Once Empowered, (Now) Always Empowered: The Consequences of the Mining Charter III Judgment

Introduction

The Broad-Based Black Socio-Economic Empowerment Charter For the Mining and Minerals Industry (“Mining Charter”) was introduced in 2018 as an instrument to “facilitate sustainable transformation, growth and development of the mining industry” and was done so by the Minister of Mineral Resources - Mr Samson Gwede Mantashe - in an attempt to give effect to Section 9 of the Constitution of the Republic of South Africa, Section 100(2)(a) of the Mineral and Petroleum Resources Development Act of 2002 (‘MPRDA’) and to reconcile the existing transformation policies.

In March of 2019, the Minerals Council of South Africa (“MINCOSA”) instituted an application for the judicial review of the Mining Charter in respect of its legal status and certain of its provisions.^[1] In particular, the provisions concerning the consequences of previous empowerment transactions and how they are not recognised in the renewal and transfer of mining rights - also known as the “once empowered, always empowered” principle. Brought under Section 6(2) of the Promotion of Administrative Justice Act of 2000 (‘PAJA’) - and alternatively, under the principle of legality in S1(c) of the Constitution^[2] -  the review application yielded a result which declared the Mining Charter to constitute policy and not binding law, and certain prescriptive provisions were set aside on the basis of conferring powers to the Minister which are beyond his scope of power. Let’s take a look at the consequences of this Mining Charter III judgment on the key players within and on the complex mining industry in South Africa.

The Legal Status of the Mining Charter

Under Section 100(2) of the MPRDA, the Minister contended that he was empowered to make valid law through the development of the Mining Charter, which would render the latter document a sui generis form of subordinate legislation which legally binds those who hold mining rights. On the other hand, the MINCOSA argued that the Mining Charter is merely a policy document formulated in terms of Section 100(2) of the MPRDA, which only binds holders of mining rights granted under Section 23(1)(h) of the MPRDA, “to the extent that its terms have been lawfully incorporated by the Minister into such mining rights”.^[3]

In interpreting Section 100(2) of the MPRDA, the Court took a contextual and purposive approach and found that this provision did not empower the Minister to make law, which rendered the Mining Charter as a mere policy formulation. Relevant factors which the Court considered included the intention of the legislature when drafting Section 100(2) of the MPRDA, the meaning of the language used in its wording, as well as the constitutional values of dignity, substantive equality and freedom. But what does this declaration mean for the mining industry?

Provisions Set Aside: What will be different?

Following its finding that the Mining Charter does not constitute binding law, certain clauses in the document were constitutionally challenged on the basis that they conferred powers unto the Minister which are ultra vires in regard to holders of mining rights. These include:

1. The requirement of new mining right holders to replenish its black shareholding after its black partner leaves.
2. The manner prescribed by the Minister in regard to the black shareholding of a mining right holder.
3. The cease of the “once empowered, always empowered” principle in regard to existing mining rights upon transfer.
4. Consequences of non-compliance with the Mining Charter.
5. Provisions relating to non-ownership elements.

The review and consequent setting aside of these provisions led to several implications. First, mining right holders who already have a 26% BEE shareholding, and whose BEE partners left before the introduction of the Mining Charter, will be recognized as BEE compliant for the duration of their right. Second, the “once empowered, always empowered” principle will persist regardless of the renewal or transfer of their right which was granted pre-Charter - i.e. before 2018. Third, although the Mining Charter introduced a new BEE shareholding threshold requirement of 30%, there is no such need for that shareholder percentage to be constituted of a 5% non-transferrable interest to Qualifying Employees and Host Communities, as well as a 20% effective ownership to BEE entrepreneurs. Mining rights granted post-Charter allow the holder the freedom to comprise their BEE shareholding as they wish. Fourth, non-compliance with the Mining Charter will no longer lead to a subsequent breach of the MPRDA, which can render the right of the breaching party subject to suspension and/or cancellation.

Implications of Mining Charter III

The lack of consequences for mining companies for non-compliance with certain elements in the Charter can prove to be problematic in terms of their accountability, which is necessary to give effect to the end goal of transformation within the sector. For example, the review and setting-aside of clause 2.2 of the Charter in particular means that mining right holders are not legally obligated to meet certain threshold requirements in relation to inclusive procurement, as well as supplier and enterprise development. However, there is still potential to achieve this goal through the parliamentary process of developing the MPRDA accordingly and enforcing compliance with it. Such developments could have the effect of improving legal certainty around transformative aspects which are necessary for the progressive growth on a social and economic scale, as it has been reported that the all-time low rate of investment in mining exploration in South Africa - approximately 7.6% - is due to the uncertainty around mining regulations in the country before the Mining Charter III judgment.^[4] The setting aside of these provisions is believed to open the way for growth in the sector in terms of increased investment and shareholding potential, but it can be argued that such an approach was not excluded by the Charter, which still prioritizes the concept of ownership or shareholding over all else. The Minister’s faith in the transformative capabilities of the Charter, despite the judgment, have still persisted:

“We have agreed that the mining charter remains the tool to drive transformation. It cannot be theoretical, it must be practical.”^[5]

At the outset, it seems as if the  Mining Charter III judgment truly does provide legal certainty within the mining sector, especially in terms of which requirements to comply with and the reinforcement of the “once empowered, always empowered” principle. Black shareholders are now able to freely sell their shares, as compared to the limitation imposed in this regard by the provision in the Charter which related to perpetuity. The positive response to the Mining Charter III judgment from certain key players in the mining industry stems from the fact that its most recent version was introduced by the Minister without consultation, as opposed to the original Mining Charter draft of 2004. This lack of consultation changed the nature of the Charter from being a mechanism that was centered around social and economic growth and transformation, to one that was imposed as a form of regulation.^[6]

Despite the setting-aside of several of the provisions in the Mining Charter, there are still regulatory provisions which still stand and may apply to holders of mining rights. However, the declaration of the Mining Charter as policy instead of law has meant that these remaining provisions are not legally binding on right holders. The Department of Mineral Resources and Energy has chosen not to appeal the matter, rather opting to shift focus to the development of MPRDA to better serve the end goal of transformation within the mining sector. Such development of the MPRDA has the potential of implementing legally-binding regulatory mechanisms which, in turn, enhance legal certainty in the industry which may lead to the attraction of more investors.

In terms of the future of mining regulation in South Africa, cautious optimism seems to be the best approach. Now that the tide has turned in favour of industry players whose biggest grouch with the Charter was that it created legal uncertainty which scared away potential investors, it will be interesting to see how this new development will influence foreign investment in exploration in SA. The MPRDA provides a good framework to further transformation within the mining sector, and its proper development to entrench certain transformative values, concepts and goals from the Charter could mean great things for the social and economic growth of South Africa and its people.