Contributed By Bowmans
South Africa is inter alia renowned for being a resource-rich country. South Africa's wealth has been built on its vast resources and the mining industry is therefore crucial. But in the last few years, the South African minerals' industry experienced a few challenges, some of which are discussed below. The South African mining industry is resilient. Despite the challenging times, the South African economy continues to rely on the mining industry. For example, the South African Minerals Council reports that, in 2018 the mining sector contributed ZAR351 billion to the South African gross domestic product and employed a total of 456,438 people.
The major mining sectors in South Africa are gold, platinum, diamonds and coal. In addition to these four major minerals, a substantial variety of other minerals are extracted, including iron ore, copper, nickel, diamonds, coal, building materials and other non-metallic minerals.
The country has some of the most highly developed primary processing facilities worldwide, covering the carbon steel, stainless steel, and aluminium industries, in addition to gold and platinum. It is also a world leader in new technologies.
Just like most mining jurisdictions, the South African minerals industry does experience commodity booms and/or suffer from price fluctuations due to shifts in world demand for mining products and, presently, labour unrest and some degree of regulatory uncertainty. On the topic of regulatory uncertainties, it must, however, be mentioned that South Africa has seen some improvements. For example, according to the 2018 Fraser Institute, South Africa’s Policy Perception Index score increased in 2018 (56th out of 83 jurisdictions), compared to 2017 when South Africa scored 42.66 (81st out of 91 jurisdictions).
South Africa’s mineral resource exploitation is regulated by both statute and common law. The Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA) is the primary regulatory framework legislation. The MPRDA specifically directs that, where there is a conflict between the MPRDA and common law, the MPRDA will prevail. However, the MPRDA does not nullify the common law. Therefore, the common law principles must be considered in interpreting the MPRDA where there is no conflict between the MPRDA and common law. Common law principles must be considered, especially in those circumstances where the MPRDA does not contain provisions on mineral resource issues.
Other Acts regulating the mining industry include (amongst others):
South Africa’s mineral resources belong to the nation and the State is the custodian of the mineral resources for the benefit of all South Africans. The MPRDA abolished private ownership of the mineral rights. Consequently, owners of surface rights (ie, landowners) do not hold rights to any minerals found on their properties, unless an application to the state for the exploration or mining of such rights is made in terms of the MPRDA. The surface right owners are, however, required to be meaningfully consulted prior to the grant of a mining right over the affected area. Anyone who wishes to acquire a mineral right must apply for that right to the Minister, who will grant it if the prescribed requirements are satisfied.
Mineral rights are commonly granted to private parties, and acquired on a first-come, first-served basis, unless there is an existing prior right. In the past, there were proposals to do away with the first-served basis and move towards an auction process. These proposals have recently been withdrawn and may be resuscitated in due course.
In terms of section 5 of the MPRDA, a mineral right is only a limited real right once the right has been registered by the Mineral and Petroleum Titles Registration office. Among others, section 5 of the MPRDA empowers a holder of a mineral right and its employees to:
It should, however, be mentioned that the rights created by section 5 of the MPRDA are subject to a few exceptions and qualifications. One such exception is that the holder of a right granted in terms of the MPRDA may have to compensate the landowner or lawful occupier of the land in question in terms of section 54 of the MPRDA. Should a landowner or lawful occupier and a right holder disagree about the access to the land, section 54 of the MPRDA provides for a detailed dispute resolution mechanism that the mining right holder and surface right holder have to follow. The purpose of section 54 is not for landowners/lawful occupiers to make unreasonable demands in return for access to the land, but rather to provide financial protection against loss or damage which may occur as a result of the operations pursuant to the right granted in terms of the MPRDA.
It has recently been confirmed that section 54 of the MPRDA constitutes an internal remedy which must be finalised prior to seeking reprieve in the form of an interdict (interdicting the landowner/lawful occupier from restricting access) by the courts. This is unless there are special circumstances to allow an approach to a court of law before exhausting this internal remedy. For example, where there is evidence of the landowner purposefully undermining the section 54 process or being hell-bent on refusing the mineral right-holder access to commence its operations.
Largely, the state currently plays a passive role of a regulator in the mining industry. The state, through the Department of Mineral Resources and Energy (DMRE), is the regulatory body that grants mining and exploration rights and permits and related environmental authorisations.
However, the State looks set to play an increasing role in the mining sector in future and there has been some indication of this interest by the State in some transactions. A further step aimed at increasing State participation in the industry was the recent publication of the draft African Exploration Mining and Finance Corporation (AEMFC) Bill (the Bill). The Bill, inter alia, seeks to provide AEMFC (an existing State Owned Company) as the only company to acquire and develop permits, rights (prospecting and/mining) and any other interest granted to the company in terms of the MPRDA on behalf of the State. The Bill is light on the detail. It largely provides for the institutional arrangements and the Bill has remained dormant for three years now.
More recently (towards the end of 2018), there were murmurings of a strategic stake to be held by the State in mining companies, possibly through the State mining company. This was contained in a draft of the MPRDA Bill which has been in circulation for few years and which was withdrawn at the end of 2018. In terms of this draft, the State’s interest was proposed in respect of oil and gas rights rather than mining rights. Some commentators argued that the State’s strategic equity would be preferable to the entirely private-sector black-ownership model, given the difficulties in maintaining black ownership long term, the funding difficulties many black economic empowerment transactions found themselves in during the past eight years and the fact that black shareholders end up being inhibited from realising value in their investment by long-term lock-ups. The dormant Bill is, however, silent on these issues.
As mentioned above, the principal law that regulates the mining industry is the MPRDA, and consequently mineral rights derive from a statute. Mineral rights granted in terms of the MPRDA only become a limited real right upon registration (ie, it is only upon registration that the right is enforceable against third parties). Registration of a mining right is the best proof of ownership. Mineral rights also qualify as property because they cannot be arbitrarily withdrawn. The mineral rights can only be withdrawn for permissible reasons and only after following due process. For example, the Minister may cancel or suspend any mining right if the holder fails to comply with the terms and conditions of the right. Before suspension or cancellation is effected, the holder will be given an opportunity to make representations on why the relevant right should not be suspended or cancelled.
As the custodian of minerals, only the State can authorise exploitation of mineral resources, and in terms of the MPRDA, complete authority vests in the Minister to “grant, issue, control, administer and manage” inter alia any reconnaissance permission, prospecting right, mining right, mining permit and retention permit. The Minister is required to grant mineral rights to any person who lodges the application in the prescribed manner and satisfies the applicable requirements.
In the main, the applicable requirements include providing proof that:
The Minister is also responsible for granting of environmental authorisations required for prospecting and mining activities. Once the Minister grants the environmental authorisation, the Minister of Environment, Forestry and Fisheries becomes the appellate authority for the decisions relating to granting or refusal of the environmental authorisation and this often creates overlapping jurisdiction because the Minister of Environment, Forestry and Fisheries often goes beyond considering whether the environmental authorisation should have been granted or not and consider the desirability of mining itself.
In addition to the Minister of Mineral Resources and Minister of Environmental Affairs, other authorities which are involved include local authorities (responsible for granting land use consents or re-zoning of the mining area) and water authorities for water use licences.
One of the objectives of the MPRDA is to provide for security of tenure in respect of prospecting, exploration, mining and production operations. The MPRDA security of tenure provisions are largely consistent with international investor requirements and with comparative provisions in international mining codes.
All mineral rights are granted for a definitive period and may be renewed for a defined period if the renewal requirements are met. For example, a prospecting right is valid for a period specified in the right, which may not exceed five years. A prospecting right may be renewed once for a maximum period of three years. A mining right is valid for the period specified in the right, which may not exceed 30 years. A mining right may also be renewed for further periods, each of which may not exceed 30 years.
In terms of the MPRDA, the Minister must grant a renewal of an exploration, prospecting and mining right if the applicant complies with the requirements of the MPRDA and the holder, among other things, has complied with the terms and conditions of the respective right and is not in contravention of any relevant provision of the MPRDA.
A mining right or prospecting right or any interest in such a right or a controlling interest (directly or indirectly) in a company that holds a mining or prospecting right may not be transferred, ceded, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister. This written consent is, however, not required in the case of a change in the controlling interest in a listed company. There are proposals to remove these exemptions, but they are not expected to be implemented any time soon, if at all.
As mentioned above, mineral rights or permits granted in terms of the MPRDA may be cancelled or suspended if mineral operations are conducted in contravention with the MPRDA, if any material terms of a right or permit are breached, if operations are conducted in a manner not in accordance with any environmental authorisation, or if fraudulent, false, incorrect or misleading information is submitted to the DMRE. However, prior to the cancellation or suspension being effective, the DMRE is required to give written notice to the holder, setting out the reasons for the considered suspension or cancellation, and afford the holder a reasonable opportunity to show why the permit or right should not be suspended or cancelled. The DMRE must direct the holder to take specified measures to remedy any contravention. If such directives are not complied with, the Minister may suspend or cancel the permit or right.
The principal environmental laws applicable to the mining industry include:
The key environmental regulatory bodies are the Department of Environmental, Forestry and Fisheries (DEFF) and the Department of Water and Sanitation (DWS).
Timing for obtaining an environmental authorisation in terms of NEMA, the Air Quality Act and the Waste Act, depends on whether the granting of the authorisation is required to be preceded by an environmental impact assessment (longer process) or a basic assessment report process (shorter process). Timeframes may range between six months to a year on average. Timing for water use licences is usually much longer, due to a backlog in granting these licences. As a result, the environmental legislation does provide for these licences to be applied for on an integrated basis. This mechanism has not yet been extensively tested.
The environmental authorisations, permits or licences are transferable with the consent of or notice to the relevant authority. In other instances, the successor-in-title may just give notice of change of ownership to the relevant authority.
From a South African context, there are a number of pieces of national and provincial legislation under which properties may be declared or given a particular protected status. For example, the MPRDA itself places a restriction or prohibition of prospecting and mining on certain land. In this regard, the MPRDA, no mineral rights may be issued over any land "reserved under any other law". Notwithstanding the foregoing, this section does not create an absolute restriction and mineral rights may be issued in a protected area if the Minister is satisfied that a specified exclusion applies or that the applicant will comply with the applicable standards. In the event that these specified exclusions are not applicable or the applicant provides no example of its ability to comply with the applicable standards, the MPRDA prohibits the issuing of a mineral right over land that is reserved under another law. Other laws referred to here would include legislation such as the National Environmental Management Protected Areas Act No. 57 of 2003 (Protected Areas Act) which prohibits prospecting for minerals or mining within protected areas. The provisions of this legislation have been considered in a few cases, which include Mpumalanga Tourism and Parks Agency and Another v Baberton Mines (Pty) Ltd 2017 (5) SA 62 (SA) and Atha-Africa Ventures (Pty) Limited v Mining and Environmental Justice Community Network and others (not yet reported). In the latter case, which was decided by the Constitutional Court in November 2019, the Court dismissed the leave to appeal as it has no prospect of success. The result is that the High Court decision in Mining and Environmental Justice Community Network and others v Minister of Environmental Affairs  1 All SA 491 (GP) stands. In this case, the High Court reviewed and set aside the decisions of the Minister of Environmental Affairs and the Minister of Mineral Resources to permit coalmining activities in a protected wetlands area. The Court reasoned that the provision in the Protected Areas Act which prohibits mining within a mining area should be understood to mean:
“Despite the fact that a person may have obtained all the necessary authorisations required in terms of all other applicable statutory provisions in order to lawfully conduct mining activities on a certain portion of land, should that land fall within a protected environment as contemplated in [the Protected Areas Act], then such a person would, in addition, need to obtain the written permission of both the Ministers of Environmental Affairs and Mineral Resources to do so. In considering a request for such permission, the ministers shall act as custodians of such protected environment and with a strict measure of scrutiny take into account the interests of local communities and the environmental principles referred to in Section 2 of NEMA.”
The MPRDA has detailed requirements relating to communities. Among others, the relevant MPRDA provisions include the objectives of the MPRDA that relate to promotion of employment and advancement of the socio-economic welfare of all South Africans, and the need to ensure that the mining rights-holders contribute towards the socio-economic development of the areas in which they are operating. These objectives are operationalised through the ownership requirements imposed by the Broad-Based Black Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry published in terms of section 100 of the MPRDA (Mining Charter III) and various requirements relating to social labour plans which deal with human resources' development and local economic development programmes.
In addition to the above, the MPRDA requires that, if the prospecting or mining right application relates to land occupied by a community, the Minister may impose whatever conditions necessary to promote the rights and interests of the community, including conditions requiring the participation of the community.
The MPRDA has a number of provisions requiring consultation of interested and affected parties (which includes communities) before and after the mining right. Among others, upon acceptance of the application for a prospecting or mining right, the relevant DMRE officials are required to notify the applicant to consult in the prescribed manner with the landowner, lawful occupier and any interested and affected party. The Regulations in terms of the MPRDA define an “interested and affected person” as a natural or juristic person or an association of persons with a direct interest in the proposed or existing operation or who may be affected by the proposed or existing operation. By definition, the community is an interested and affected party.
Guideline for Consultation with Communities and Interested and Affected Parties (Guideline) previously published by the DMRE defined “consultation” as a two-way communication process between the applicant and the community or interested and affected party wherein the former is seeking, listening to and considering the latter’s response, which allows openness in the decision making process.
Furthermore, in terms of the Guideline, the rationale for consultation is as follows:
“The purpose of the consultation with the landowner, affected parties and communities is to provide them with the necessary information about the proposed prospecting or mining project so that they can make an informed decision, and to see whether some accommodation with them is possible insofar as the interference with their rights to use the affected properties is concerned. Consultation under the Act’s provisions requires engaging in good faith to attempt to reach such accommodation”.
It is clear from the foregoing that consultation must be meaningful (ie, the applicant must in good faith engage the landowner, lawful occupier or interested and affected party in respect of the land subject to the application about the impact the prospecting or mining activities would have to his or her right of use of the land by availing all the information pertaining to the proposed activities enabling these parties to make an informed decision regarding the impact of the proposed activities).
On a number of occasions, the courts have reviewed and set aside a decision to grant mining rights on account of the applicant’s failure to consult the interested and affected parties or communities in a meaningful way. For example, see Meepo v Kotze and others 2008 (1) SA 104 (NC) and Bengwenyama Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and Others 2011 (4) SA 113 (CC).
More recently, the issue of meaningful consultation was considered in Baleni and Others v Minister of Mineral Resources and Others Case  1 All SA 358 (GP) (Xolobeni) where the court found that the Minister of Mineral Resources had no lawful authority to grant a mining right to the applicant company to mine on communal land without the “full and informed” consent of the community concerned. Also, see the decision of the Constitutional Court in Maledu and Others v Itereleng Bakgatla Mineral Resources (Pty) Limited and Another 2019 (2) SA 1 (CC) (25 October 2018).
Broad-based black economic empowerment (B-BBEE) is a central part of the South African government’s economic transformation strategy. To this end, one of the MPRDA’s objectives is substantially and meaningfully to expand opportunities for historically disadvantaged persons (HDPs) (ie, any person, category of persons or community, disadvantaged by unfair discrimination before the Constitution of the Republic of South Africa took effect), including women, to enter the mineral and petroleum industries and benefit from the exploitation of South Africa’s mineral and petroleum resources.
In order to give effect to the above objective, the MPRDA provides for a B-BBEE regime which incorporates Mining Charter III, which is presently the main regulatory instrument for B-BBEE in the mining context.
Mining Charter III replaces all previous iterations of the Mining Charter, including the 2010 Mining Charter which was applicable until 27 September 2018 when the Mining Charter III became applicable. The 2010 Mining Charter required that, from 2014 the mining companies should be 26% owned by HDPs. This requirement was generally enforced during licensing or any subsequent regulatory approval processes involving granting, transfer or amendment of rights.
Mining Charter III distinguishes between the ownership requirements that apply to holders of a mining right granted prior to the commencement of Mining Charter III, those that apply to renewal of a mining right, and those that apply to obtaining new mining rights. In this regard:
To give effect to the above requirements, most mining rights are endorsed with an obligation to adhere to the empowerment structure contained in the mining right application and endorsed in the mining right. Any change to this shareholding would require ministerial approval.
The MPRDA has detailed requirements for social responsibility that are imposed on mining companies. The primary instrument that is used to enforce social responsibility is the requirement that, as part of an application for a mining right, an applicant must submit a social and labour plan for approval by the DMRE. Mining right holders must undertake to invest sizeable amounts in various programmes and projects for the upliftment of its employees and the local community. These include the following:
Compliance with an approved social and labour plan is a material term and condition of a mining right. Failure to comply may result in suspension or cancellation of the relevant mining right. Contents of an approved social and labour plan may not be altered without ministerial consent.
In addition to the ownership requirement, Mining Charter III also contains several elements which a mining right holder is required to comply with. These elements include (i) the requirement to identify all goods and services that will be required in its operations and which can be procured from HDPs, including local communities, and (ii) the requirement that a holder must contribute meaningfully to mine community development, with a bias towards mine communities both in terms of impact and size, and in keeping with the principles of the social licence to operate.
A holder of a mining right is required to report annually on attainment of these requirements and all other elements of the Mining Charter III.
Good community relations are underpinned by meaningful consultation and transparency. If it is envisaged that the targets contained in an approved social and labour plan are going to be missed, it is important to consult communities and authorities and take them into one's confidence regarding the remedial or catch-up plan, instead of communicating after the fact.
In developing and implementing mining projects, it is essential that the concerns of community must be genuinely taken into account. This includes implementing community development projects which are informed by a thorough needs analysis and aligned to the respective municipalities’ integrated development plans. Recognising the importance of this, the Mineral Council of South Africa (MCSA) has recently launched a voluntary initiative to make social and labour plans publicly available on a portal accessible on the MCSA’s website (can be accessed at https://www.mineralscouncil.org.za/sa-mining/slps).
The converse is true of bad community relations. Lack of transparency, selective consultation and perceived non-compliance with the approved social and labour plan often lead to bad community relations. These factors are increasingly resulting in litigation with mixed success rate. For example, in the previously mentioned mining case, in which the Xolobeni community resisted efforts of a mining company to mine their ecologically pristine area on the Wild Coast, determined that "free, prior and informed consent" from a community (as defined in the Interim Protection of Informal Land Rights Act 31 of 1996) was required before the Department of Mineral Resources (DMR) could grant rights to mine on the community land. Another example of community action arising from soured community relations can be seen in the 2019 judgment of Mining Forum of South Africa and Another v Minister of Mineral Resources and Others. In this case, the Mining Forum of South Africa (the Mining Forum), a registered non-profit organisation, was appointed by the Bapo-Ba-Mogale Traditional Council to represent the interests of its communities in relation to compliance with the social and labour plan commitments submitted by all mines operating in the land of the Bapo-Ba-Mogale tribe. The Mining Forum brought an application requesting an order declaring, inter alia, that the Minister of Mineral Resources acted in breach of his statutory duty in terms of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) by failing to act against Lonmin, a mining company, for its failure to implement its social and labour plan commitments over the period 2013-2017. The Mining Forum requested the suspension of Lonmin’s mining rights. This court application was dismissed. However, it evidences the growing risk of community dissatisfaction and disputes.
Mining companies are increasingly implementing measures which are aimed at ensuring that in the short term they are resilient to the impacts of climate change and in the long-term transition to low carbon. In addition to this, there is a rise in the push towards “socially-conscious” investing. To this end, pension funds and civil society organisations are increasingly making use of shareholder rights as a tool to promote greater corporate accountability and transparency, particularly in the area of climate change-related risks. Among others, they are demanding greater disclosure of the company’s climate-related risks and are demanding move away from funding or investing in fossil fuel industry. As a result, there is quite a focus on coal mining.
There is no climate change legislation which is just focusing or mining. There is, however, various current and proposed legislation which is aimed at reducing the country’s overall carbon footprint and these have an impact on the minerals industry. These include the:
On future legislation, there is a Climate Change Bill which was first published in 2018 for comment. The initial comment period has since closed, and a second draft of the Climate Change Bill is anticipated soon. The Climate Change Bill aims to build South Africa's effective climate change response and in the long term, transition to a climate resilient and lower carbon economy. The Climate Change Bill proposed a plethora of institutions to give effect to this objective and did not contain real substantive provisions regarding the specific provisions to reduce greenhouse gas emissions at a national level. As a result, the Climate Change Bill was criticised for being too vague to ensure investment certainty and enable business planning and strategy.
South African minerals industry has made encouraging headway in ensuring that their mining and minerals industries make a positive contribution to sustainable development. South Africa has various statutory and regulatory measure in place to address the impact of mining operations on the environment, human health and safety. Generally speaking, these measures focus on some of the main sustainable development issues. The measures in question include:
These developments demonstrate the general acceptance that mining operations must be conducive to sustainable development and contribute to the socio-economic development.
The Minerals and Petroleum Resources Royalty Act No. 28 of 2008 (the Royalty Act) commenced about ten years ago and requires mining royalties to be paid when mineral resources extracted from within the Republic, are transferred. The "transfer" of the mineral resources (which were extracted from within the Republic) is the trigger for the imposition of the royalty. Mining royalties are calculated by a formula. There is a prescribed mining royalty rate for refined mineral resources and for unrefined mineral resources. The mining royalty percentage is capped at 5% for refined mineral resources and 7% for unrefined mineral resources.
The Royalty Act utilises two variables to calculate the royalty liability: the value of the minerals (the tax base) and the royalty percentage rate that is applied to the base. The formula to be used to determine the percentage rate for refined mineral resources is 0.5 + earnings before interest and taxes (gross sales in respect of refined mineral resources x 12.5) x 100. The formula to be used to determine the percentage for unrefined mineral resources is 0.5 + earnings before interest and taxes (gross sales in respect of unrefined mineral resources x 9) x 100. The only difference between the formulae to be used for refined as opposed to unrefined mineral resources, is that a constant of 12.5 is used in respect of refined mineral resources and a constant of 9 applies in respect of unrefined mineral resources. However, relief is given to small businesses, and such relief comes in the form of an exemption from the mining royalty, subject to certain conditions being met.
In addition to mining royalties, South Africa like all other countries, imposes other taxes such as income tax (corporate and individual), capital gains tax and transactional taxes for example VAT, securities transfer tax and transfer duty.
Mining companies in South Africa are taxed at the corporate income tax rate of 28%, other than gold mining companies, which are taxed according to a formula which takes into account the marginal tax rate, the portion of tax-free revenue and the ratio of taxable income to total income.
Special capital allowances are provided for mining companies, with gold mines receiving additional incentives due to the high capital investments incurred. Mining companies are allowed to carry forward any unused capital expenditure balances not utilised during a tax year against mining income.
Special research and development incentives are also available to the industry, provided the specific requirements are met and the necessary approval is obtained from the Department of Trade and Industry.
South Africa currently does not enter into fiscal stability agreements. Several Double Taxation Agreements have been entered into between South Africa and various countries around the world.
The Eighth Schedule of the Income Tax Act regulates Capital Gains tax and taxes relating to the disposal of an asset. Capital gains taxes are levied on the disposal of an asset. An asset is defined to include a right or interest of whatever nature to or in property. A mineral right is a limited real right in property and could therefore fall within the ambit of this Schedule. Non-residents will, subject to the provisions of a Double Taxation Agreement, only be subject to CGT in South Africa on the disposal of mining property where more than 80% of the value of the company is attributable to immovable property in South Africa. Mining companies in South Africa are generally considered to be property rich.
Assets of mining companies that were subject to the capital allowances noted above will not be subject to CGT on disposal, but rather income tax recoupments at the income tax rate will be triggered.
Approval in the form of an effective valuation from the Department of Minerals and Energy and SARS is also required where immovable property together with mining assets are sold.
The Income Tax Act contains various provisions for group restructures which are also available to mining companies. These relief provisions are generally not available to transfers outside South Africa.
However, the conversion of old mineral, mining, prospecting, exploration and production rights held before the introduction of the MPRDA, to new rights under the MPRDA will not give rise to a capital gain or loss, as roll-over relief is granted by paragraph 67C of the Eighth Schedule.
As observed by the Fraser Institute's Annual Survey of Mining Companies, Investment Attractiveness Index and Policy Perception Index which respectively rate regions based on their geological attractiveness and the attractiveness of government’s mining policies are some of the key indicators of main features of a country’s attractiveness for mining investment. In 2018, South Africa rose on both indices relative to low rankings it attained in the past.
The rise is inter alia attributable to demonstrable stable and independent institutions, especially the judiciary and the executive arm of government following the appointment of a new president in February 2018 who was re-elected in May 2019. The South African government has been working hard to remove policy and regulatory uncertainty. Among others, Mining Charter III was published (albeit with some contested provisions) and withdrawal of the MPRDA Bill, which had some contested provisions. These may be resolved or not, but there is a demonstrable effort on the side of government to make South African mining policies investor-friendly whilst fulfilling the country’s developmental needs.
South Africa currently has no restrictions in the MPRDA or in practice on a foreign party acquiring mining rights. This is as result of mineral related legislation providing for advancement of HDSA; however, there are benefits in a domestic partner having some form of interest in the foreign party’s mining activities. The foreign party should give careful consideration to the most appropriate business entity utilised to acquire mining rights and take note of South Africa’s exchange control restrictions.
In 2009, South Africa as a member of the African Union it adopted the Africa Mining Vision which is a shared African vision towards “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development.” South Africa is in various stages of domesticating the Africa Mining Vision elements, including the promotion of bilateral or multilateral arrangements aimed at increasing investment in improving the resources knowledge infrastructure.
South Africa has also negotiated a number of bilateral investment treaties (BITs) designed to promote and protect foreign investment. South Africa, not so long ago, engaged in a reviewing activity aimed at creating an investment regime that strikes a balance between the interests of foreign investors and the need for the government to implement measures in the public interest, such as promotion of economic opportunities for the HDPs. The Department of Trade and Industry recommended to restructure the existing BITs that South Africa has concluded to ensure that the BITs are in line with South Africa’s broader social and economic policies. Subsequent thereto, the Protection of Investment Act 22 of 2015 (PIA) was enacted to protect foreign investors in South Africa, overall, the protections offered in PIA are substantially diminished compared to those previously incorporated in some BTIs. The PIA, on the face of it, aims to replace existing BITs. In line with this policy shift, South Africa has cancelled a few BITs with various countries.
The PIA diminishes the rights afforded to investors in current BITs in several ways. In the event of expropriation, investors are no longer assured of compensation at full market value. The PIA provides that compensation will be in line with the Constitution of the Republic of South Africa, which provides for compensation that must be "fair and equitable". The PIA removes the obligation on the South African government to enter into international arbitration in the event of a dispute. The DTI would facilitate mediation or South African courts may be approached for relief. The PIA does not contain the provision that currently exists in most BITs, which entitles investors to "fair and equitable treatment".
South Africa is a member of the World Trade Organization (WTO) and is a signatory to all the WTO agreements dealing with a range of specific trade issues. The Safety and Health in Mines Convention was ratified by South Africa in 1995. South Africa was one of the initiating countries and is an active participant of the Kimberley Process Certification Scheme. This scheme aims to combat the link between illicit international trade in rough diamonds and armed conflict.
South Africa has a well-developed financial infrastructure, including active money, capital and financial markets. There are many well established commercial, merchant and investment banks, both domestic and international. Financial assistance may be obtained by non-residents in South Africa for bona fide foreign direct investments into South Africa, without restrictions. For BEE participation in a foreign business venture, there are several governmental and non-governmental organisations that assist "historically disadvantaged individuals" new business establishments. These include the Industrial Development Corporation, Small Business Development Corporation, the Development Bank of Southern Africa and the National Business Initiative. Non-resident companies can be listed on the JSE. The South African financial market is therefore open to foreign companies to raise capital. South African residents are entitled to invest, without restriction, in inward-listed investments on the JSE. South African institutions are permitted to invest in such listings using their existing foreign investment allowances plus an additional percentage of their total retail assets in African inward-listed equity and debt securities.
South Africa has a well-developed and well-regulated equity capital market. Its primary exchange is the Johannesburg Stock Exchange (JSE) and most of South Africa’s significant mining companies have a primary or secondary listing on the JSE. The local equity capital markets have historically been an important source of financing for the local mining industry, but a number of junior South African mining companies have also chosen to have the primary listing on exchanges such as the Toronto Stock Exchange, which are more favourable for development financing. Capital raises on the local equity markets have been less prevalent of late, both as a result of a downturn in equity capital market activity generally and some of the challenges which the mining industry has been facing, and most of the significant capital raises in recent years in the mining industry have been rights offers, such as Sibanye Gold’s USD1 billion rights issue to help fund its acquisition of US platinum producer Stillwater.
The MPRDA does not prevent the registration of a mortgage over the prospecting or mining right. However, no security can be registered over the prospecting or mining right at the Mineral and Petroleum Titles Registration Office until the registration of the prospecting or mining right itself has been effected. Under the MPRDA a prospecting right or mining right or an interest in any such right, or controlling interest in a company that holds such rights, may as mentioned above not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister, except in the case of a change of controlling interest in listed companies. The consent contemplated above is not required in respect of the encumbrance by mortgage of the rights mentioned or interest as security to obtain a loan or guarantee for the purpose of funding or financing a prospecting or mining project by any bank, as defined in the Banks Act No. 94 of 1990 or any other financial institution approved for that purpose by the registrar of banks referred to in the Banks Act, on request by the minister, if the bank or financial institution in question undertakes in writing that any sale in execution or any other disposal pursuant to the foreclosure of the mortgage will be subject to the consent of the minister. Any encumbrance by mortgage of a prospecting or mining right must be lodged for registration at the Mineral and Petroleum Titles Registration Office.
Communities and non-governmental organisations are increasingly becoming more assertive about their rights and interest. As a result, it is likely that more litigation will be seen in relation to mine community development (including community consultation) and environmental protection, especially in respect of rehabilitation of closed mine. Some the leading cases in this regard include the Xolobeni case and all cases challenging government decisions to authorise new coal mines or to compel government to take enforcement action against companies who fail to comply with environmental laws.
Industry and government will continue to find ways to resolve interpretational difficulties presented by Mining Charter III and if they fail to find solutions, the pending legal challenge of the Mining Charter may be prosecuted or progressed to its finality.
Related to the above, as existing rights come up for renewal and more companies acquire new rights, an increase in empowerment deals aimed at meeting the 30% empowerment shareholding prescribed by the Mining Charter III is likely to be seen.
On the legislative front, few legislative and policy proposals that are intended to deliver policy certainty will be seen. Among others, we expect various amendments to the environmental legislation in order to complete the process to create one environmental system for the mining industry. As expected, on December 24th 2019, the Minister published the Draft Upstream Petroleum Resources Development Bill, 2019 for public comments, which will see Interested and Affected Parties being able to comment on the Bill until February 21st 2020. The Bill seeks to create provision for equitable access, sustainable and orderly development of the nation's petroleum resources. At a practical level, should the Bill become law in its current form, it will remove all petroleum related provisions from the MPRDA. This means that there will be a distinction between laws that regulate petroleum resources and those that regulate mineral resources (i,e petroleum resources will be regulated in terms of the provisions of the Upstream Petroleum Resources Development Bill and mineral resources will be regulated solely in terms of the MPDRDA).