The Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry (the Charter or the Mining Charter) was gazetted on the 15th June 2017. It was poorly received, and is likely to be the subject of litigation.
Most of the concerns raised dealt with ownership, though there are other concerns.
- The concern was raised that the charter changed the definition of a Black person. The Charter defines Black people as Africans, Coloureds and Indians who are citizens of South Africa by birth (born in South Africa) or descent (born outside South Africa to South Africans) or naturalisation before 27 April 1994, or on or after 27 April 1994 and who would have been entitled to acquire citizenship prior to that date. It also refers to businesses owned or controlled by such people.
- Ownership is a ring-fenced element. If the company does not meet all requirements it scores 0.
- Holders of new Prospecting Rights must have at least 50% +1 Black ownership.
- New Mining Rights Holders must have 30% Black Ownership made up as follows:
- 8% held by Black employees via an ESOP or similar employee scheme.
- 8% by mine communities through a trust administered by the Mining Transformation and Development Agency from a date to be announced by the Minister.
- 14% by BEE Entrepreneurs which are 50% +1 Black owned companies or Black People.
- A Black person who holds shares in one of these categories and who wants to sell shares, must sell to another Black person in the same category
- Any dilution through the issue of additional shares cannot reduce the above Black Shareholding mix.
- Debt on the purchase of this 30% shareholding cannot be repaid over a period longer than 10 years, or by less than 3% per annum. Payments will be made out of dividends received. Any shortfall between the annual amount due and dividends received must be written off. This treatment is questionable.
- A new Mining Right Holder must pay at least 1% of annual turnover to Black Person shareholders in addition to any dividends. This is subject to the Companies Act liquidity and solvency requirements. This goes against all norms of running a business where shareholders only enjoy dividends and capital appreciation on their shares.
- Black Persons must hold and control their shares directly. Trusts continue to be under attack, though they are considered acceptable for mining communities.
Prospecting and Mining Rights
- Existing Prospecting and Mining Right Holders
- Existing Rights Holders who have at least 26% Black shareholding through past BEE transactions at the date of publication of this gazette, are required to top up their shareholding to 30% with a 12-month transitional period. The proportions required of New Holders are not applicable.
- If such holders did not make the 26% required by the old mining charter they cannot recognise past BEE transactions. So, say they had 25% Black ownership due to past BEE transactions, does this mean they need to find an additional 30%, giving 55% Black ownership?
- This top up will be done though the “reduction of the remaining shareholders who are not Black Persons in proportion to their respective shareholding in the company.” This is forced dilution of white and other shareholders and not the issue of new shares.
- The recognition of 26% Black Shareholding will not apply to applications for new mining or prospecting rights or their renewal. Does this mean existing mining houses will need to find an additional 30% Black Shareholders when they renew mining rights?
- There are strict procurement requirements for Mining Goods and Services.
- Mining goods. A Holder must spend a minimum of 70% of total mining goods procurement of South African Manufactured Goods. These must have at least 60% South African Value Add. Companies must spend 70% of total mining goods procurement on South African Manufactured Goods as follows: 21% from Black owned (50% +1 vote) companies, 5% from Black owned companies with a minimum of 50% +1 vote Black female owned and controlled and/or 50% +1 vote Black youth controlled entities.
- Companies must spend 80% of services spend as follows: 65% from Black owned companies, 10% from Black female owned companies and 5% from 50% +1 vote Black youth controlled companies.
- Foreign suppliers must contribute a minimum of 1% of turnover from local mining companies towards the Mining Transformation and Development Agency.
- There is a 3-year transitional period within which the Holder must submit a 3-year plan showing implementation of procurement provisions. This may be extended by 2 years on request.
- Targets will be phased in as follows:
- Year 1 – 15% of the 70%
- Year 2 – 45% of the 70%
- Year 3 – 70%
- For Employment Equity, the Mining Charter requires the application of racial and gender demographics for all management levels and for disabled staff. The Codes of Good Practice do not require application of demographics to the board, executive management and disabled staff. Junior management is required to be 44% Black female which may be difficult to achieve.
Human Resource Development
- Human Resource Development is another ring-fenced element. Companies not meeting the targets will be deemed non-compliant on their scorecard. This element requires the spend of 5% of leviable amount as follows:
- 2% on essential skills development activities such as artisanal training, bursaries, literacy and numeracy skills for employees and community members. This is based on racial and gender demographics, and must be biased towards low level employees. No mention is made of how this bias is to be applied.
- 1% to South African Historically Black Academic Institutions for research and development initiatives into mining, exploration, processing efficiencies, beneficiation and environmental considerations.
- 2% towards the Mining Transformation and Development Agency.
The scorecard is as follows:
|Ownership||Y/N||Either full 30% Black ownership or no score – Ringfenced element|
|Human Resource Development||Y/N||Meet all requirements or score nothing – Ringfenced element|
|Mine Community Development||Y/N||Meet all requirements or score nothing – Ringfenced element|
|Procurement Supplier and Enterprise Development||30%|
|Sustainable Growth and Development||35%|
The following table shows the alignment between the dti B-BBEE codes and the Mining Charter.
|dti levels||Mining Charter||Mining Scorecard||Comments|
|Level 1||Level 1||3 ring-fenced elements +100%||Compliant|
|Level 2||Level 2||3 ring-fenced elements + 80% – 100%|
|Level 3||Level 3||3 ring-fenced elements + 70% to 80%|
|Level 4||Level 4||3 ring-fenced elements +60 % to 70%|
|Level 5||Non-Compliant||3 ring-fenced elements +50% – 60%||Non-Compliant|
|Level 6||Non-Compliant||3 ring-fenced elements + 40% – 50%|
|Level 7||Non-Compliant||3 ring-fenced elements +30% -40%|
|Level 8||Non-Compliant||3 ring-fenced elements + 20% – 30%|
|Non-Compliant||Non-Compliant||3 ring-fenced elements + <20%|
|Non-Compliant||Non-Compliant||Any of the Ring-Fenced Elements not met + element score|
Is this the start of “Radical Economic Transformation”?
Share your thoughts in the comment section below.