On 4 April 2018, the High Court of South Africa (Gauteng Division, Pretoria) handed down its judgment in the matter between the Chamber of Mines of South Africa v Minister of Mineral Resources and Director-General, Department of Mineral Resources [case no.41661/2015], regarding the ‘once empowered, always empowered’ principle.
The application for declaratory relief was brought by agreement between the parties, namely the Chamber of Mines of South Africa and Minister of Mineral Resources and Director-General, Department of Mineral Resources in order to obtain certainty regarding the empowerment obligations of mining rights holders.
In other words a declaratory order was sought regarding whether past empowerment deals could be claimed by mining companies even after the disposal or dilution of the ‘historically disadvantaged South Africa’ (“HDSA”) ownership.
The so-called principle of ‘once empowered, always empowered’ refers to the situation where a mining company, after the exit of a Black partner that held a stake in the company consequent to a result of a Black Economic Empowerment (“BEE”) transaction, continues to be recognised as being BEE compliant in order to retain its mining rights, despite losing its black ownership due to such exit.
The matter was heard in November 2017 by a full bench of judges, which included Judge Mabuse, and Acting Judge Barrie and Judge Siwendu.
In the majority judgment delivered by Barrie AJ (with Mabuse J concurring), the Court found that empowerment deals in the mining sector need not be perpetually topped up.
The declaratory order issued by the Court in majority judgment recognises the continuing consequences of previous BEE ownership transactions – or more simply put – agrees to and acknowledges the ‘once empowered, always empowered’ principle.
The Court found that the charter contemplated in section 100 of the Mineral and Petroleum Resources Development Act, 2002 (“MPRDA”) finds application and legal significance in an indirect manner only, through application of the other sections of the MPRDA that refer to it.
While the Court did not hold that the‘Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry’, published in Government Gazette on 20 September 2010 (“2010 Charter”), was invalid, the majority judgment did appear to support this view.
The minority judgment of Siwendu J stands in contrast to the majority judgment, particularly on the issues of the ‘once empowered, always empowered’ principle and the binding effect of the charter.
Siwendu J found that the mining charter under the MPRDA is not a policy or guideline and that compliance with the mining charter is a statutory condition for the grant of a mining right or converted mining right. It is intended to apply to all mining right holders. A failure to comply with the Original Charter or the 2010 Charter will be a breach of the MPRDA as a breach of the Mining Charter will constitute a failure to meet the express objectives of the MPRDA and is subject to the provisions of section 47 of the MPRDA.
Siwendu J also found that the 26% HDSA ownership is a statutory condition for the grant of a mining right or converted mining right. Accordingly, Mining companies must continuously top up their BEE levels if they fell below 26%, as the statutory condition cannot be extricated from the mining right. It must be held through the life of the mining right.
Moreover, Siwendu found that 2010 Mining Charter does not apply retrospectively. It can only validly apply to mining rights issued after its promulgation. It cannot apply or bind mining rights issued or mining rights holders who were granted mining rights under the Original Charter.
The effect of the majority judgment is that a mining right holder would maintain the historical benefit of its HDSA ownership credentials notwithstanding that there has been a change in the ownership composition and structure because of the disposal or dilution of the HDSA ownership. In other words, the mining right holder has no obligation to “top-up” the reduction in the 26% HDSA ownership. Mining companies will still be deemed to be in compliance with transforming its ownership structure even if that company does not currently have the required level of HDSA ownership.