Commentators have termed the proposal "creeping nationalisation".
"Local mining stocks, especially those without much of an empowerment stake, such as Anglo American have taken a knock.
"Most of the selling is coming from funds in London and the managers there are taking the leaked proposal to heart," a Johannesburg equities broker said.
"The U.K. investors are over-reacting to the proposal -- it still needs to be debated. South African investors are largely trading in sympathy with what is happening in London," he added.
Dow Jones Newswires reports an Anglo American spokesman saying "it's too early" to judge whether leaked plans by the South African government to carve a much bigger equity role for black investors in the mining industry is a setback.
"We are studying the proposals," said investor relations head Nick von Schirnding.
An Anglo official requesting anonymity said he's dismayed by the proposed equity grab.
"This could just be trade union talk where unions demand 100% wage increases and we end up settling on 8%," he said.
By 2.45pm Anglo American had lost 8.0% or 12.10 rand to 139.10 rand after falling to a year low of 124.00 rand earlier in the morning. BHP Billiton declined 1.35 rand or 2.9% to 45.65 rand, and Anglovaal Mining tumbled 1.15 rand or 2.8% to 40 rand.
The gold sector was also hit - Anglogold plunged 7% or 32.50 rand to 427.50 rand, Goldfields declined 8.7% or 9.80 rand to 103.30 rand and Harmony fell 10.8% or 14.00 rand to 115.99 rand.
Platinum shares fell too, with Anglo Platinum giving up 5.6%, or 20.10 rand, to 337.90 rand, Impala Platinum declined 2.2% or 11 rand to 487 rand and Northam Platinum dropped 5 cents to 16.20 rand.