15 Sep 2015

Ensuring BEE Compliance

Practice Area(s): Mining, Minerals & Energy |

By The Mining, Minerals & Energy Team

The Department of Mineral Resources is doubling down on compliance with the BEE Mining Charter, and it is important for applicants and holders of mineral rights to ensure compliance with the Mining Charter.

One of the essential objectives set out in the Mining Charter is for mining companies to achieve a minimum target of 26 percent ownership to enable meaningful economic participation of Historically Disadvantaged Persons (HDSAs) by 2014.

The Mining Charter includes a definition of "meaningful economic participation", and the following points, taken from this definition, should be borne in mind:

  1. Applicants for Mining Rights have the obligation to demonstrate why the granting of the Mining Right would further the objects of inter alia the Mining Charter. 
  1. The Charter requires that "some" cash flow should flow to the HDSA partner, which means that the parties to the HDSA agreement should structure the agreement so that cash flow, such as dividends, is not all used to pay back a loan which may be required to finance the transaction (and that some of this cash flows directly to the HDSA partner).
  1. Having said this, it is important to note however, that:
  1. the requirement that some of the cash flow goes directly to the HDSA partner is qualified by the words "barring any unfavourable market conditions";
  1. the Charter should be used as a guide only, and there may be other ways in which an applicant for a Mining Right may undertake to enable meaningful economic participation of HDSAs.
  1. Further, once a Mining Right has been granted, the Minister should already have satisfied himself that the granting of the Mining Right will further the objects of inter alia the Mining Charter. 
  1. This means that, once a Mining Right has been granted, there would, accordingly, be little room for the Minister to allege non-compliance with the Charter where the holder is able to demonstrate that it has consistently complied with the provisions of the HDSA agreement (which was approved at the time the Mining Right was granted), and that the provisions of the HDSA agreement continue to be enforced to the advantage of the HDSAs.

 

Share this article