South Africa’s mining groups move to block rules on ownership

Revised government Mining Charter described as ‘illegal’ and ‘unconstitutional’

South Africa’s Chamber of Mines will apply to the high court later this month to stop the implementation of the new Mining Charter released by the government, describing aspects of it as “illegal” and “unconstitutional”.

In court papers submitted to the North Gauteng High Court, the chamber's senior executive of public affairs and transformation, Tebello Chabana, said the charter "represented a most egregious case of regulatory over-reach".

“It amounts to law-making without going through the legislative process,” maintained Chabana, whose affidavit was part of the chamber’s overall submission.

The submission went on to say that to protect the industry in the short term an urgent intervention was needed, but that the court would be asked to set aside the 2017 charter as an unlawful exercise of power in due course.

The application will be formally made to the high court on July 18th, according to the motion of notice.

Published on June 15th by the minister of mineral resources, Mosebenzi Zwane, the charter, which is revised every five years, was first introduced in 2002 to increase poor black South Africans’ ownership in the country’s mining sector in the post-apartheid era.

Economic pillar

The mining sector is one of the pillars of the South African economy, accounting for about 7 per cent of the country’s economic output despite its decline over the past decade.

Under the latest revision, black people’s shareholding in mining companies must increase from 26 per cent to 30 per cent within 12 months, irrespective of whether the entities in the mining community had reached the former target.

Of the new 30 per cent slice set aside for black South Africans, 8 per cent is earmarked for employees and a further 8 per cent for local communities affected by on-the-ground operations. The balance goes to entrepreneurs.

Another new requirement is that foreign-owned multinational mining companies must hand over 1 per cent of turnover generated from their local operations to a new entity called the Mining Transformation and Development Agency.

In addition, the charter requires that within three years all mining companies must buy 70 per cent of their mining goods and 80 per cent of their services from local companies that are black economic empowerment (BEE) compliant.

BEE is a programme launched by the South African government to redress the inequalities of apartheid, by giving racial groups previously disadvantaged by the racist system advantages in the workplace.

Unsurprisingly, the charter has led to furious debate among a broad range of stakeholders around the details of the new provisions, what their effect will be on the local industry, and whether they are legally enforceable.

Contradictory language

Experts say that generally the new charter is vague and contains contradictory language that does not provide policy certainty for the sector, which is crucial for investment.

Investec Bank said in a note to its clients that the charter made "South African miners uninvestable to a large segment of the market and it will be very tough to attract fresh capital to an already unloved sector".

The chamber of mines, which in value terms represents 90 per cent of South Africa’s mining companies, has lambasted the new charter on numerous levels.

It claims that none of its input to the department of mineral resources during the consultative process on the charter’s revision was included in the final draft.

Furthermore, in its affidavit to the high court, the chamber says that if it is implemented in its current form the charter will destroy the local mining sector.

"In short, the publication of the 2017 charter has been an unmitigated disaster, both for the mining industry as a whole and for South Africa, " it stated.

More specifically the chamber maintained that some of the new provisions introduced clash with elements of South Africa’s Mineral and Petroleum Resources Development Act.

In relation to the imposition of a 1 per cent tax on foreign-owned companies, it said Zwane was attempting to take over powers that rested with the treasury and parliament.

It also questioned why Zwane had changed the words “previously disadvantaged groups” to “black persons” in the charter, as it widens the scope dramatically in terms of who can benefit.

“For reasons best known to himself‚ the minister . . . now seeks to benefit a category of person who were never disadvantaged by unfair discrimination before the constitution took effect‚” the chamber argued.

Racial make-up

In response to the court application, Zwane said in a statement it was his department’s view that those who oppose the charter are in fact against the government’s transformation objectives around the racial make-up of the mining sector.

“As with any legislation that is developed, it is virtually impossible to please all parties,” he said.

The charter has already had an adverse effect on the value of South Africa's mining sector since it was published, according to the chamber. The employer body says that, as of the end of June, it had knocked about €3.4 billion (nearly 51 billion rand) off the market capitalisation of Johannesburg Stock Exchange-listed mining shares.

However, the document has received support from the African National Congress Women's League and South African president Jacob Zuma. The National Union of Mineworkers has also broadly welcomed the charter.

The ruling party has reportedly requested a meeting with Zwane to seek clarity on the effect the charter will have on employment, given the mining sector has already shed tens of thousands of jobs in recent years.

Bill Corcoran

Bill Corcoran

Bill Corcoran is a contributor to The Irish Times based in South Africa