Ruling on BEE status hailed as a victory for miners

The high court has set aside some of the most contentious clauses of SA’s 2018 Mining Charter and entrenched the principle that companies can retain their empowered status even if their partners exit.

In a victory for the industry, the court said the charter was a policy document, not a binding instrument of law.

Disputes on the principle of “once empowered, always empowered” have strained relationships between the government and mining houses. Mining companies have been reluctant to boost investment, even with commodity prices booming, as the issue was uncertain.

OWNERSHIP LEVELS

The Minerals Council SA approached the court for a judicial review of the Mining Charter’s third iteration, arguing that the requirement for mining houses to top up black ownership levels when seeking transfers or renewals of mining rights is flawed. According to rules in the charter, miners previously compliant with BEE thresholds

would need to find new partners if the existing ones sold their shares.

Uncertainty over the issue has been widely criticised as a deterrent to new investment in mining and a further blow to an economy experiencing record unemployment of 34.4%.

The then minister of minerals & energy Mosebenzi Zwane sparked a selloff that wiped about R50bn off the value of JSE-listed miners when he unveiled the charter in 2017.

‘GUPTA CLAUSE’

The latest version, gazetted in 2018 by current minister Gwede Mantashe, used that version as a basis, but there were some changes, including the removal of the so-called Gupta clause, which allowed naturalised citizens to benefit from empowerment regulations.

Judge Fayeeza Kathree-Setiloane on Tuesday ordered the department of mineral resources & energy to pay the costs of three counsel in a judgment that questioned why the term “charter” was chosen if the intention was for it to be legislative. “Thus having considered the language of section 100(2) of the MPRDA [Mineral & Petroleum Resources Development Act] in light of its ordinary meaning, the context in which it appears and the apparent purpose for which it is directed, I conclude that section 100(2) of the MPRDA does not empower the minister to make law,” Kathree-Setiloane said.

“In other words, the 2018 charter is not binding subordinate legislation but an instrument of policy.”

Law firm Webber Wentzel said the judgment is explicit that the 2018 charter isn’t binding legislation, and the implication is that a mining company would have more flexibility in structuring empowerment transactions. While sound in law, it is likely to be appealed, it said.

Peter Leon, a partner at Herbert Smith Freehills, said the judgment was a “significant victory for the rule of law, regulatory certainty and predictability” and “will give the department cause to reflect on what has gone wrong in the last 10 years and put the industry back on a much needed path of regulatory certainty and predictability”.

Mergence Corporate Solutions mining analyst Peter Major said he hoped that the judgment would serve as a “bucket of cold water” for Mantashe and that the government would realise its stance had discouraged investment. “It just serves to confirm what everyone was already saying three years ago,” he said.

The Minerals Council welcomed the judgment for also setting aside “unachievable” requirements concerning procurement of goods and services, and enterprise development.

The council secured a previous legal victory over the department in 2017, when it obtained a judgment that mining companies were not obliged to perpetually top up past empowerment deals that had lapsed and maintain black ownership at 26% — a target set in the first two charters — to retain their mining rights.

Under the charter, miners would also need to raise this to 30% by 2023.