Why Chamber’s Mining Charter bid could be futile

There are ample grounds on which to challenge the Mining Charter, but the Chamber of Mines’ intended legal attempt at securing a declaratory order on the "once-empowered, always-empowered" principle may have been overtaken by its latest iteration, lawyers say.

That came as ratings agency Moody’s warned the document would be credit negative for some of SA’s largest mining companies. Lawyers agree the third iteration of the charter is a shambolic document that could be contested on many legal fronts, but will meanwhile leave the industry in a stalemate where no deals will be done because of confusion and onerous conditions inherent in it.

The document, which came into effect last Thursday, outlines the obligations on mining companies to qualify for mining and prospecting rights.

The document cut JSE-listed mining stocks’ market capitalisation by R51bn last Thursday.

Moody’s joined fellow ratings agency Fitch in warning of the negative consequences of the charter. Not only would the requirement for mining companies to top up their black ownership levels to 30% from the 26% target set for the end of 2014 be problematic, but the cost implications of the charter would have consequences for all mining companies because of reduced cash flows.

The need to raise empowerment ownership within 12 months "is credit negative because it will likely require miners to use cash or raise debt to facilitate the equity transfer. We expect that current shareholders are unlikely to support a further dilution of their equity interests," Moody’s said.

At a seminar on the charter on Wednesday, lawyers at Fasken Martineau were openly divided on the issue.

While some argued mining companies should immediately approach the courts to oppose the charter and protect their rights, others said to wait until the Mineral Resources Department acted on existing mining rights under the new charter before launching legal action.

Lawyer after lawyer at the seminar pointed out legal problems with the charter, pointing to constitutional violations, vagaries in poorly drafted clauses and contravention of the Companies Act.

Mineral Resources Minister Mosebenzi Zwane and his department had also exceeded the powers provided to them in the Mineral and Petroleum Resources Development Act by positioning the policy document as a regulatory document that could be used to penalise mining companies, they said.

While the charter was in force there would be no more deals in the mining industry, said Fasken Martineau’s Andrew Mitchell. The chamber was preparing to interdict the charter, meaning it would be suspended and the industry would return to the second iteration of the charter that has been in effect since 2010.

The industry would then try to conclude whatever deals it may have had planned. But Zwane, in his role as administrator, could decline to process them, said Fasken Martineau lawyer Nick Roodt.

All the company’s lawyers agreed the seeking of a declaratory order that historical deals should count towards empowerment credits may have been overtaken by the new charter.

The chamber claimed its members had achieved an average 38% ownership level, using credits accruing from past deals, including those in which previous empowerment partners had sold their shares. The declaratory order was important to secure, but Roodt said they had left the action too late.