Recent developments in mineral law: the “once-empowered, always-empowered” saga

On 15 April 2016, the Department of Mineral Resources released the draft Reviewed Broad Based Black-Economic Empowerment Charter for the South African Mining and Minerals Industry. The Department took this step without engaging or consulting with stakeholders in the mining industry. The release of the draft Charter casts doubt on the government’s continued willingness to cooperate with stakeholders in the mining industry regarding an on-going dispute concerning the interpretation of transformation targets.

The dispute originated with the coming into effect of the 2010 Mining Charter. The original Mining Charter of 2004 required 26% black ownership of mining companies at the end of 2014. The 2010 Charter reiterates this requirement and, without a clear definition of the concept, measures “ownership” against “meaningful economic participation”. The Department of Mineral Resources argues that mining companies must comply with the 26% black ownership requirement at all times. Thus, mining companies lose their compliance status if black shareholders sell their shares. The Department argues that this interpretation is necessary to promote “meaningful economic participation” as required by 2010 Charter.

Contrary to the Department’s interpretation, the Chamber of Mines favours an interpretation of the 26% black ownership requirement consistent with the “once-empowered, always-empowered” principle. Accordingly, once mining companies comply with the 26% black ownership requirement, they retain their compliance status even if black shareholders sell their shares. Most black economic empowerment (“BEE”) ownership deals were finalised in terms of to the 2004 Mining Charter. The Chamber therefore contends that requiring compliance with the 26% black ownership requirement at all times based on “meaningful economic participation”, amounts to the unlawful retrospective application of the 2010 Charter.

Uncertainties of this nature have serious consequences for investor-confidence in the South African mining industry. Before the release of the draft Charter, the Chamber and the Department seemed to realise the importance of resolving their disagreement, and creating certainty, to prevent deterring investment as a matter of urgency [http://www.bdlive.co.za/business/mining/2016/03/15/chamber-of-mines-open-to-talks-as-bee-battle-continues?service=print]. In this regard, the Department and Chamber approached the North Gauteng High Court to obtain a declaratory order [http://chamberofmines.org.za/industry-news/media-releases/2015] concerning the status of the “once-empowered, always-empowered” principle in the 2010 Charter. Furthermore, both parties openly opposed an application by Martin Scholes Attorneys attacking the constitutionality of the 2004 and 2010 Charters, to be joined to the proceedings.  The joinder application was seen as an obstacle in finalising the uncertainty regarding the interpretation of the 26% black ownership requirement. The joinder application was dismissed early in May and the Chamber remains committed to continue with its application for a declaratory order.

The draft Charter unequivocally abolishes the “once-empowered, always-empowered” principle and reinforces the government’s aim to intensify efforts to transform the industry. The draft Charter must, of course, still be finalised. According to normal procedural requirements, interested and affected parties have 30 days to submit representations on the draft. Furthermore, the Department regards the draft Mining Charter as a platform to “engage in robust debate” and the Minister announced a two-day meeting with mining company executives to discuss the ownership issue. Still, the release of the draft Mining Charter does not accord with the Department’s erstwhile commitment to consult with the industry. The previous Charters were products of agreement between the Department and stakeholders in the industry, with no drafts being released to the public before the industry was consulted. 

The government may have legitimate reasons for resisting the “once-empowered, always-empowered” principle and for arguing for the continued compliance with ownership targets. After all, the nation’s mineral wealth “belongs” to the people according to the Mineral and Petroleum Resources Development Act 28 of 2002. The transformation of the mining industry is central themes in the Act. Furthermore, the notion of ownership of the country’s mineral wealth by the people can be traced to the Freedom Charter that underlies BEE and the 2010 Mining Charter. However, unilateral action by the government in a process that has been characterized by cooperation certainly does not bolster a continued relationship of good faith between the Department and the industry or investor-confidence. 

Furthermore, the release of the draft Charter may be detrimental for short-term realisation of empowerment targets. It is arguable that mining companies may now regard compliance with the current 2010 Mining Charter with less vigour. Facing the possibility that the current Charter may be declared invalid in its entirety, or may be replaced with a charter that the industry does not support, mining companies may be demotivated to pursue BEE targets.

It remains to be seen whether the Chamber’s confidence, that a judgment from the High Court in its favour will influence the final 2016 Charter, becomes a reality. Irrespective of the outcome of the case, certainty regarding policy must be established as soon as possible, not only for investor confidence, but also to realise transformation goals in the mining industry.

Written by Anri Heyns.