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Are Mining Communities to benefit under the new Mining Charter? ©

The pronouncement on the South African Mining Charter III, while it is welcomed as a step forward in creating certainty in the mining industry has left gaps in interpretation and workings around mining communities.  There is an old mining quote that says “Just need to dig a little more to get the meaning we need…”, and this is very much true today.

At a time when there are community protests around mining operations regularly and impacting on mining activities, this element in the Mining Charter involving communities, cannot be left unclarified.

Bench Marks Foundation lead researcher, David van Wyk, said earlier this year that out of 14,740 crowd-related incidents taking place yearly in South Africa, the Foundation estimates that about 35 protests take place in mining communities every month. This means 2.8% of the service delivery protests are mining-related.

It has been reported that since the start of 2016 and April this year, the eastern limb of the platinum belt in South Africa was hit by more than 400 incidents of social unrest impacting mining operations according to data compiled by Anglo American Platinum and reviewed by Reuters.

Minerals Resources Minister, Gwede Mantashe, announced the Gazetting of the Mining Charter on 27 September 2018 after it was approved by Cabinet the same week.

It is evident that SA President, Cyril Ramaphosa, wanted the Mining Charter finalised as soon as possible to create certainty in the market, like many other pending legislations that include the Mineral and Petroleum Resources Development  Amendment  (MPRDA) Bill which has been subject to the legislative process since 2013 has now been withdrawn to the delight of the mining industry.

However, even though Minister Mantashe said in his media briefing prior to gazetting the Mining Charter that it would not please everyone, but it is something we could live with. It is clear there was an instruction to get this process moving forward come hell or high waters, in order to create regulatory certainty and get investments flowing into the mining sector.

The long delays to finalise the Mining Charter and the MPRDA during his predecessor’s time (Mosebenzi Zwane) caused a mistrust in the government by the mining industry such that the industry had to approach the courts for intervention.

SA’s mining industry has over the past decade faced job losses, a fall in its exploration budget and rising input costs.

Statistics South Africa’s (Stats SA) recently reported on the second quarter’s employment figures that saw the country shed 69 000 jobs, a staggering 35 000 more than in the previous year’s second quarter.

The mining industry continued to shed jobs for the fourth consecutive quarter with 2,000 jobs lost in the second quarter of 2018.

The job losses in the sector are often linked to community protests against mining companies not improving the quality of life of people in the communities they operate in.

Despite the Social Labour Plans and the Corporate Social investment (Community Development plans), many companies are seen as just ticking the box and not seeing through the impact of their community involvement in communities.

According to the new Gazetted Charter there must be a minimum of 5% non -transferrable carried interest or a minimum 5% equity equivalent benefit to host communities from the effective date of a mining right.

Mantashe said the non-transferable carried interest, referred to as a free carried interest in the previous draft of the charter, was not free, but carried by the empowering partners and will be financed by the development of the asset over time.

This could come as a relief for mining companies because the free carry concept was heavily criticised by the industry as it would have meant that mining companies issue free-carried shares and was likely to make new projects much tougher to finance.

However, the meaning of non-transferable carried interest still must be explained.

While the minister tried to clarify the non-transferable carried interest for communities, it is still unclear how this will complement or be an additional obligation to mining companies when they already invest in community development and adhering to the Social Labour Plans for the communities as an obligation under the MPRDA.

Mining companies should also note that the gazetted Charter stipulates that a mining right holder shall ensure that any reduction in shareholding of existing shareholders through the issue of new shares, shall not reduce qualifying employees carried interest and host communities’ carried interest or equity equivalent benefit.

Another interesting part of the Charter is how the 5% non-transferable carried interest will be managed for communities. It states that

  • The equity equivalent benefit of 5% shall be housed in a Trust or similar vehicle for the benefit of the host communities at no cost. It would be administered in terms of applicable legislation for the duration of the mining right.
  • The Trust or similar vehicle shall comprise of representation from host communities (including Community Based Organisations, Traditional Authorities, etc.) and mining companies;

Caution must be taken when Trusts are created. There is a lot of obligations and responsibilities that come with a Trust. More responsibilities and administrative requirements are being made on a mining company.

If these Trusts are not set up under good corporate governance, the communities will develop mistrust of the whole Community involvement process in the mining charter and rise to protest this time not only against the mining companies but also the government that has introduced equity equivalent for community participation in the Mining Charter.

  • A mining right holder must, in consultation with relevant municipalities, host communities, traditional authorities and affected stakeholders; identify host community development needs and fund distribution and governance of the equity equivalent benefit;
  • A host community development programme approved under this element shall not replace Social and Labour Plan commitments as contemplated in Section MPRDA

Another unhappy stakeholder could be Community organisations, that there had not been fully consulted in the revising of Mining Charter III. It remains to be seen how these organisations will respond to these new developments.

It will take time for municipalities, especially the smaller ones, and tribal authorities to know and understand how and what role they would be playing according to the new rules of the charter.

The implementation and adherence to the Mining Charter will not be a responsibility of the Mining companies and communities alone, but the Minerals Resources department and its officials will need to be trained to understand the new requirements.

Hopefully this could lead to addressing the corruption challenges the department unearthed recently.

Lastly but not the least, we have been told that Mining Charter must be read together with the Implementation Guidelines to be gazetted in the next two months.  I guess as the saying goes; “the devil is in the detail”.

 

For more information, contact us on:

Mahali Molapo

Email: mahali@npiconsulting.co.za

URL:   www.npiconsulting.co.za

Tel:     +27 (0) 11 259 4016

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