April 24, 2018 / 9:28 AM / a month ago

South Africa's mines minister to challenge court ruling on black ownership threshold

JOHANNESBURG (Reuters) - South Africa’s mines minister will appeal a court ruling that held that mining companies did not have to maintain at least 26 percent black ownership in perpetuity, the Department of Mineral Resources (DMR) said on Tuesday.

FILE PHOTO - African National Congress (ANC) Secretary General Gwede Mantashe gestures during a media briefing at Luthuli house, the ANC headquarters in Johannesburg, South Africa, May 29, 2017. REUTERS/Siphiwe Sibeko

The appeal will add a layer of uncertainty to a sector battered for years by depressed prices, soaring costs and opaque policies, and which had hoped that new mines minister Gwede Mantashe would quickly act to improve the investment climate.

Earlier in April a high court ruled in favor of a Chamber of Mines’ challenge to a government regulation which specifies that a black ownership target of 26 percent must be maintained throughout the life of the mine.

The ruling, in the form of a declaratory order, means mining companies in the world’s top platinum producer need only to make the 26 percent threshold once, and do not need to top up again if black shareholders decide to sell their stake.

The industry has said it cannot afford to continually top up its black ownership levels as such shares are often offered at a discount in complicated and costly transactions. Mining accounts for about 8 percent of South Africa’s GDP and is an important source of export revenue.

In a statement, the mines department said the judgment would hurt the policy of “economic transformation” - changing the ownership structure of the economy that was controlled by the white minority under apartheid.

It is a thorny topic in South Africa where wealth inequality remains high and ownership still largely concentrated in white hands more than two decades since apartheid ended.

The department said it had already approached the Supreme Court of Appeal (SCA).

“The judgment has dire implications for the economic transformation imperatives of the Constitution, the mining sector and South Africa at large. It further has the potential of extending regulatory and policy uncertainty,” the department said.

The Chamber of Mines said it respected the government’s right to appeal the ruling and that it would continue to negotiate outside of court with the mines department.

Peter Leon, a partner at law firm Herbert Smith Freehills who is not involved in the case but follows it, said the government’s appeal went against an earlier promise not do so in the interests of policy stability and risked spooking investors.

“Any appeal is unlikely to be heard by the Supreme Court of Appeal until early next year and any decision by that court is likely to be appealed in turn to the Constitutional Court,” Leon said.

The industry and the government have been negotiating the terms of a third version of a “Mining Charter,” which spells out various targets including black ownership requirements which companies must meet to maintain or secure mining licences.

Reporting by Mfuneko Toyana and Ed Stoddard; Editing by Peter Graff

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