The long-awaited review of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (Revised Charter) was released by the Minister on 13 September 2010. The intention behind the Revised Charter was to clarify certain ambiguities and uncertainties which existed under the original 2002 Mining Charter (2002 Charter) and to provide more specific targets than the 2002 Charter had done, the 2002 Charter having been a more policy orientated document.
However, the Revised Charter has in some instances given rise to more questions than answers. The first issue is the relationship between the 2002 Charter and the Revised Charter. Does the Revised Charter replace the 2002 Charter or must the Revised Charter be read in conjunction with the 2002 Charter?
The title of the Revised Charter specifically records that it is an "Amendment of the .... (2002 Charter)" as opposed to an Amended Charter. This thinking is confirmed in the Preamble to the Revised Charter which records that "...amendments are made to the Mining Charter of 2002 in order to streamline and expedite attainment of its objectives." These statements indicate that it would be necessary to consider the 2002 Charter and the Revised Charter together in order to ascertain one's obligations. However, a comparative review of the Revised Charter and the 2002 Charter leaves one in little doubt that the Revised Charter was in fact intended to replace the 2002 Charter and not merely to amend same.
The second preliminary issue is the following: What is the impact of the Revised Charter on the Codes of Good Practice for the Mining Industry (Code)? The simple truth is that by and large the provisions of the Code have been ignored by stakeholders in the mining industry. Inelegant drafting and the dubious legal validity of the Code did little to promote the aims of the 2002 Charter. However, the Code remains on the statute books as delegated legislation. It has not been amended to reflect the provisions of the Revised Charter and as such is likely to continue to be ignored. If the Code has any relevance at all, it is likely to be in regard to the general principles espoused therein. It is hoped that the Code will be wholly re-written in due course to be, in fact, a proper code of good practice in accordance with international standards.
The third preliminary issue is: To what extent is the Revised Charter a product of the consensual agreements recorded in the Stakeholders' Declaration on Strategy for the Sustainable Growth and Meaningful Transformation of South Africa's Mining Industry which was signed on 30 June 2010 by the Department of Mineral Resources, National Union of Mine Workers, Solidarity, UASA - The Union, the South African Mineral Development Association and the Chamber of Mines of South Africa (Declaration). In answer to this question, we include in this comparative analysis a summary of the most pertinent aspects of the Declaration. What is apparent from this comparison is the fact that while the Department of Mineral Resources seeks the co-operation of stakeholders, it is not averse to adopting a coercive stance when it comes to empowerment within the mining industry.
Possibly one of the biggest surprises was the fact that the Revised Charter, despite the consensual nature of the Declaration, seemingly provides that non-compliance with the provisions of the Revised Charter will amount to a breach of the MPRDA that may result in the suspension or cancellation of a holder's prospecting or mining rights under section 47. Added to this is the fact that the Minister will have the power to amend the 2002 Charter without consultation and will therefore have a wide discretion to impose more onerous obligations on the industry in the future. Not only does this perpetuate regulatory uncertainty in the South African mining industry but renders it more likely that the Revised Charter, as delegated legislation, will be challenged as being unconstitutional. However, the wording of the Revised Charter stipulates that "Non compliance with the provisions of the Charter and the MPRDA shall render the mining company in breach of the MPRDA ...". Therefore, if the holder must be in breach of both the Revised Charter and the MPRDA before the right can be revoked, then this provision would be more acceptable.
There are, however, a number of aspects to the Revised Charter which we believe may inhibit deal-making within this sector. These aspects include:
- Deal participants will be required to engage with financiers in order to determine the percentage of cash flow to be used to service the funding of the structure and the amount to be paid to BEE beneficiaries (barring any unfavourable market conditions). There is therefore a requirement that a percentage of cash flow must be paid to the BEE Shareholder prior to finance having been repaid, thereby extending the funding term and the financier's risk. This may result in financiers being less enthusiastic to conclude BEE transactions.
- BEE beneficiaries are required to have full shareholder rights. This may conflict with the Companies Act in certain deal structures as a company can only issue shares that are fully paid up and this may also limit structuring flexibility.
We include below a summary of the most important provisions of the Revised Charter and, for comparative purposes, the corresponding provisions of the 2002 Charter, the Declaration and the Code.
Allan Reid, Director
Corporate and Commercial