4 May 2016
On Friday, 15 April 2016, the Minister of Mineral Resources, Mosebenzi Joseph Zwane, without fanfare and, seemingly without any of the usual engagement and consultation, published the Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016 (Draft Reviewed Mining Charter).
The publication of the Draft Reviewed Mining Charter resulted in extensive and robust debate among all stakeholders, with the initial responses varying from support to outright criticism, both of the manner in which the Draft Reviewed Mining Charter was published and its content.
Minister Zwane has indicated his desire for robust debate and a possible extension of the 30-day period for commentary on the Draft Reviewed Mining Charter. There is an expectation, certainly from certain stakeholders in the industry, that this should be viewed positively and that changes can be made to the Draft Reviewed Mining Charter.
For those extremely robust investors, the Draft Reviewed Mining Charter, in its current format and with the current targets and requirements, could be regarded as providing key insights into Government's medium to long-term thinking, and can be used to plan accordingly.
Timing of the publication
Many commentators expressed surprise at the timing of the publication of the Draft Reviewed Mining Charter without prior engagement and consultation.
In retrospect, publication on 15 April 2016 makes sense, in light of the Policy Statement that accompanied Minister Zwane's Budget Speech on 19 April 2016.
When considering the Draft Reviewed Mining Charter, it therefore also seems appropriate to have regard to both the Policy Statement and Minister Zwane's Budget Speech.
The key message - Transformation
Minister Zwane's Policy Statement and Budget Speech focused, significantly, on transformation of the mining industry (or in his view, the lack thereof).
In our view, the Draft Reviewed Mining Charter is the clearest message yet that Government is not satisfied with the pace and extent of transformation of the mining industry. There will, of course, be extensive debate as to whether or not the mining industry has achieved the transformation objectives and targets contained in the Mining Charter, 2010, with the various stakeholders, holding different views.
Some of the key proposed amendments
Ownership and the transitional arrangements
While the ownership target is retained at 26%, there are a number of fundamental proposed amendments, namely:
- The target of 26% ownership is a minimum target.
- The minimum target of 26% ownership is per mining right, that is there can no longer be any "trade-offs" in group companies or among multiple holders of mining rights.
- The minimum target of 26% ownership must represent "meaningful economic participation", which will be a defined term. Most notably, the definition provides that some of the dividends should flow to the BEE partner throughout the term of the investment, and for this purpose, stakeholders must engage the financing entities in order to structure the BEE financing in a manner where a percentage of the cash flow is used to service the funding of the structure, while the remaining amount is paid to the BEE partners.
- A minimum allocation is specified in relation to three key stakeholders, namely, (a) workers, (b) black entrepreneurs and (c) the relevant community. Each of these three key stakeholders must be allocated a minimum of 5% ownership. It is unfortunate that the term "black entrepreneurs" was used, without being defined. It would perhaps been more appropriate to make use of the term "black industrialists", which is more commonly understood.
- The community participation and the worker participation must be held in trusts.
- The community and workers' trust must include representation from the traditional authorities and trade unions respectively.
- A Special Purpose Vehicle (SPV) must be established to manage the 26% Black Economic Empowerment stake.
- Each empowerment transaction must register an SPV.
- There must be a BEE transaction for each mining right that has been granted, and one SPV for each empowerment transaction.
- The only off-setting that is permissible under the ownership element is against the value of beneficiation, as provided for in section 26 of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), up to a maximum of 11%.
Secondly, the transitional arrangements address the situation where a BEE partner has exited or shares have been transferred to a non-BEE company. In these circumstances the mining right holder must within three years, from the date of publication (coming in force and effect) of the Draft Reviewed Mining Charter, review (and amend) its empowerment credentials consistent with the Draft Reviewed Mining Charter.
With a stroke of the pen, Minister Zwane does away with the "once empowered always empowered" argument. Essentially, even if the "once empowered always empowered" principle applies, it can only apply for a maximum of three years under the transitional arrangements.
Procurement, supplier and enterprise development
Targets on procurement, supplier and enterprise development, have been changed, substantially.
With regard to capital goods, a mining right holder is required to procure a minimum of 60% locally manufactured capital goods from BEE compliant manufacturing companies. 30% of the 60% must "preferably" be given to small business developments that are BEE compliant, and a minimum of 10% of the 30% must be reserved for BEE compliant enterprise development.
With regard to consumables, a mining right holder must procure a minimum of 70% of locally manufactured consumables from BEE compliant manufacturing companies. A minimum of 30% of the 70% must be given to small business developments that are BEE compliant, and a minimum of 10% of the 30% must be reserved for BEE compliant enterprise development.
With regard to services, a mining right holder is required to procure a minimum of 80% services from BEE compliant and locally based companies. A minimum of 40% of the 80% must be given to small business developments that are BEE compliant, and a minimum of 10% of the 40% must be reserved for BEE compliant enterprise development.
Mining right holders are required to utilise South African-based facilities for the analysis of 100% of each company's mineral samples across the mining value chain. Sample analysis may not be conducted using foreign based facilities without the prior written consent of the Minister.
Multinational suppliers of goods must annually contribute a minimum of 1% of annual turnover (not profit) generated from local mining companies towards socio-economic development of local communities, capacity building for BEE suppliers of goods, and services into a Social Development Trust Fund established by the Minister.
Significant targets are set in relation to employment equity. In relation to executive management (board), a minimum of 50% black people with exercisable voting rights and proportionately representative, 15% of which must be black females in line with the employment active population, is required. A minimum of 50% black people proportionally represented at the executive directors level as a percentage of all the executive directors, of which 25% must be black female in line with the employment active population, is also required.
With regard to senior management (EXCO), a minimum of 60% black employees in senior management as a proportionally representative percentage of all senior management, which 30% is black females in line with the employment active population, is required.
With regard to middle management level, a minimum of 75% of black employees in middle management as a proportionally representative percentage of all middle management of which 38% is black female employees in that category in line with the employment active population, is required.
With regard to junior management level, a minimum of 88% black employees in junior management has a proportionally representative percentage of all junior management of which 44% is black females in that category in line with the employment active population, is required.
With regard to employees with disabilities, 2% of black employees with disabilities as a percentage of all employees is required.
Core and critical skills are specifically identified, and mining right holders are required to ensure that a minimum of 40% black people are represented in the mining companies’ core and critical skills. To achieve this, mining companies are required to identify and fast track existing polls for core and critical skills, proportionately to the workforce.
Human resource development
Extensive human resource development contribution targets are set, which will increase the "cost of doing business".
Mine community development
Mine communities have, again been identified as requiring special attention. A minimum of 1% of annual turnover (not profit) towards local community development and labour sending areas will be required. This is in addition to any amounts that are contributed as part of, for example, the programmes under the social and labour plan.
Housing and living conditions
Various requirements are set out in relation to housing and living conditions, with the emphasis on low occupancy rates, contribution towards home ownership options, and family accommodation.
Period for submission of comments
The Draft Reviewed Mining Charter has been published for public comment and a period of 30 days has been specified. While Minister Zwane may extend this period, stakeholders should not expect such an extension, but should actively engage on the Draft Reviewed Mining Charter.