New mining charter legally flawed - lawyer

Cape Town – The new Mining Charter that was gazetted on Thursday contains a number of flaws that are not in accordance with legislation, said mining lawyer Peter Leon of Herbert Smith Freehills.

Mineral Resources Minister Mosebenzi Zwane announced some of the particulars of a new revised Mining Charter at a media briefing on Thursday morning.

GAZETTE: Read the full Mining Charter 

A number of new requirements are contained in the charter, such as that mining companies will need to have 30% black ownership – up from 26% previously and that mining companies will need to pay 1% of their annual turnover to the 30% black ownership before distribution to shareholders.

Speaking to Fin24 by phone, Leon said the provision of the 1% of turnover specifically is unfair to shareholders.

“The provision in the new charter that a mining right holder needs to pay 1% of their annual turnover to the 30% black ownership is tantamount to unfair treatment of shareholders. What the Minister is effectively saying is companies need to donate 1% of their turnover before paying dividends. That’s unlawful and in contravention of the Companies Act. It’s not going to fly.”

READ: Zwane reveals final Mining Charter, despite mining boycott

Leon reiterated a previous statement that he is doubtful whether Zwane as Mines Minister does in fact have the powers to publish a new Mining Charter other than the one that had been gazetted in 2002.

“The Mining Charter is meant to be a policy document,” Leon said, “and he is turning it into a legislative instrument. The Minerals and Petroleum Resources Development Act (MPRDA) does not grant him the power to do so.”

Leon recalled that under the presidency of former president Thabo Mbeki the then mines director general travelled around the world telling investors that the 26% black economic empowerment requirement won’t change.

“Now the goalposts have been moved once again (with the 30% black ownership requirement). That’s why the markets reacted to the news – investors don’t like uncertainty.”

READ: Markets bloodbath as Zwane shocks mining sector 

Leon is also of the view that the new procurement provisions in the new charter may be in contravention of the World Trade Organisation, such as that 70% of all mining goods and 80% of all services must be acquired from BEE entities.

“I don’t see how government can do this. It’s discriminatory and violates WTO agreements. The majority of mining companies buy their goods and services from foreign suppliers.”

There are however two positives emanating from the new charter, Leon said.

“One positive is the obligation on companies to publish their social and labour plans. That is really progressive.”

The other “improvement” from the draft charter that was published in April 2016 is that government seems to recognise existing black economic empowerment transactions.

READ: 12-month deadline to reach 30% black mine ownership 

“It is therefore not as retrospective as last year’s charter, but having said that companies will need to top up their black ownership to 30% and they only have 12 months to meet it,” Leon pointed out. 

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