10 MAJOR PROBLEMS WITH MINING CHARTERBy Chris Stevens, Director

LEGAL BRIEF AUGUST 2017

There are various aspects of the Mining Charter which are extremely problematic, not only from a conceptual point of view but also from a practical implementation point of view:

1. Paragraph 2.1.1.1 provides that a holder of a new prospecting right must have a minimum of 50% plus 1 Black Person shareholding. This will discourage investment in exploration and prospecting in this country. The holder of a prospecting right merely has obligations to spend money and no monetary benefits. The banks in this country are already reluctant to provide financing for prospecting operations and no BEE shareholder will want to be a majority shareholder in a company doing exploration at great expense without any benefits especially where funding cannot be raised. The empowerment requirements should only apply at the mining phase where benefits then accrue to BEE shareholders;

2. In regard to 2.1.1.3 there is a requirement that the Black Person

shareholding must be distributed in a certain proportion. What is not dealt with is where there is a mining company which holds existing rights where the proportion of 30% will not be 8% in favour of any ESOP, 8% in favour of Mine Communities and 14% in favour of a BEE Entrepreneur but will still satisfy the requirements for existing mining rights. The mining company for a new application will then have to have an entirely new BEE structure for the new application which would be unnecessarily cumbersome;

3. In regard to 2.1.1.4 Black Persons can only transfer shares to other persons that fall within the same category as the transferring Black Person and the Black Person’s shareholding distribution shall always be maintained by the holder. This places unnecessary obstacles on the marketability of BEE shareholding especially considering that the Charter states that the obligations under the Charter shall endure for the life of mine;

4. In regard to 2.1.1.7 providing for a new mining right holder to pay a

minimum of 1% of its annual turnover to Black Person shareholding over and above any distributions as a shareholder, this vests unequal rights in favour of Black Person shareholders which is contrary to the Companies Act;

5. In regard to 2.1.1.12 of the Charter, this deals with the fact that

Black Person shareholders shall actively control the trading and marketing of their proportional share of the production. This is an entirely unworkable and nonsensical provision. It is the company’s production and the company sells its production in order to generate revenue and thereafter profits which are then distributed to the shareholders. Shareholders are not entitled to a proportionate share of the production and therefore this provision will cause unworkable issues in dealing with marketing of the production of a company;

6. In regard to 2.1.2.1 it is mentioned that a Historical BEE transaction

shall be recognised for the reporting period ending on the date on which the Mining Charter is published in the Government Gazette.

Once again this statement is nonsensical and open to all sorts of interpretations. It is unclear what is meant by “recognised for the reporting period ending on the date on which the Mining Charter is published”;

7. In regard to 2.1.2.9 of the Mining Charter, it deals with the

recognition of Historical BEE transaction as including recognition of historical deals concluded on units of production which formed the basis upon which new order mining rights were granted. This fails to distinguish between the “once empowered always empowered” principle and the continuing consequences of previous deals. It would therefore seem to connote that where a company has relied on previous deals on attributable units of production as part of their 26% HDSA obligation under 2004 and 2010 Charters this will no longer apply within a period of 12 months from 15 June 2017. These will thereafter be disregarded entirely. Therefore not only is the “once empowered always empowered” principle not being enshrined in Mining Charter III but Mining Charter III also not gets rid of the continuing consequences of historical deals;

8. In 2.1.2.12 there is mention of renewals of rights or applications

under Section 11 being in the same category as new applications. This will cause tremendous problems in regard to renewals because an existing right holder will have to change its entire BEE structure

once the right is renewed to fit the 30% requirement of new applications. Furthermore there are numerous applications which have been lodged for Section 11 consents which will now have imposed upon them the 30% requirement notwithstanding that they were lodged based on a 26% requirement;

9. In 2.1.3 of the Charter, there is a reference to the fact that a holder

who sells a mining asset must give “Black owned companies a preferential and option to purchase”. Not only is this grammatically nonsensical it makes absolutely no sense from a legal point of view and the mining industry is completely in the dark as to how this so called option would work;

10. In 2.1.4(a) of the Charter, a holder may offset a maximum of

11% of Black Persons ownership by financially investing in and contributing to Beneficiation over and above the provisions of Section 26 of the MPRDA. Once again from a legal point of view this is nonsensical, and nobody seems to know what this section means.

Article originally published by The Times - The Legal Times.

Legal notice: Nothing in this publication should be construed as legal advice from any lawyer or this firm. Readers are advised to consult professional legal advisers for guidance on legislation which may affect their businesses.

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MEET THE AUTHOR

CHRIS STEVENS

Title: DirectorOffice: JohannesburgDirect line: +27 (0)11 535 8467Fax: +27 (0)11 535 8667Email: cstevens@werksmans.com

Chris Stevens is a partner with Werksmans Attorneys and is head of the Mining practice area. He was previously at Tabacks where he led the firm’s Mining and Natural Resources law department.

He advises on all aspects of mining law in South Africa, including in relation to commercial arrangements, conveyancing, litigation, opinion work, Black Economic Empowerment laws and due diligence aspects. He advises many of the South African major mining houses on these aspects, as well as medium size mining companies and junior exploration companies. He further advises numerous American, UK, Canadian and Australian mining companies with interests in South Africa and acts for numerous black empowerment companies in relation to mining transactions. He has also been involved in numerous transactions for South African mining entities in Sub-Saharan Africa. He has also been integrally involved in advising numerous mining companies on various aspects of the Mineral and Petroleum Resources Development Act, 28 of 2002, as well as the amendments to that legislation.

Chris co-lectured the LLB course at the University of the Witwatersrand on prospecting and mining law (1998 – 2007). He lectures at the same university to mining and engineering students on compliance aspects and annually lectures at the University of Pretoria for MSc geology students in a compliance course. He sat on the mining law committee of the International Bar Association (2002 – 2006).

Chris is named in the 2014 edition of Chambers Global: The World’s Leading Lawyers for Business for his expertise in Energy & Natural Resources (Mining), listed as a Band 1 lawyer. He is recognised as a leading lawyer in The International Who’s Who of Mining Lawyers 2014 and The International Who’s Who of Business Lawyers 2014 and is named in Best Lawyers 2013 as the Johannesburg Mining Law “Lawyer of the Year”.

Chris received BCom and LLB degrees from the University of Witwatersrand and has been practising mining law since 1987. He was admitted as a notary public in 1990.

Chris also speaks at numerous conferences, both in South Africa and internationally in relation to the South African mining industry.

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