Contact Details
Inanda Greens, Building 2, 54 Wierda Road West, Sandton, 2196
https://www.fasken.com/en/officeshub/johannesburg   |   +27 11 586 6000   |   johannesburg@fasken.com
Press Office Home Profile Official Website Visit Engineering News

 

Fasken News

← Back

Mining Charter’s free-carried interest requirement worries industry

JOHANNESBURG (miningweekly.com) – Although changes have been made to certain sections of the latest draft of the third Mining Charter, some mining industry participants believe the charter will not benefit the industry.

Unpacking the proposed ownership requirements for new mining rights as set out in the draft charter, in Johannesburg, on Thursday, law firm Fasken mining lawyer Godfrey Malesa noted that the charter stipulates that a new mining right must have a minimum of 30% black economic empowerment (BEE) shareholding, which must include an economic interest, as well as a corresponding percentage of voting rights.

“The 30% BEE shareholding must be distributed in different ways. The charter proposes that BEE ownership should be allocated in shareholding blocks of 8% to host communities and qualifying employees, as well as a minimum of 14% ownership to BEE entrepreneurs,” he noted.

Malesa highlighted that 5% of each of the 8% blocks must be in the form of a nontransferable free-carried interest.

The holder of a new mining right must also pay an annual trickle dividend equal to 1% of earnings before interest, taxes, amortisation and depreciation to qualifying employees and host communities from year six of the mining right, in years where dividends are not declared.

Following the publication of the draft charter, on June 15, the Minerals Council South Africa released a media statement stipulating that it does not support the free-carried interest of 5% allocated to each of the qualifying employees and host communities.

It argued that, given South Africa’s mature mining sector, a 10% total free-carried interest on new mining rights will materially undermine investment, by pushing up investment hurdle rates and ensuring that many potentially new projects become unviable.

“Furthermore, the trickle dividend payment will be payable to qualifying employees and host communities at any point within a period of 12 months where dividends are not declared,” said Malesa.

He added that the trickle dividend to be paid to qualifying employees and host communities was a ring-fenced element and, therefore, 100% compliance was required.

“This is a change from last year’s version of the charter, which required mining companies to pay at least 1% of annual revenue to black shareholders. It is not clear from the draft charter whether the trickle dividend is also payable to BEE entrepreneurs,” he pointed out.

Malesa further pointed out that, although the draft charter recognised the so-called ‘once empowered, always empowered’ principle, existing mining rightholders would still be required to top up their BEE shareholding level to 30% within a period of five years, regardless of whether they met or maintained the 26% BEE shareholding required under the 2004 and 2010 charters.

The ‘once empowered, always empowered’ principle was the subject of a Pretoria High Court ruling in April, whereby the court found that the 2004 and 2010 mining charters did not require mining companies to maintain their BEE shareholding throughout the duration of the mining right if the BEE shareholders disposed of their shareholding.

“The Department of Mineral Resources petitioned the Supreme Court of Appeal for leave to appeal the judgment. In the previous version of the mining charter, mining companies had a year to comply with the 30% black ownership requirement.

“The draft charter gives mining companies up to five years to comply, which is a vast improvement,” said Malesa.

The public has 30 days from the date of publication of the draft charter to submit their comments. The Department of Mineral Resources is planning a mining summit for early July to discuss the draft charter with the industry and social partners.