30 November 2011

REPORT ON THE PUBLIC HEARINGS ON THE AMENDED MINING CHARTER (PER CHARTER ELEMENTS)

INTRODUCTION

The Mineral and Petroleum Resources Development Act (28 of 2002) required the Minister to develop a broad-based socio-economic Charter that would set the framework, targets and time-table for effecting the entry of historically disadvantaged South Africans into the mining industry and allow such South Africans to benefit from the exploitation of mining and mineral resources. Accordingly, the mining sector stakeholders signed the Mining Charter in October 2002, which took effect in 2004. The Mining Charter of 2004 made provision for review if required and the stakeholders agreed to review the Charter after five years. In 2008 the Department of Mineral Resources commissioned a study to assess the impact of the Mining Charter and the Report of this study was released in 2009. The Mining Charter Impact Assessment Report informed the review of the Mining Charter, which culminated to the Amended Mining Charter of 2010.

In 2011 the Portfolio Committee on Mineral Resources decided to conduct public hearings to elicit the opinions of all stakeholders on the Amended Mining Charter. The public hearings were conducted in North West, Gauteng and Cape Town (Parliament). The recommendations made were classified in accordance with the elements of the Mining Charter. The recommendations that did not fall under specific Charter elements were listed under general comments.

RECOMMENDATIONS ON THE AMENDED MINING CHARTER

Preamble
•	The amended Mining Charter should adopt the accepted style of a preamble as reflected in the original Mining Charter as opposed to “Introduction and Background” style.

Vision
•	The vision of the amended Mining Charter makes reference to “sustainable transformation”. What does “sustainable transformation” mean? What value does the qualification of the transformation agenda add to the obligation of the State to transform the economy? How is the amended Mining Charter going to facilitate growth and development of the mining industry? Does the transformation of the sector have to be linked to growth and development? Is “growth and development” the precondition for sustainable transformation? What was the rationale for changing the original vision?

Mission
•	The mission statement should be a clear and succinct representation of the amended Mining Charter’s purpose for existence. It should incorporate meaningful and measurable criteria.

Definitions
•	The revised Mining Charter defines “BEE Entity” with reference to the flow through principle. The revised Mining Charter does not, however, define the “flow through principle” which is only defined under the Generic Codes of Good Practice on Broad Based Black Economic Empowerment (“the Generic Codes”) under section 9(1) of the Broad-Based Black Economic Empowerment Act, 2003 (‘the BBBEE Act”). The revised Charter must be amended to include a definition of the “flow through principle” under its definition section or at the very least a reference to the definition in the Generic Codes. This will promote legal certainty. Further there is no specific provision under the ownership clause (clause 2.1 of the revised Mining Charter) which suggests that the “flow through principle” applies to the ownership element under the revised Mining Charter.
•	It is proposed that the definition of black people be included as follows: “Black People” means African, Coloured or Indian person who are natural persons and citizens of the Republic of South Africa by birth or descent; or are citizens of the Republic of South Africa by naturalisation before the commencement date of the Constitution of the Republic of South Africa Act 200 of 1993; or became citizens of the Republic of South Africa after the commencement date of the Constitution of the Republic of South Africa Act 200 of 1993, but who, for Apartheid policy would have been entitled to acquire citizenship by naturalisation prior to that date.
•	“Demographics” is defined in the revised Mining Charter as “the numerical characteristics of a population (e.g. population size, age, structure, sex/ gender, race, etc.). It is submitted that the definition of “demographics”, when considered in the context of the clauses to which it applies and the definition of the HDSA, is vague as:
o	It lists examples of characteristics of the population but this list is not exhaustive and the definition is thus ambiguous and left open to interpretation;
o	The manner in which demographics are to be taken account of by mining companies (or the DMR) is unclear;
o	It is unclear whether a strict, formal adherence to demographic-related requirements is necessary (i.e. every race group and exact percentages) or whether a substantive approach is sufficient; and
o	As demographic statistics fluctuate, it is unclear whether or not a mining company is required to continuously alter the percentage allocation of the annual payroll: strict adherence to South Africa’s demographic statistics is onerous and prescriptive, and should be avoided.
•	It is proposed that the revised definition of HDSA be further amended to indicate which demographic factors stakeholders will be required to take into account when meeting their obligations under the revised charter.
•	Another suggestion is that this definition be deleted and replaced by the definition of the BEE entity, which should read as follows: “BEE Entity” means an entity of which the majority of such entity’s issued share capital is directly or indirectly owned by Black People, as measured in accordance with the Flow-through Principle.
•	Clarity is needed with regards to the geographic demographics which the Department intends using in its application of the demographic requirement.
•	Effective Ownership is defined under the revised Mining Charter as “the meaningful participation of HDSAs in the ownership, voting rights, economic interest and management control of mining entities. The revised mining charter does not define “economic interest”, and thus the meaning of effective ownership is unclear. This term is, however, defined under the Mining Codes, as “a claim against an entity representing a return on ownership of the entity similar in nature to a dividend right, measured using the flow through, and where applicable, the modified flow through principles”. It is unclear whether the drafters of the revised Mining Charter intended the reference to “economic interest” to bear the same meaning as that in the Codes of Good Practice. This definition does not take into consideration BEE transactions which have been, and can be, concluded with non-operational partners (such as Employee Share Ownership Schemes-ESOPS) and communities, which generally neither exercise voting rights nor management control in respect of the relevant mining entity. It is unclear whether a transaction involving only the beneficiaries of a trust, who could be the HDSA employees of the mining entity, would qualify as facilitating “effective ownership”.
•	It is suggested “ownership” should be defined to mean Net (Equity) = Unencumbered Net Value and or Unencumbered Ownership.
•	“Meaningful economic participation” is defined under the revised Mining Charter and is used to qualify the requirement of 26 per cent HDSA ownership imposed on mining companies under clause 2.1 (ownership) of the revised Mining Charter. The language of the definition of “meaningful economic participation” regarding the financing by third parties of BEE transactions should be brought into line with the language of the Generic Codes and the concept of “net value” espoused therein, which states that: “Ownership fulfilment occurs:
o	On the release of all black participants in a measured entity from all third-party rights arising from the financing of their transactions with the measured entity; or
o	If all black participants in the enterprise have never been subject to any such third party rights.”
It is suggested that a noun should be inserted after “BEE” in order to rectify this error. It is further submitted, however, that this word should not be “beneficiaries” as this would lead to an untenable situation in which all BEE beneficiaries would be eligible for shareholders’ rights, despite the fact that they may not be members of a company with share capital. To align this definition with section 37(2) of the Companies Act, it is submitted that the word “entities” be inserted after “BEE” in “meaningful economic participation” and the language used should be more prescriptive in order that mining companies understand exactly what requirements they are obliged to fulfil.
•	Undefined terms: The revised Mining Charter needs to be amended to include definitions of the following terms in order to promote regulatory certainty, and prevent these clauses being taken on judicial review as a result of the wide and unguided discretion given to the administrators as a result of such vague clauses:
o	“services” and “consumer goods” as used in clause 2.2 (procurement and enterprise development) of the revised Mining Charter, and which are not defined in the revised Mining Charter, nor is there a standard industry definition on which to rely;
o	“core and critical skills” as used in clause 2.4 of the revised Mining Charter, which is undefined; and
o	“Material constraints” as used in clause 2.9 (Reporting-Monitoring and Evaluation) of the revised Mining Charter, which is undefined. It is not clear if, by reference to “material constraints”, the DMR wants to assess economic conditions, global trends or operational issues. Again this allows the DMR an almost unfettered discretion in the evaluation process.

Ownership
•	DMR should develop a database on Black Economic Empowerment.
•	BEE deals should apply only to employee schemes, communities, and actual producing entrepreneurs, who intend to mine or work in the industry in order to ensure that BEE benefits are not limited to the select, already wealthy, few.
•	It should not only be the Royal families that benefit from the mining ventures but the whole community should be beneficiaries of the mining investments in the community.
•	BEE transactions shall be concluded with clearly identifiable beneficiaries in the form of BEE entrepreneurs, workers (including ESOPs) and communities.
•	Mining companies must provide “free shares” and profit share, rather than “loan shares”.
•	Mining companies must increase employee shareholding to 5 per cent.
•	Companies that fail to implement an ESOP or sustainable ESOP must be penalised.
•	ESOPs should not be short term schemes and should live throughout the life of mine.
•	Financing structures that lead to real cash flow benefits should be promoted. These include internal and external leveraged models where no funding is required on the part of the BEE partner and sustainable value is created.
•	Emphasis must be put on the broader-based elements of the transformation of the sector as a whole.
•	Parliament should commission a study on the current community trusts and ownership by the traditional authorities. This study must look at best options available for community ownership and define how the available funds will be used for socio-economic development of these communities.
•	The following forms of ownership should be considered:
o	The Trust title in successors as owners,
o	The Community property Associations (CPA) as owners, and
o	The State as the custodian of land.
•	The DMR must issue certificates to the owners of land specifying the right of land and the benefits attached to ownership of minerals in the land.
•	Parliament should mandate the BEE Council and DTI to develop a common formula to be used when assessing ownership in the mining industry and that all parties involved should be compelled to use the same formula.
•	Interviews and information sessions should be conducted before issuing of any prospecting or mining rights in areas of land claim.
•	BEE should be vigorously monitored by DMR and a special unit be created for that purpose.
•	Mineral audits be conducted in all areas of land claim and investors should be stopped from mining areas subject to land claims in order for aspiring beneficiaries (claimants) to mine their areas with assistance of the Mintek.
•	The 26 per cent HDSA equity ownership by 2014 must be treated as non-negotiable.
•	A dedicated fund must be established as a matter of urgency to assist Broad Based Black Economic Empowered companies through the Industrial Development Corporation or via the Department of Mineral Resources and a target much higher than the current R100m must be set if we truly wasn’t to transform this industry.
•	The last paragraph of clause 2.1 be removed, as it is equivalent to once empowered, always empowered e.g. companies that concluded deals prior to the promulgation of the MPRDA are absolved from engaging further empowerment transactions.

Procurement and Enterprise Development
•	Mining companies must support small businesses run by host communities
•	Mining houses to develop and support mineral beneficiation projects among host communities
•	Establishment of a Minerals Regional Development Agency for the West Rand that will develop a sustainable integrated development strategy of the region.
•	DMR should ensure that international companies comply with the South African regulations
•	In order to achieve the objectives in a sustainable way, the Charter should require a contribution to broad based BEE from mining sector suppliers, which looks at more than just ownership. HDSA ownership does not ensure that the true cornerstone of transformation are being undertaken, namely job creation, skills development, business development and social development.
•	Preference should be given to South African manufactured products.
•	Job creation can best be achieved by setting targets for procurement of locally manufactured equipment, with a local content of say at least 50 per cent, by mining companies and contractors to mining companies.
•	Recognition in the form of bonus points can be obtained for South African procurement and content.
•	The Mining Charter should be revised to align preferential procurement requirements with broad-based empowerment codes.
•	More clarity should be made with respect to enterprise development and how this is to occur. The Charter should stipulate that each mining company set up its own social fund for enterprise development, and manage it on behalf of their international suppliers, with their input and participation. This will help with implementation and impact as well as provide for ease of measurement. The fund should be used for local supplier development and skills development in local communities, thus facilitating actual enterprise development as well as leading to positive impacts in terms of future local procurement requirements. This type of strategy is inherently sustainable as it also carries a strong business case that ensures all sides benefit maximally.
•	The interpretation and application of the provisions on procurement and enterprise development should be defined in order to promote the growth of local manufacturers and content, and thereby the creation of decent and sustainable employment. This should be distinguished from merely preferring procurement from local suppliers who simply supply imported goods. The principle of local production should have preference over narrow BEE.
•	Tender requirements must be set for service providers to include recruitment of local and retrenched mine workers.
•	There should be a procurement verification agency that will audit all procurement activities. The DTI, DMR, organised labour, organised business and rural communities should work towards creating a procurement agency.
•	Clarity as to the functions and management of the social development fund to which the multinational suppliers should contribute is required.

Beneficiation
•	This element should be divorced from the Charter and a holistic, nationwide strategy should be agreed on by government, the mining industry and other key stakeholders to ensure that beneficiation is done properly and in a way that will create the maximum possible value addition and economic benefit.
•	There is a need for the refinement of this provision to distinguish those companies that are involved in the higher levels of beneficiation, especially the development of finished capital and consumer goods as well as strategic intermediate products that are vital as inputs to other local industries, from those that are engaged in minimal processing of mineral commodities.
•	A beneficiation agency must be established.
•	A beneficiation council consisting of the DTI, DMR, organised labour, organised business, Mintek and CSIR should be established to develop a mineral beneficiation strategy and to monitor the implementation and adherence of the beneficiation policies in the industry.
•	Mineral beneficiation should be vigorously monitored by the DMR and special unit be created for that purpose.
•	A beneficiation matrix should be drawn up with the set-off percentages listed.
•	Penalties for failure to beneficiate must be considered.
•	In South Africa, there are companies that beneficiate minerals for existing mining companies. How would a beneficiation offset incentivise these companies to beneficiate more locally?

Employment Equity
•	Employment quotas for local communities
•	Mining companies not to employ the services of labour brokers
•	DMR to develop a database for employment equity
•	The demographic requirements should be more realistically defined and specifically stated for women, especially as concerns the percentage of women in the sector being set closer to the world-wide standard.
•	A Mining Indaba is proposed to discuss the inclusion of white women and Chinese on the definition for Historically Disadvantaged South Africans (HDSA).
•	White women should not be beneficiaries of Employment Equity but should be beneficiaries only on employment of women underground.
•	The 40 per cent target should be revised and new targets for black people, black women and black disabled employees should be set. These targets should be in line with economically active population (EAP) targets, as this will avoid over-representation.
•	The industry should dispense with its HDSA targets as it includes white women, Chinese people and Korean people.
•	The charter must introduce specific interventions to increase the representation of women and in particular black women, in management and the industry at large.
•	Positions that are occupied must demonstrate related quality of relevance and not become “window dressing”. Occupied positions must demonstrate on-going development of candidates as managers and as executives.

Human Resource Development
•	Technical training institutions managed by mining companies must open access to local communities
•	Skills development projects to be biased towards host communities
•	More emphasis should be placed on the provision of educational opportunities and transfer of skills to ordinary workers employed at lower income levels. This should include Adult Basic Education and Training (ABET).
•	Recognition of Prior Learning (RPL) should remain an integral component of the industry career path approach.
•	Parliament should call for the availability of bursaries for both mineworkers and their beneficiaries on the basis of career choices of the workers and their bursaries, and the release for full time study purpose of the employed workers without pay but with retention of their employment status.
•	Mentoring should be provided for employees identified for fast tracking.
•	The 5 per cent target for investment in skills development should be reduced to 3 per cent and include a very comprehensive code of good practice which talks specifically to the skills shortage in mining sector and provide very strong guidelines as to how to achieve this.

Mine Community Development
•	Mines to invest in social infrastructure such as schools, clinics, sport facilities and people development centres
•	A portion of profits from mines must be stipulated for investments in local communities
•	Fifty per cent of royalties to be used to benefit host communities
•	The term “meaningful contribution to community development” has to be clarified to eliminate any ambiguity that might arise as a result of different views on what is meaningful.
•	Further clarification of the structure and management of the proposed “social development fund” is needed.
•	Social and Labour Plans should be created mainly through a consultative process between mining companies and the communities in question, with the communities themselves driving and guiding this process.
•	There is a need to enforce delivery of undertakings to invest in specific identified projects.
•	There is a need to ensure that sustainable and decent employment is created that is not entirely dependent on the life of a mine.
•	Parliament must consider mandating both DMR and COGTA on development of mining community investment policy, which may include the merger of Mining Development Agency (MDA) and TEBA Development Trust into a new entity that will be used as a Special Purpose Vehicle for the labour sending areas and host communities.
•	Guidelines for community consultation before mining projects must be developed.
•	Guidelines for involvement of the mining industry in municipalities’ IDP processes and budget contribution must be developed.

Housing and Living Conditions
•	Single sex hostels to be abolished

Sustainable Development and Growth of the Mining Industry
•	Further principles and best practice be incorporated into the Charter, drawing specifically from the African Union’s (AU) Mining Vision 2050 adopted by the Assembly of Head of State and Government of the AU in 2009.

Vulnerable Groups
•	The Charter should set targets for youth as a designated group outlined by the Broad Based Black Economic Empowerment (BBBEE), Act 53 of 2003 and Codes of Good Practice championed by the Department of Trade and Industry. Five per cent representation of youth on all elements of the Charter.
•	The Charter should also set targets for disabled young people in all its elements.
•	The removal of the Migrant Labour provision is a concern, since it is imperative to identify the specific needs that affect foreign migrant workers and to counter xenophobia.

Reporting
•	External bodies for verification of the annual reports should be created, or bodies existing in the BEE industry should be used. These verification agents would help create a more standardised approach as well as take some of the pressure off the DMR.
•	All monitoring and evaluation submissions and proofs must be co-signed with labour.
•	All progress set for each year must run concurrently as follows:
o	2010 progress achieved in March 2010 and not March 2011
o	2011 progress achieved in March 2011 and not March 2012
•	Rapid feedback on implementation is needed from DMR
•	A guidance document needs to be developed
•	Does annual reporting refer to calendar year? This must be clarified to avoid companies reporting at different times.

Non-compliance
•	The wide powers granted to the Minister with regard to non-compliance must be counter balanced by the right of companies found in breach to appeal the finding.
•	Non-compliance has to be clarified, since it would be legally difficult to revoke these without clarity. What score must the company obtain to be regarded as compliant?

Amendments
•	The power granted to the Minister to amend the Charter as and when the need arises must include the requirement for wide consultations before amendments.

GENERAL COMMENTS
•	Parliament should investigate possibilities of making the Mining Charter a concessionary contract to either a Mining Right or Prospecting Right. This could be made possible by changing the licencing regime on the MPRDA when amendments are finally presented to Parliament. A clause that stipulates that failure to achieve 70 per cent of the concessionary contract would result in a licence being revoked and auctioned to bidders who are willing and able to perform in accordance with the contract should be inserted.
•	While it is acknowledged that Parliament acted within its powers in conducting public hearings, conducting such hearings after the Charter Review process is finalised might create unnecessary conflict between Parliament and the Department of Mineral Resources or the Ministry.
•	The section 100(2)(a) of the MPRDA must be amended to give the Minister the requisite authority to amend the original Mining Charter as the section does not empower the Minister to alter, vary and/or revise the Charter as it currently stands.
•	It is recommended that clause 4 of the revised Mining Charter, which states that “The Minister may amend the Mining Charter as and when the need arises” be amended since it is ultra vires due to the above-mentioned reason and the phrase “as and when the need arises” is vague and arguably both the content of amendments that the Minister might make to the revised Mining Charter as well as the timing of such amendments, as a result of vagueness of the clause, is left wholly to the discretion of the Minister thus heightening regulatory uncertainty.
•	Under section 23(1)(h) of the MPRDA, compliance with tenets of the revised Mining Charter is required for the grant of a mining right, and clause 3 of the revised Mining Charter renders non-compliance with the revised Mining Charter an offence under sections 98 and 99 of the MPRDA.
•	In numerous instances, the language used in the revised Mining Charter is vague and ambiguous. Not only does this give rise to regulatory uncertainty but it allows administrators who are empowered under the revised Mining Charter a very broad discretion, which compounds regulatory uncertainty. Further, the Constitutional Court has held that it would be inappropriate for a Minister to exercise an unfettered and unguided discretion in situations fraught with potentially irreversible and prejudicial consequences to business entities and others who may be affected. Thus, it is fundamental that instances of vague and ambiguous language in the revised Mining Charter be amended so as to avoid vagueness and the consequent bestowal of such a wide discretion upon the Minister and any other administrators.
•	Of particular relevance to Eskom in the instance of cancellation of mining rights, is the impact that this cancellation would have on its security of supply. By and large, we are reliant on bulk suppliers and the question arises as to what rights could be accorded to Eskom specifically where non-compliance would constitute a breach of the MPRDA in order to ensure the continued supply for Eskom. The revised charter is also silent on the role of the State Owned Mining Company in this area and its possible role in ensuring Eskom supply.
•	The revised mining charter is silent on the utilisation of State Owned Enterprises in the furthering of the objectives of the MPRDA and alignment with the developmental state agenda. At the same time, the need to establish security of supply of primary energy minerals for the domestic electricity industry perhaps requires reflection as a specific compliance target.
•	Government should share with traditional leaders and their structures for development all information as to mineral resources on traditional land.
•	Government and industry should establish a fund that will provide grants, loans on favourable terms and technical assistance to traditional communities to enable them to:
o	Obtain prospecting and mining rights,
o	Mine;
o	Develop skills;
o	Engage in beneficiation and marketing;
o	Create and manage trust funds to ensure that the profits of mining are used for the benefit of the community; and
o	Complete development strategies within the framework of government policies and programmes for sustainable growth and development.
•	Interviews and information sessions should be conducted before issuing of any prospecting or mining rights in areas of land claim.
•	Mineral audits should be conducted in all areas of land claims and community beneficiaries be allowed to mine their land with the assistance of Mintek.