Member Article

Earlier this year, a full bench of the High Court of South Africa made a ground breaking ruling on the recognition of the continuing consequences of previous broad-based black economic empowerment (“B-BBEE”) ownership transactions in the mining industry. The judgment will be significant for the negotiations currently underway between the mining industry and the Department of Mineral Resources (“DMR”) under the leadership of newly appointed Minister of Mineral Resources Gwede Mantashe regarding the third iteration of the Mining Charter. The key findings of the majority judgment include:

• once the DMR has considered an application and has satisfied itself that an applicant has met the requirements for the grant of a mining right in section 23(1)(h) of the Mineral and Petroleum Resources Development Act, 2002 (the “MPRDA”) and has granted the right, then the holder will not be legally obliged to restore the percentage ownership (irrespective of how it was measured) to the 26% Historically Disadvantaged South African (“HDSA”) ownership target referred to in the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry (the “Original Mining Charter”) and in the Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2010 (the “2010 Mining Charter”), where HDSA shareholding has fallen below the 26% requirement. This does not apply where the terms and conditions of the right itself stipulated that the 26% HDSA ownership had to be retained. The principle also applies to old order rights converted in terms of schedule II of the MPRDA. 
• the holder of a mining right’s failure to meet the 26% ownership target (either in terms of the Original Mining Charter or the 2010 Mining Charter) does not amount to a material breach of the mining right for the purposes of section 47 of the MPRDA (ie, it will not be a ground for suspension or cancellation of the mining right) nor does it constitute an offence in terms of section 98 of the MPRDA. This, however, does not apply where the terms and conditions of the right itself have stipulated that the 26% HDSA ownership must be retained. 
• if the 26% HDSA ownership participation has, for any reason, been diluted to a lesser percentage, there is no obligation to top this up once the holder of the mining right has initially achieved the 26% HDSA ownership participation requirement. This does not apply where the terms and conditions of the right itself have stipulated that the 26% HDSA ownership must be retained. 
• the 2010 Mining Charter does not retrospectively deprive holders of mining rights of the benefits of credit offsets; the continuing consequences of empowerment transactions concluded after the MPRDA came into effect; and the right to off-set credits achieved in one operation against any shortfalls encountered in another operation.

The court said that while it did not make any pronouncements on the validity of the 2010 Mining Charter, this should not be taken as a confirmation that the 2010 Mining Charter was validly issued in terms of section 100(2) of the MPRDA or that “it is the charter contemplated in section 100” of the MPRDA.

The minority judgment found that a holder of a mining right is legally obligated to maintain the 26% HDSA shareholding throughout the life of the mining right. A failure to do so is a contravention for the purposes of section 47 of the MPRDA. In addition, it was found that the 2010 Mining Charter does not retrospectively deprive mining right holders of the continuing consequences of empowerment transactions concluded before the coming into effect of the MPRDA.