Nine recommended improvements should charter renegotiation ensue

17th July 2017 By: Martin Creamer - Creamer Media Editor

Nine recommended improvements should charter renegotiation ensue

Herbert Smith Freehills Africa partner and co-chair Peter Leon
Photo by: Duane Daws

JOHANNESBURG ( – The agreed suspension of the implementation of the controversial Mining Charter Three may present an opportunity for the parties to negotiate a revised version that reflects terms acceptable to all parties.

If so, the renegotiated charter should contain at least nine improvements, say Herbert Smith Freehills lawyers Peter Leon and Patrick Leyden.

Their comment follows Mineral Resources Minister Mosebenzi Zwane’s written undertaking that both he and the Department of Mineral Resources (DMR) would not implement the provisions of Mining Charter Three in any way, pending judgment in the urgent interdict application brought last month by the Chamber of Mines. 

Based on this written undertaking, the chamber agreed to the DMR's request for additional time to file its answering affidavit to the interdict application and for the hearing to take place on a later date than July 18.

The parties have requested the Deputy Judge President of the Pretoria High Court to allocate a hearing date in September this year.

While they can only speculate at this stage, the view of Leon and Leyden is that the provisions of any renegotiated Mining Charter should:
• be agreed by or, at the very least be representative of the views of, all parties in the mining sector, with the charter once again needing to reflect a social compact between government, labour and business rather than a top down form of executive lawmaking;
• be clear, concise and unambiguous;
• contain realistic and achievable timeframes for the implementation of any new requirements;
• in relation to existing mining rights, fully recognise historic empowerment transactions for the duration of such rights. Security of tenure is of paramount importance to mining companies and investors given the capital intensive nature of mining and the long lead times between exploration and production;
• in relation to the procurement of goods and services, be achievable within realistic timeframes with due regard to South Africa's international trade law obligations;
• in relation to employment equity, be achievable within realistic timeframes having regard to South Africa's regional demographics as well as the provisions of the Constitution;
• not address issues of tax or company distributions to shareholders that are regulated under company or fiscal law;
• avoid being overly prescriptive in relation to the corporate structuring of mining companies and their assets; and
• include a methodology for the calculation of the beneficiation offset under the ownership requirements. Although this offset has been recognised under all three charters, the lack of methodology for the calculation of the offset has resulted in the DMR failing to recognise it since the first charter was published in October 2002.

The chamber is seen in some circles as being the clear first-round winner as a result of the Minister agreement to suspend the implementation of the charter by way of a written undertaking that the already gazetted notice will not be applied “in any way” whatsoever, pending judgement in the chamber’s urgent interdict application.

In the event of any breach of the Ministerial undertaking, the chamber can set the urgent interdict application down for hearing on 48 hours’ notice.

Chamber CEO Roger Baxter described the arrangement as satisfactory for the chamber while the Minister has opted to give a statement at a later date.

The chamber has warned that strangulation of the mining sector risks the serious setting back of the entire South African economy.

As the chamber has noted, 70 000 direct mining jobs have already been lost over the past five years and net and gross investment over the past two years has been negligible owing to legislative and policy uncertainty.

Along the way, the lack of trust that investors have in the government has been growing and the National Treasury’s 14-point action plan has done little to improve matters.

Investors view Mining Charter Three as a measure that will devastate the industry.

The rogue drafters of this document showed disdain for the Constitution, the Companies Act and the World Trade Organisation's General Agreement on Tariffs and Trade.

Companies and investors see a starving of the industry of capital, shortening mine life, slashing profits and compounding the problem of declining reserves.

Taking 1% of revenue from mining companies even if they are making losses is indicative of the draconian approach of Mining Charter Three, which will destroy the South African mining industry if implemented.