‘Untenable’ mining charter compounds policy fears

Mineral Resources Minister Gwede Mantashe. (Reuters)

Mineral Resources Minister Gwede Mantashe. (Reuters)

Unresolved disagreements, notably about ownership, are again at the centre of a looming face-off between the mining industry and government, after the Minerals Council of South Africa applied to take the 2018 mining charter on judicial review this week.

Aspects of the charter, gazetted in September, remain “untenable”, the council said in its court application, even though it is seen as a vast improvement on a 2017 draft mooted by former mineral resources minister Mosebenzi Zwane.

The re-emergence of tension between the industry and government comes as the economy contends with stunted growth, fears of a credit rating downgrade and the after-effects of extended rounds of load-shedding. 

Key provisions, which the industry argues continue to threaten its viability and are now being challenged, have remained unresolved despite ongoing discussions with the department and the mineral resources minister, Gwede Mantashe.

The action by the council appears to be a last resort, said Peter Leon, partner at law firm Herbert Smith Freehills. He said the failure to resolve a number of problematic provisions in the charter undermined the minister’s undertakings to provide greater regulatory certainty to the industry.

“This has been an issue hanging over the industry,” said Leon.

The provisions include “onerous re-empowerment” obligations for mines on the renewal or transfer of existing mining rights. At the heart of this is the debate about the so-called “once empowered, always empowered” principle or the recognition of empowerment transactions under previous charters, notably the 2010 mining charter, which sets ownership targets at 26%.

The 2018 charter partially takes the “once empowered, always empowered” view by recognising that an existing mining right holder who has achieved a minimum of 26% BEE shareholding when the charter commenced is deemed compliant for the duration of the right.
But this does not extend to the renewal or transfer of an existing right.

More broadly, the council contends that the charter is policy, not law, and cannot “contradict, conflict with or go further than” the Mineral and Petroleum Resources Development Act. The council argues that failure to comply with the charter — particularly the ownership provisions — does not constitute an offence under the Act and is not grounds for the cancellation of a mining right.

Many of the legal questions in the review application have already been canvassed in a declaratory order, which the council won from the high court last year, where — among other things — it recognised the validity of the “once empowered, always empowered” principle. The department has, however, applied for leave to appeal the order. Though ongoing talks with the state may still be successful, the council had to head to court, because of a 180‑day cut-off period to bring a review application under the Promotion of Administrative Justice Act.

This forced the council to “put a marker in the sand”, said Tebello Chabana, the senior executive for public affairs and transformation at the council, but meant it could continue discussions without “prejudicing our rights”.

Years of regulatory uncertainty have resulted in a 65% decrease in mining exploration over the past eight years, and net investment by companies into new mines, machinery and equipment has declined by 70% since 2009, the council said.

The industry nevertheless remained committed to transformation, Chabana said, adding no other sector of the economy has done as many, or as substantive, BEE transactions.

“We have produced more black industrialists than any other sector of the economy, so the proof of the pudding is there,” he said.

But one mining analyst, who asked not to be named, said it was impossible to describe the destructive effect that persistent battles over empowerment policy have had on the sector, “without resorting to hyperbole”.

“It is not workable,” he said, adding that a number of mining leaders had made it clear that they could not make new investments in South Africa, as a result of the uncertainty caused by the charter.

Mark Cutifani, the chief executive of Anglo American, told the website miningmx last month that, although South Africa’s regulatory and policy environment had improved, it was not reformed enough to attract expansion capital. The chief executive of Sibanye-Stillwater, Neal Froneman, told Bloomberg on Wednesday that the company was not considering expanding its local operations due to an uncertain investment climate.

Investors are looking for “clarity, certainty, consistency and a superior rate of return” before they invest money in a country, and none of these requirements are being met in South Africa, the analyst said.

The minerals department, however, said it would oppose the application, arguing that the charter represents “broad consensus and acceptance by stakeholders who were involved in its development and formulation”.

It called the review application “unfortunate” in light of the “constant dialogue between the ministry and various stakeholders” in the run-up to and following the charter’s gazetting.  In the past year the department has “worked tirelessly” to improve relations with the industry, it said, contributing to policy and regulatory certainty.

“Approaching the courts implies a conflictual relationship, that requires intervention by an external party; yet we could — collectively — find the solution,” the department said.

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