Compliance Requirements for OEMs in South African Mining Industry
OEMs in the South African mining industry are not directly obligated by Element 2.2 of the Mining Charter 3, but they must meet specific BEE compliance and local manufacturing criteria to supply goods and services to mining clients. The charter emphasizes procurement from BEE Compliant Manufacturing Companies and sets targets for sourcing South African Manufactured Goods. Compliance is crucial for mining goods procurement to support black empowerment and local economic development.
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REVIEWED BROAD-BASED BLACK ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING AND MINERALS INDUSTRY, 2016 ("MINING CHARTER 3") PRESENTATION PREPARED FOR SAIMM RESPONSIBILITIES PLACED ON OEMs AND SERVICE PROVIDERS PRESENTED BY WARREN BEECH Partner and Global Head of Mining Hogan Lovells (South Africa) Inc.
DOES ELEMENT 2.2 PROCUREMENT, SUPPLIER AND ENTERPRISE DEVELOPMENT APPLY TO AN OEM? Element 2.2 does not, directly place obligations on an OEM / manufacturer / supplier to the mining industry. However in order for an OEM to manufacture and supply to its mining clients and provide services , the OEM will need to meet the requirements including being a BEE Compliant Manufacturing Company and a South African Based Company. A BEE Compliant Manufacturing Company in relation to procurement means a company that manufactures goods and has a minimum BEE Level 4 of the DTI Codes and a minimum of 26% Black Ownership A South African Based Company is a company incorporated in the Republic of South Africa in terms of the Companies Act and which has offices in the Republic of South Africa Mining clients of an OEM are required to identify all goods and services that will be required in their operations and must ensure that their procurement policies adhere to the criteria set out in element 2.2 regarding (a) mining goods, and (b) services Hogan Lovells | 2
MINING GOODS A mining client of an OEM must spend a minimum of 70% of total mining goods procurement spend on South Africa Manufactured Goods South African Manufactured Goods are goods where at least 60% of the value added during the assembly and/or manufacturing of the product is realised within the borders of the Republic of South Africa (the calculation of value add for the purposes of the definition excludes profit mark up, intangible value such as brand value, and overheads) The 70% procurement spend for mining goods is broken down to ensure that procurement takes place from Black owned companies, female Black person, youth owned and controlled companies, and BEE Compliant Manufacturing Companies If an OEM is a BEE Compliant Manufacturing Company then it falls within the 44% total mining goods procurement spend that must be set aside for sourcing South African Manufactured Goods from BEE Compliant Manufacturing Companies An OEM must meet two requirements (a) it must supply South African Manufactured Goods, and (b) it must be a BEE Compliant Manufacturing Company If an OEM does not meet these requirements it can only supply to its mining clients as part of the 30% mining goods which do not fall within the requirements of Element 2.2 An OEM can potentially supply up to 74% of a mining client's total mining goods procurement spend through (a) the 30% non designated mining goods and (b) 44% if its products are South African Manufactured Goods, and it is a BEE Compliant Manufacturing Company Hogan Lovells | 3
MINING SERVICES Although the wording is different between the provisions relating to mining goods and services, a Service Provider's mining clients must source a minimum of 80% of total spend on services from South African Based Companies As with mining goods, the 80% of total spend, is broken down into three categories. A minimum of 65% of the total spend must be sourced from Black Owned Companies. A minimum of 10% of the total spend on services must be sources from Black Owned Companies with a minimum of 50% plus 1 vote female Black Person owned and controlled companies. A minimum of 5% of the total spend on services must be sourced from Black Owned Companies with a minimum of 50% plus 1 vote youth owned and controlled companies. Hogan Lovells | 4
VERIFICATION OF LOCAL CONTENT An OEM's mining clients must, when submitting the Annual Mining Charter Report, provide proof of local content for goods and services in the form of certification from the South Africa Bureau of Standards The responsibility to verify local content lies with the supplier of goods and/or services. This responsibility is therefore on an OEM / Service Provider, when providing any goods or services Hogan Lovells | 5
CONTRIBUTION BY FOREIGN SUPPLIERS A Foreign Supplier is a foreign controlled and registered company supplying the South African mining and minerals industry with mining goods and services which does not (a) have at least a level 4 DTI Codes BEE status and (b) 25% plus 1 vote Black Ownership The reference to "Black Ownership" is not a defined term in this definition "Black Owned Company" is defined as a juristic person having shareholding or a similar interest that is controlled by a Black Person(s) and in which such Black Person(s) enjoy a right to economic interest that is at least 50% plus 1 of the total shareholding "Black Person" is defined to mean African, Coloureds and Indians (a) who are citizens of the Republic of South Africa by birth or decent, or (b) who became citizens of South Africa by naturalisation over the defined periods, and (c) a juristic person which is managed and controlled by persons contemplated in paragraphs (a) and/or (b) and the persons collectively or as a group own and control all issued share capital or members interest and are able to control the majority of the members vote In combination the definitions suggest that the 25% plus 1 Black Ownership is complied with if 25% plus 1 of the ownership is held by a Black Owned Company or a Black Person A qualifying Foreign Supplier must contribute a minimum of 1% of its annual turnover generated from local mining companies towards the Mining Transformation and Development Agency It is not clear whether the reference to local mining companies would be the mining clients of an OEM or whether this means a South African subsidiary of an OEM Hogan Lovells | 6
