Empowerment in the mining industry: where to from here?

On 1 May this year, it will be 17 years since the Mineral and Petroleum Resources Development Act, 2002 (“MPRDA”) came into force. One of its objects is to substantially and meaningfully expand opportunities for historically disadvantaged persons (“HDPs”), including women and communities, to enter into and actively participate in the mineral and petroleum industries and to benefit from the exploitation of the nation’s mineral and petroleum resources. In the furtherance of this object, on August 2004, the Broad-Based Socio-Economic Empowerment Charter for the Mining Industry, 2004 (“Mining Charter”) was gazetted. It is now opportune to reflect on the 17 years of the Mining Charter to see how industry has fared against this object.

One of the major wins of the Mining Charter is that many major mining companies met the empowerment targets, leading to the rise to prominence of black mining enterprises led by Patrice Motsepe of African Rainbow Minerals, Sipho Nkosi of Exxaro and Daphney Mashile-Nkosi of Kalagadi Manganese. According to a survey conducted by the Minerals Council South Africa, most member companies involved in the research have largely complied with the Mining Charter across all the elements.

The success stories are however doused by the Mining Charter Impact Assessment Report, 2009 which was commissioned by the Department of Mineral Resources and Energy (“DMRE”) to assess the industry’s level of compliance with the mining charter. The report notes that there was minimal progress in the implementation in the element of ownership. Some of the challenges that have contributed to the lack of progress include the lack of access to funding and indebtedness of HDP partners; limited flow of dividends to HDPs to service loan agreements, financially cumbersome deal structures and lack of HDP representation at empowering companies’ boards.

Similarly, in instances where ESOPs have been established to benefit host communities and employees, the benefits to the intended beneficiaries are not always evident. This has been further exacerbated by the fact that in most cases the ESOPs did not receive their shares for free, and a vendor financing structure was used to fund the purchase of such shares. Accordingly, in most instances, a portion of the dividends declared and due to the ESOP is used to repay the vendor loan and the balance is paid to the ESOPs.

These challenges have undermined the government’s very mandate of ensuring that the mineral resources entrusted to the custodianship of the government for the benefit of the nation are put to good use. The state has attempted to remedy these challenges by publishing various iterations of the Mining Charter. However, at a substantive level, the Mining Charter fails to distinguish between:

entities that have successfully concluded and implemented empowerment transactions where HDPs have been effectively empowered;
entities that have concluded and implemented empowerment transactions that, while at face value seem to comply with the letter of the law, have failed to deliver value for HDPs; and
entities that have concluded and implemented transactions aimed at circumventing the Mining Charter and misleading the DMRE into granting rights when they should not.

Another challenge that undermines the empowerment object is that the DMRE does not have the capacity to substantially assess empowerment transactions to determine whether they do in fact lead to meaningful economic participation. This has resulted in the DMRE shifting goalposts and demoralising investor confidence.

South Africa is a resourceful country and has managed to navigate the most contentious of issues through dialogue. Now more than ever, it has become clear that the government and industry have to engage in a dialogue to find a suitable panacea that will advance the empowerment object while also recognising the contributions of mining companies that have successfully empowered. No point can be served by government shifting goalposts for compliant mining companies while failing to tackle non-compliant companies.

There are many options that can be considered to sharpen the regulatory tools to achieve the empowerment object. These include a total overhaul of the Mining Charter which removes all the uncertainties of successful historical transactions while addressing non-compliant companies and future applicants for mining titles. They also include the jettisoning of the concept of a Mining Charter and replacing it with a more traditional and recognised legal instrument, such as amendments to legislation. If government and industry fail to find efficient tools, history will not be kind in judging their failure.

After 17 years and a mixed bag of results, it is time for the Mining Charter to be put under a microscope to test its continuing utility in the transformation of the mining sector.

Ntsiki Adonisi-Kgame

Natural Resources and Environment | Executive

nadonisikgame@ENSafrica.com

+27 82 382 7232

Mihlali Sitefane

Natural Resources and Environment | Senior Associate

msitefane@ENSafrica.com

+27 82 310 3694

Zinzi Lawrence

Natural Resources and Environment | Associate

zlawrence@ENSafrica.com

+27 66 476 0776