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Mining Charter violates shareholder rights – Hogan Lovells

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Mining Charter violates shareholder rights – Hogan Lovells

Hogan Lovells partner Wessel Badenhorst

23rd June 2017

By: Martin Creamer
Creamer Media Editor

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JOHANNESBURG (miningweekly.com) – Mining Charter Three’s arbitrary increase of empowerment shareholding to 30% violates the property rights of shareholders, and the new charter’s requirement to pay 1% of yearly turnover is not expected to survive challenges under the Companies Act and the Constitution.

Property rights under the Constitution are entrenched and cannot be limited, unless through a law of general application and for reasons that are not capricious or arbitrary.

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“That casts a massive dark cloud over the third charter,” Hogan Lovells partner Wessel Badenhorst writes in an opinion piece released on Friday, in which he points out that the charter is not a law of general application, but a policy document and the increase to 30% is arbitrary with little juristic justification for it.

“These impracticalities and legal ambiguities may mean that the future of the new charter is the rubbish bin, if not the recycling bin,” Badenhorst says.

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But until it ends up there, the controversy and legal jousting will leave the industry vulnerable and investors running for more stable and lucrative investment havens.

On the same day as the Mineral Resources Minister Mosebenzi Zwane published and brought the new charter into effect last week, the Chamber of Mines announced that it would apply to court to interdict it.

“And the chamber has a strong case,” Badenhorst says.

Meanwhile, the Commission for Conciliation, Mediation and Arbitration has warned of the new charter potentially exacerbating the current jobs bloodbath in the mining industry, the church-linked Bench Marks Foundation has denounced the charter for being as dangerous to South Africa as an abandoned mine shaft and Zwane has had to be whisked away from an angry crowd closing in on him at a community meeting in Mpumalanga on Friday.

How mining companies will ‘top-up’ their shareholding to 30% within the next 12 months with shares that must be released by those who are not ‘black person shareholders’ is questioned by Badenhorst.

Precisely how this should be done is a "mystery", says Badenhorst, who questions the ability of companies to compel shareholders to relinquish shares to meet this target.

“Even assuming this can happen, will a company that achieved empowerment through offsets and asset transactions still be required to ‘top-up’ to 30% shareholding, or can it simply adjust its historic transaction to achieve a 30% empowerment?,” he asks in the article released to Mining Weekly Online.

Under the Mining Charter Three, black persons must hold 30% of the shares, and voting rights, in companies that apply for new mining rights, with 8% of these shares held for the host community in a trust administered by government, another 8% apportioned to the employees of the rights holder and the remaining 14% allotted to ‘black person entrepreneurs’.

Black persons must hold 50% plus one share of companies applying for a new prospecting right.

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