Mining BEE – “Once empowered always empowered” court ruling may have far wider ramifications

Interesting article by Soria Hay, head of Corporate Finance at Bravura.

We extract a few paragraphs from the article, which can be read in full here.

The court case concerned the interpretation of the so-called “once empowered always empowered” principle contained in the Original Mining Charter (2002) and the 2010 Mining Charter.

Court finds in favour of “once empowered always empowered” principle in the mining industry

The High Court found that once a mining right had been granted, with the DMR satisfied that the company had met the obligations to secure such a right, “the holder thereof is not thereafter legally obliged to restore the percentage ownership … to the 26% referred to in the Original Charter and in the 2010 charter where such a percentage falls below 26%.” This was unless the obligation had been spelled out in the mining right. The same ruling applied to companies that had converted old-order rights to new-order rights in terms of the Mineral and Petroleum Resources Development Act, which transferred all mineral ownership from private hands to the custody of the state in 2002.

The Department of Trade and Industry (“DTI”) is of the opinion that the Codes of Good Practice published in terms of the Broad-Based Black Economic Empowerment Act should take precedence over the Mining Charter. The DMR on the other hand is of the opinion that the Mining Charter is a separate piece of legislation, and that the Codes have no bearing on the mining sector.

Soria Hay states that, in her experience, mining rights granted by the DMR, invariably includes the stipulation that the right holder must remain 26% black. This High Court victory may therefore be a hollow one for most mining companies.

What do the DTI Codes say about “once empowered always empowered”?

The Department of Trade and Industry (“DTI”) is of the opinion that the Codes of Good Practice published in terms of the Broad-Based Black Economic Empowerment Act should take precedence over the Mining Charter. The DMR on the other hand is of the opinion that the Mining Charter is a separate piece of legislation, and that the Codes have no bearing on the mining sector.

Soria concludes: “The declaratory order is hailed by commentators as providing much needed clarity in an uncertain regulatory environment. In fact, this development may even lead to greater uncertainty in the medium to long term. A strong mining industry requires a solid foundation. South Africa’s current mining policy and stakeholder relationships have created a frail industry which has become unnerving to investors.