What are the prospects for transformation in the mining industry in light of the High Court’s finding that the Mining Charter does not constitute law?

The ANC committed to transforming the South African economy, prioritising the inclusion of Black people in all sectors of the economy when they assumed power in April 1994. The mining sector, dominated by a few white conglomerates in the early 1990s, formed the economic bedrock of the economy and was seen as a natural starting point for this transformation objective.

However, twenty-eight years into Democracy, the Government is still grappling with the issue of transformation, with disgruntled and dissenting voices and actions becoming increasingly more prominent over time.

Section 100(2) of the Mineral and Petroleum Resources Development Act (MPRDA) empowers the Minister of Mineral Resources and Energy to develop a broad-based socio-economic empowerment Charter to expand opportunities for historically disadvantaged South Africans in the mining industry. The Mining Charter which is the Government’s blueprint for the transformation of the industry originates from the MPRDA.

The Charter has a strong transformative thrust through the de-racialisation of ownership patterns in the mining industry. The Charter, introduced in 2004, aims to redress past imbalances and injustices. However, its limited success warranted two revisions in 2010 and 2018. Despite these changes, the realisation of the desired transformational objectives is still perceived to be a distant reality for many critics.

A common feature across the current and previous versions of the Charter is the expectation that the private sector will prioritise and implement transformation. For mining, this includes granting ownership shares to historically disadvantaged South Africans.

However, the current version of the Charter goes further by prescribing certain quotas on executive management positions. For example, 20 percent of all executive director positions and a minimum of 50 percent of the executive director positions must be held by historically disadvantaged persons. Further, this quota needs to align with the provincial or national demographics.

While the transformative thrust of the Charter is laudable, in 2021, the Minister of Mineral Resources and Energy was dealt a huge blow when the High Court in the case of Minerals Council of South Africa v Minister of Mineral Resources and Energy and Others [2021] JOL 51096 (GP), ruled that the Charter was not law but rather policy. This finding has significant implications, given that the Charter is not legally binding on mining companies. Put simply, the Charter serves as a guide which by implication could significantly shape the transformation developments going forward.

What has been the progress on transformational redress in the mining industry?

Recently, a survey of 32 member companies, undertaken by the Minerals Council of South Africa found that these companies largely complied with the five key transformation elements of the 2010 Mining Charter. These elements included ownership, employment equity, procurement, human resources development and mine community development. Of note, is that the surveyed companies achieved a weighted average of 39.2 per cent of ownership equity by historically disadvantaged South Africans, exceeding the 26 percent target envisaged by the Charter. 

Thus, it can be argued that the Mining Charter has enjoyed some success in transforming the mining sector by stipulating minimum adherence thresholds for certain characteristics. However, the current dilemma brought about by the High Court’s ruling that the Charter does not constitute binding law raises serious concerns about whether mining companies will be committed to pursuing the transformational objectives stipulated in the Charter.

The Charter was introduced as it was felt that moral suasion on its own could not be relied upon to achieve the desired objectives. So, can moral suasion now be relied upon to continue with the transformation momentum achieved by the Charter? Or should the Government adopt a different approach going forward?

A 2012 study covering ten senior executives of prominent mining companies identified barriers to transformation in the industry. These barriers included inter alia a lack of suitably qualified and experienced candidates and poor government support. The executives argued that mining companies were not against transformation but the skills shortage and experience were the binding constraints impeding employment equity and transformation in the mining industry.   

Now that the status of the Mining Charter has been clarified to the extent that it is not law, this implies that that government’s most powerful tool has been rendered ineffective. 

The Government could consider converting the Charter into law. However, the experience to date has shown that this can be a long-drawn-out process. While this may still be necessary, a complementary option may be to address the barriers mining companies face, namely providing support for skills development and incentivising actions that support the desired transformational objectives.

Penalties or fines should be considered part of the incentive structure to achieve desired outcomes. For example, the 2015 study by the Minerals Council of South Africa mentioned earlier found that the sampled companies spent 4.8 percent of their annual payroll on human resource development which was below the threshold envisaged by the 2010 Charter. This calls into question the commitment of the mining companies and the Government to address the skills gap deficiency in the industry during a period when the Charter was perceived to be law.

The Government should provide the necessary support to attract historically disadvantaged South African youth to study engineering and other specialised degrees relevant to the mining sector. Importantly, this should include particular attention to promoting environmental and sustainable development programmes – areas that will shape all production and industrial activities in the mining sector going forward.

The Government should work with organisations such as the National Society of Black Engineers of South Africa (NSBE) and others that aim to broaden black professionals’ participation in the mainstream economy.  By working with theseorganisation, a better understanding of the challenges confronting historically disadvantaged people and the mining sector at large can be realised. The Government needs to develop better foresight in order to effectively address the challenge of transformation in the mining industry.

Skills levies are currently imposed on companies to promote human resource development.  The Government needs to prioritise these levies towards addressing the skills gaps confronting the mining industry. In effect, this requires a more proactive approach by the Minister and the Department of Mineral Resources and Energy. A detailed plan outlining the Minister’s approach on this issue and an annual monitoring report on the plan would be a useful first step.

There is no doubt that the Mining Charter has had some success in achieving transformation within the industry since its inception in 2004. However, considering the High Court’s finding, it is unclear whether mining companies will voluntarily comply with the Charter going forward. As such, Government should now focus its transformation strategy for the industry on developing and introducing a policy to attract more historically disadvantaged persons to enter into and pursue a career in mining.

The transformation objectives set out at the dawn of Democracy have yet to be realised. To compound matters, the ruling by the High Court that the Mining Charter does not constitute law, blurs the transformation path going forward. Further, the rise of environmental and sustainability considerations will impact the fate of the mining industry and, by association, the transformation agenda of the industry in South Africa.

There is little doubt that the current Minister, his successor, the Minerals Resources and Energy Department and the mining sector will be confronted with numerous challenges. Whilst every challenge presents an opportunity to succeed, the speed and nature of the success will depend on the commitment of the Government and industry to work together to ensure the transformational objective and the success of the mining industry at large.

The South African economy needs a transformed and flourishing mining industry. Of that there is no doubt!

Written by Lynton Rangasamy.