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The mining charter: 'Is this proof of trust deficiency?'

Apr 29 2018 06:00
Abe Mngomezulu

The majority judgment in the Chamber of Mines’ declaratory application, relating to the recognition of the continuing consequences of previous black economic empowerment ownership transactions, came at a time when the mining industry was starting to engage constructively on the review of the controversial Mining Charter 3.

Key among the contentious issues are the new definition of a black person; payment, under certain conditions, to black shareholders of a minimum dividend of 1%, prior to and over and above any other shareholders; and the establishment of a mining transformation and development agency.

The ruling was handed down by Judge Frans Barrie, with Judge Peter Mabuza concurring. It would be somewhat deceiving to not read the minority judgment penned by the honourable Judge Tina Siwendu.

If, for a moment, we cast our minds back to October 2002, when the first so-called broad-based socioeconomic empowerment charter for the South African mining industry was made public, several legal scholars raised concerns about its legality.

From inception, it was clear the Mining Charter would not stand legal scrutiny, hence it never went through the state law advisers for a review, as is standard practice for laws passed in South Africa.

It is unfortunate that the critical voices of mining communities were not as organised as they are today, as legislators would have benefited immensely from their participation.

Mining Charter 1 was a framework document developed out of consensus. The participants were aware of its limitations, especially the legal ones, and probably never anticipated that it could be challenged in a court of law, especially by the most critical player in the domestic industry, the Chamber of Mines.

It should be borne in mind that, during 2002, there was strong tripartism in the mining industry. Robust, open and frank engagements were held among the mining sector’s government, labour and business players, but always with acceptable outcomes.

The goal of the charter is to “create an industry that will proudly reflect the promise of a nonracial South Africa”. It states that the aspirations of the charter and the Mineral and Petroleum Resources Development Act (MPRDA) “will be realised only when South Africa’s mining industry succeeds in the international marketplace, where it must seek a large part of its investment and where it overwhelmingly sells its products and when the socioeconomic challenges facing the industry are addressed in a significant and meaningful way”.

Hence, the continuing consequences of all previous deals, measured by attributable units of production, were included in calculating ownership. This avoided disadvantaging the South African mining sector in the global market.

Of main interest is that the goal set in the charter was that historically disadvantaged South Africans should own 26% of the assets of each mining company in 10 years. Therefore, this could not have been for the purposes of only receiving a mining right.

In this regard, it was agreed to help historically disadvantaged South African companies secure finance to fund participation to the tune of R100 billion within the first five years. This was done in the hope that beyond the initial five years, through the willing-buyer basis and at fair market value, the participation of the historically disadvantaged would increase.

To further show the cooperative spirit prevailing at the time, government would consider special incentives to encourage historically disadvantaged companies to hold on to newly acquired equity for a reasonable period. Furthermore, a review mechanism would be established which would again provide flexibility to companies’ commitments.

For the long-term survival of the mining industry, all participants should holistically identify, in both the Mining Charter and the MPRDA, issues that have not been fully implemented as earlier envisaged. Critically, the social and labour plans and meaningful participation of mining companies in the development of integrated development plans are key factors. These should respond to the development requirements of mining and labour-sending communities.

This remains a main source of consternation for the communities where mining is taking place. Expectations must be addressed and compromises made by all participants, including people living in areas where mining is taking place.

We can certainly all agree that mining communities are more organised now than before. This must be nurtured and supported to allow our people to take part in the creation of their development path.

Consensus must be reached by all stakeholders through the leadership of government.

Government must seriously consider the system of mining agreements that allows for different conditions and circumstances, unlike the current rigid one-size-fits-all approach.

We should ensure that mineral investment provides contractual obligations that coerce investors to contribute towards regional development objectives. The MPRDA should be strengthened by detailing how communities where mining is taking place should be involved. Local economic development forums must be strengthened in areas of mining.

Legislation must enforce the existence of implementation-monitoring bodies that have teeth and are accountable to the national government. The regulator must have more officials deployed to the areas where mining takes place to enforce the law.

Trust must be built through sacrifices by all participants.

In the short term, increasing the ownership target in the Mining Charter should be considered, together with the floor target: a target below which every mining right owner must top up black economic empowerment ownership.

Mining companies should undertake that the floor target does not end up becoming the ownership target.

It is important that empowerment be funded based on their merits. There should no longer be any discrimination in funding these because black people are beneficiaries.

Black businesses should be able to raise money on the domestic and international capital markets and this knowledge should be extended to funding mine community equity participation.

A mechanism of continuous reporting should be agreed to and developed and the longer-term review mechanism defined.

Communities should guarantee their full support in safeguarding the interests of the industry, by being part of local and regional forums with other industry players, where mining sustainability issues are discussed.

South Africans have always risen to the occasion, I know that it can and will be done if all players are prepared to compromise for the sake of our economy.

*Mngomezulu is a former CEO of Mintek and deputy director-general of the department of minerals and energy. He writes in his personal capacity.

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