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The Mining Charter and what it means for taxpayers

On 15 June 2017, a very contentious Mining Charter 2017[1] was released. The main objectives of the charter are listed as inter alia  –

  • the right of the State to exercise sovereignty over all the mineral rights within the Republic,
  • deracialising of ownership of the mining and minerals industry by redressing the imbalances of the past injustices,
  • expanding opportunities for Black Persons to enter the mining and minerals industry and to benefit from minerals resources,
  • advancing employment,
  • enhancement of social and economic welfare of mine communities etc.

Historically, a minimum black shareholding of 26% was required. The 2017 Mining Charter now requires holders of new prospecting rights to hold a minimum of 50% +1 black person shareholding, which shall include voting rights in the company holding the prospecting rights. Similarly, the holder of a new mining right must now have a minimum of 30% black person shareholding[2] with equal voting rights in the company holding the mining right. There is a further requirement in how the 30% black person shareholding must be held:

  • minimum of 8% must be held by ESOPs[3];
  • minimum of 8% must be issued to mine communities in the form of a community trust; and
  • a minimum of 14% must be issued to mine entrepreneurs.

Certain vesting requirements are also stipulated with regards to the 30% black person shareholding, which vesting shall be paid from the proceeds of dividends.

The holder of a new mining right is also required to pay 1% of its annual turnover in any financial year to the black person shareholders, prior to and over and above the distributions to the other shareholders.

Holders of existing mining rights are required to increase the black person shareholding to 30% within a 12 month transitional period. The breakdown requirements as noted above for new rights are not required in this instance.

It is also provided that where a holder of rights sells its mining assets, Black Owned Companies must be given a preferential option to purchase.

There are certain specific requirements that must be met with regards to mineral beneficiation and cases where offsetting may be claimed.

With regards to procurement, supplier and enterprise development, specific requirements are enacted as to be spent by a rights holder.

A rights holder must also contribute towards mine Community development in terms of its approved Social and Labour Plan (“SLP”).

The above clearly means that the mining industry will be undergoing some drastic restructuring within the next 12 months in order to meet the onerous requirements of the 2017 Mining Charter.

This will most certainly leave mining right holders with a number of tax issues for considerations, which may include –

  • Restructuring existing and new operations will have tax implications for all parties including the specific vehicles that are to be used as prescribed;
  • Funding structures being used will most likely have specific tax matters for consideration;
  • Tax consequences of mining rights being held in separate entities, including the impact on claiming contributions to rehabilitation trust funds, section 36 capital expenditure etc.;
  • Tax consequences typically associated with ESOPs and trusts being used;
  • Security Transfer Taxes;
  • Tax deductibility of costs incurred in order to restructure existing shareholdings to meet the new black person shareholding requirements;
  • Tax deductibility of SLP costs etc.

It will be critical to consider these upfront prior to finalising the new structure in order to avoid unintended and unexpected costs for all parties.

For more information, please contact:

AdeleAdele De Jager CA(SA)
Director and Head of Mining Tax
M:+27 (0)82 719 5503
E: adele.dejager@kpmg.co.za

 

 

 

[1] Broad-Based Black Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry, 2017

[2] Entities to be separate from the mining right holder.

[3] Employee Share Option Plans

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Femi Oke

About Femi Oke

Relentless passion for creativity and digital acumen to help a professional services firm thrive in the digital space. Femi is an individual with a rich experience on regional African knowledge, its diverse business culture and he understands the continent’s economic drive. He thrives on selfless service and lasting mutually beneficial relationships with colleagues and especially clients encountered in the course of his duties. He is creative, practical and self-motivated with business judgement in corporate, brand and strategic communications, social, digital & traditional media and executive profiling. Roles in the firm include New Media, Digital Communication, Corporate Communication, executive profiling and Brand Management execution. Working on the multi-million dollar Africa high growth market project stands out for femi; besides this, managing all KPMG’s digital communication for the World Economic Forum on Africa is another project that gives him great delight. Femi holds a Masters Degree in Global Marketing from the University of Liverpool.

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