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Mining Charter:

policy certainty, but at what cost?

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Christiaan Bothma

Investment Analyst

The increased policy certainty brought about by Mineral Resources Minister Gwede Mantashe’s release of the final version of the Mining Charter last month is certainly a positive development for long-term investment in the industry – in contrast to the prevailing sentiment a year ago. However, we remain concerned about some of the requirements contained in the charter, as well as the longer term impact of continually raising the bar for transformation targets.

Since we last wrote about South Africa’s controversial new Mining Charter (Mining Charter 3) in April, Minister Mantashe has not been dragging his feet. In June, he issued a draft charter for comment, which has now been further revised into a final version published in the Government Gazette in late September.

The highlights of the new mining charter are:

Existing mining right holders

  1. Existing holders aren’t required to top up BEE shareholding beyond the 26% already achieved under the previous version of the charter (Mining Charter 2). In our view, this is an improvement on June’s draft charter, which stipulated that shareholding needed to be topped up to 30% within five years.
  2. ‘Once empowered, always empowered’ holds for existing mining rights, but won’t be transferable to new mining rights or for the renewal of an existing right. This is a key negative for us, as it effectively requires companies to re-empower themselves whenever they apply for renewal of their mining rights.

New mining right holders

  1. New holders need to have a minimum of 30% BEE shareholding, which must consist of 5% to qualifying employees, 5% to host communities and 20% to a qualifying BEE entrepreneur.
  2. A controversial clause in the draft charter, which stated that 1% of earnings before interest, tax, depreciation and amortisation (EBITDA) needs to be paid to BEE shareholders, has been scrapped.

All mining right holders

  1. A mining right holder will be compliant with the charter when a BEE shareholder disposes of their shares, provided the right holder is compliant at the time of disposal, the BEE shareholder has held the shares for at least a third of the duration of the mining right, and unencumbered net value has been realised for shareholders.
  2. A minimum of 70% of total mining goods (compared to 40% in Mining Charter 2) must be spent on South African manufactured goods, of which 21% must be from a company controlled by a historically disadvantaged person, 5% from a company owned by women or youth, and 44% from a BEE-compliant company.
  3. A minimum of 80% of total services (70% in Mining Charter 2) must be sourced from a South African-based company, of which 50% must be from a company controlled by a historically disadvantaged person, 15% from women-controlled companies, 5% from youth-controlled companies, and 10% from a BEE-compliant company.
  4. In terms of board and management representation:
  • The board and executive management must consist of 50% historically disadvantaged persons (40% in Mining Charter 2), of which 20% must be women
  • Senior and middle management – 60% historically disadvantaged persons (40% in Mining Charter 2), of which 25% must be women
  • Junior management – 70% historically disadvantaged persons (40% in Mining Charter 2), of which 30% must be women
  1. Exploration entities with prospecting rights are no longer required to be empowered (50+1% in a previous version of the charter). This is good news as it’s likely to encourage exploration by large mining companies.


The Minerals Council of South Africa (the former Chamber of Mines), has welcomed the latest iteration of the Mining Charter. The council has acknowledged that it represents a compromise between promoting competitiveness on the one hand, and increasing transformation on the other, and that it needs to balance the requirements of various stakeholders – labour, host communities, government and business.

As was expected, the council has welcomed the removal of ownership targets for existing mining right holders (point 1), the scrapping of the 1% EBITDA trickle-down dividend to BEE shareholders (point 4) and the scrapping of the requirements for prospecting rights (point 9).

However, it’s expressed concern about the ‘once empowered, always empowered’ clause, which doesn’t apply to renewed mining rights (point 2), the limited applicability of past transactions in the case of the disposal of shares by a BEE shareholder (point 5), and the feasibility of the mining goods and services procurement clauses (point 6 and 7).


The latest version of the Mining Charter is certainly likely to boost policy certainty. Despite increased transformation requirements, mining companies can now evaluate potential investments with an improved information set. In addition, existing mining right holders have limited additional requirements to abide by. This is good news for the mining companies we hold in our portfolio.

However, we remain concerned about some of the requirements new mining right holders have to meet and the fact that a renewed mining right will be treated in the same way as a new right. South Africa still has relatively plentiful mineral resources: precious metals (platinum group metals, diamonds and gold), ferrous metals (iron ore, manganese and chrome) and coal. However, our resources have to compete with other global options for the business of large mining companies. The onerous transformation targets in the Mining Charter make the required returns on these investments higher, which means other jurisdictions may in many cases prove more attractive.

So in a nutshell, the increased policy certainty introduced by the new Mining Charter is without a doubt a positive development for the industry – compared to the huge uncertainty that prevailed a year ago.

But if we take a step back and evaluate its longer term impact – especially the consequences of continually raising the bar for transformation targets, it’s difficult to see sustained growth over time in an industry which – as an investment jurisdiction – has to compete on the global stage.

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