Mining companies need to review structures

for comment during April 2016 contained stringent BEE structure requirements, including that every mining right needed to be housed in a separate special purpose vehicle, with each structure being empowered.

The new Charter is a slight improvement, as it seeks to acknowledge existing right holders’ present corporate structures.

“However, a proper analysis of the provisions regarding the ownership element leave the mind somewhat reeling if one considers the various scenarios that could be relevant and the different requirements that would be applicable thereto,” says Reid.

“It is clear that applicants for new rights must comply with the new requirements.

“A new mining right holder must have a minimum of 30 percent ‘Black Person’ shareholding, allocated as follows: a minimum of 8 percent to black employee share ownership plans; a minimum of 8 percent to mine communities, through a community trust; and a minimum of 14 percent to ‘BEE Entrepreneurs’ (BEE Allocation Thresholds).

A new prospecting right holder must have a minimum of 50 percent plus one Black Person shareholding,” adds Reid.

Vallabh explains that controversially, the Charter provides that a new mining right holder must, subject only to the Companies Act’s solvency and liquidity requirements, pay a minimum 1 percent of its annual turnover in any given year to its Black Person shareholders, prior to and over and above any shareholder distributions.

“This creates a guaranteed dividend structure that previously was not a hard requirement.

“In an ambiguous and unclear provision, the Charter also seems to seek to regulate how payment for the Black Person shareholding will take place, with ultimately the holder or vendor writing off any unpaid balances at certain milestones.

“Given the constraints of the current economic climate, these two requirements will further restrict the cash resources of mining companies seeking to remain viable and limit the extensive job losses historically suffered by the industry.”

Jackwell Feris from CDH's Dispute Resolution Practice and Reid caution that the South African government faces a real risk of being challenged in court and in the extreme case in international investment tribunals for potential breaches of the guarantees under applicable bilateral investment treaties (BITs) and or multilateral investment treaties.

The Charter could, in respect of certain provisions, result in BIT guarantees for qualifying foreign investors being infringed.

“In particular, the retroactive application of the Charter to existing mining right holders, the increase of the BEE threshold from 26 to 30 per cent for existing rights holders could prima facie be a BIT violation.

“The requirement to maintain a 30 per cent BEE ownership regardless of the disposal of shares by BEE shareholders during the tenure of the existing mining right – may also constitute a BIT violation,” says Feris.

“The retroactive application of the Revised Mining Charter raises serious legal concerns, as it appears