired and maintained more than 30% Black Person shareholding shall be allowed to maintain its existing structure until such time as the BEE Partner /s exits or upon renewal of such shareholding.
11. The required top up stipulated in paragraphs 8 and 9 shall be effected by a reduction of the remaining shareholders who are not Black Persons, in proportion to their respective shareholding in the company.
There are further requirements introduced in this Mining Charter, which requires people and/or mining companies to duly consider their business decisions and ensure that it complies with the provisions of the Charter. When considering whether to sell any mining assets for example, it is to be noted that the holder of any mining asset, is required to give black owned company’s a preferential option to purchase shares.
Furthermore, a holder of prospecting rights must spend a minimum of 70% of its total mining goods procurement spend, on South African manufactured goods. This 70% of total goods procurement spend shall be apportioned in the following manner:
(a) A minimum of 21% of total mining goods procurement spend must be set aside for sourcing South African Manufactured Goods from Black Owned Companies;
(b) A minimum of 5% of total mining goods procurement spend must be set aside for sourcing South African Manufactured Goods from Black Owned Companies with a minimum of 50 % +1 vote female Black Person owned and controlled and /or 50% +1 vote youth owned and controlled; and
(c) A minimum of 44% of total mining goods procurement spend must be set aside for sourcing South African manufactured goods from BEE Compliant Manufacturing Companies.
With regard to service procurement, the following obligations is now imposed on the holders of prospecting rights:
A minimum of 80% of the total spend on services must be sourced from South African Based Companies. The abovementioned 80% of the total services procurement spend shall be apportioned in the following manner:
(a) A minimum of 65% of the total spend on services must be sourced from Black Owned Companies;
(b) A minimum of 10% of the total spend on services must be sourced from Black Owned Companies with a minimum of 50 % +1 vote female Black Person owned and controlled companies; and
(c) A minimum of 5% of the total spend on services must be sourced from Black Owned Companies with a minimum of 50 % +1 vote youth owned and controlled companies.
It is important for the entire mining industry and its participants to ensure that they update their strategies and polices to be in line with the above in order to limit future risk. It is further a complex area when taking the BBBEE regulations into account in having to make any business decision. Contact a specialist at SchoemanLaw Inc for assistance in giving an overview of documents, advice during the sale of the business, or setting up BBBEE structure in order to remain compliant.