Mergers and Acquisitions Dealmakers Q2 Review 2017
THE Chamber of Mines’ rejection of a meeting request by the Department of Mineral Resources to attend the Mining Industry Growth, Development and Employment Task Team on 15 June 2017 shortly before the release of the Revised Mining Charter 2017 is a clear indication that the Chamber of Mines and certain of its members are planning to challenge the Charter on a number of fronts.
The move appears to be strategic, as any meeting with the Department of Mineral Resources during the release of a controversial Revised Mining Charter could be viewed as a ‘tacit endorsement’ by the industry in respect of certain of the provisions.
The Mining Charter, called the Reviewed Broad Based Black-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2016, was published and became effective on 15 June 2017.
Mining companies will surely anticipate a strong legal challenge to the Charter via the Chamber of Mines.
However, in the opinion of Cliffe Dekker Hofmeyr directors Giada Masina, Allan Reid and Deepa Vallabh, they will also need to start considering what it means for their legal and corporate structures if such challenges are unsuccessful.
This is particularly so given the short twelve month transitional period within which rights holders must comply with the new requirements.
Meaningful transformation remains an important imperative to address the inequalities of the past, which the industry remains committed to.
“The unclear and ambiguous manner in which the Charter has been drafted will pose significant challenges to those seeking to comply,” says Masina.
Most mining companies have specific corporate structures in place to cater for the previous 2010 Charter’s black economic empowerment (BEE) requirements.
The reviewed Charter published to violate the presumption against the retroactive application of the law, particularly as rights have vested.”
The Charter contains an express provision that existing rights holders must ensure compliance therewith, as opposed to only making such requirement applicable to future rights holders.
In order to give legal effect to the obligations being imposed by the Third Charter the Minister of Mineral Resources will need to ensure that the Mineral and Petroleum Resources Development Amendment Bill is passed as law to elevate the Mining Charter 2017 to a legal obligation for existing right holders.
In doing so, any non-compliance with the Revised Mining Charter 2017 by existing rights holders would be deemed a breach of the Mineral and Petroleum Resources Development Act, No 28 of 2002, as amended (MPRDA), sanctionable by a suspension or termination of such right in accordance with s47 of the MPRDA.
The 30 per cent stake must be held in a special purpose vehicle separate from the right holder.
Should any Black Person hold shares within one of the BEE Allocation Thresholds’ categories, such Black Person must ensure when transferring any shares that the transferee falls within the same category.
Subject to such requirement, the Charter also restricts the extent that BEE Entrepreneurs can dilute their shareholding. If adhered to, this provision will at least eliminate the ‘once empowered, always empowered’ debate regarding new rights.
However, it will render the shares held by such special purpose vehicles almost worthless, achieving negligible empowerment at enormous costs to the holder and its remaining shareholders.
Additionally, the provision giving the 30 per cent Black Person shareholders the right to transport, trade and market their proportionate share of production will cause numerous mining companies to breach existing sales and offtake arrangements.