Allan Reid, head of mining law at Cliffe Dekker Hofmeyr, on mineral development, the BEE situation in the sector and training the next generation of legal experts


Q: SA’s mining sector seems to be under severe pressure. What, in your opinion, is its actual status?
Historically, the state of the mining industry in SA is cyclical. However, mining is currently facing what is possibly one of its bleakest phases. Increases in costs, declines in productivity, significant commodity price decreases and difficult trading conditions have severely impacted mining companies and their cash flows. A prolonged period of legislative uncertainty, workers demanding higher wages, violent labour unrest, the expectations of communities around mining operations and the energy crisis are all factors that have added to the issues and are negatively impacting investment and growth in the industry. In addition, SA is facing ever-increasing competition from developing nations in the rest of Africa and South America.

Q: How is the industry reacting to the situation?
The current trends are those of rationalisation and consolidation. We have recently seen a number of mining companies retrenching employees, implementing cost-reduction initiatives and revisiting operational plans in an effort to increase efficiency and drive higher productivity. Some companies are divesting of non-core assets and placing shafts or entire mines on care and maintenance. Current trends also include capital raising, restructuring and negotiating amendments and/or extensions to funding arrangements. There is also a significant decline in exploration expenditure, which will impact negatively on the medium-term outlook for the industry.

Q: SA has been criticised for its confusing mining licensing regime. What is your viewpoint?
Legally speaking, the granting of prospecting and mining rights is governed by the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. The Mineral and Petroleum Resources Development Amendment Bill of 2013 was designed to amend the MPRDA. Although approved, it was returned to Parliament by the president due to concerns over the constitutionality of various provisions, and it is uncertain whether the bill, in its current form, will be assented to. The uncertainty regarding the amendment of the legislative framework, the scope of such amendments and the timing thereof is cause for major concern for investors.

There are also numerous provisions of the bill that, if passed in their current form, would be problematic for the industry. Some of these relate to beneficiation and, from a transactional and investment perspective, the provisions relating to the transfer of rights or shares in companies holding rights and the designation of certain minerals as strategic. The uncertainty regarding the bill also stems from the fact that it would leave a number of important aspects up to regulations to be promulgated by the Minister of Mineral Resources. The sudden appointment of Mosebenzi Zwane as the new minister has also contributed to this uncertainty.

Q: There is also much uncertainty in the industry regarding the Mining Charter and its application to the licensing regime, isn’t there?
The Chamber of Mines and the Department of Mineral Resources are currently involved in a legal application to the High Court to determine the interpretation and enforceability of the Mining Charter scorecard metrics. A further lawsuit has been brought against the Department of Mineral Resources regarding the charter’s constitutionality. The amendments to the Broad-Based Black Economic Empowerment Act of 2003 have further muddied the waters for the mining industry. The act now contains a trumping provision that makes it the overriding legislation with regard to BEE. It requires all governmental bodies to apply SA’s BBBEE codes or other relevant codes of good practice when procuring goods and services, or issuing licences or other authorisations under any other laws.

On 30 October 2015, the Minister of Trade and Industry exempted the Department of Mineral Resources from applying the new trumping provision for a period of 12 months, on the basis that the alignment of the Mining Charter with the act and the codes is still ongoing. There are, however, compelling arguments that such exception was unnecessary as this legislation cannot trump the MPRDA in terms of the issuing of mining and prospecting rights.

‘The industry requires certainty regarding the legislative framework’

Q: How do you believe the licensing issue can be resolved?
In order for companies to be able to properly plan operations and enable investors to make sound investment decisions, the industry requires certainty regarding the legislative framework and, in particular, the status, interpretation and application of the Mining Charter. At the time that the bill was published for comment, much constructive input was provided by stakeholders and advisors in the industry. Most of this input was ignored. From a legal, technical perspective, this should be taken into consideration by the state in finalising legislative amendments that result in a framework that provides security of tenure and is transparent, streamlined, certain and achievable, given the limitations on available funding.

Q: How does oil and gas legislation fit into the resource environment?
Currently, the MPRDA regulates both the mining and petroleum industries in SA. However, the functions of the state in the mining industry are performed by the Department of Mineral Resources, while these functions in the petroleum industry have been designated by the Minister of Mineral Resources to the Petroleum Agency SA. It has been suggested that it would be preferable for the provisions of the MPRDA relating to the petroleum industry to be separated and rather included in separate legislation specific to that industry.

The reasons for this include a variety of factors, including the vastly different stages of development of the two industries, the fact that practically the industries have different markets and methods of exploration and production, and that a different empowerment charter applies. Given the delay regarding the legislative amendments and the controversy surrounding them, it remains uncertain as to how this will be dealt with.

Q: Until recently and the fall in the oil price, much was placed on SA expanding its gas and oil possibilities. How have things changed, And how does it affect the industry?
There are a number of provisions of the bill that, if enacted in its current form, would be problematic for the petroleum sector. Of particular concern are the provisions relating to the state’s participation in oil and gas projects, the so-called ‘free carried interest’. Given the significant and high-risk capital investment associated with the oil and gas industry, legislative changes have a particularly harsh effect on investors’ decision-making models.

Simply put, if they are unable to fiscally and commercially model their investment due to legislative uncertainty, they will hold back on significant exploration spends. This in turn slows down the exploration for the resource within the jurisdiction. The recently gazetted onshore regulations made specific reference to hydraulic fracturing, evidencing a step in the right direction in providing more certainty to onshore drilling practices where exploration was previously guided only by international good industry practice.

Q: Does the country have strong enough legislation in place to ensure environmental protection?
Since the enactment of the Constitution in 1996, several new environmental laws have been introduced. SA’s environmental law framework is regarded as one of the most progressive in the world and places explicit obligations on mining houses to adequately identify the impacts of mining on the environment, commit to measures to address adverse impacts of mining on the environment and make the necessary financial provision for remediation of these impacts.

This legal framework has encouraged mining houses to proactively manage the environmental impacts of their mining operations and responsible mining houses to commit significant resources to minimising these impacts. However, due to the lack of enforcement proceedings for pollution or environmental degradation caused by mining in SA, there are still a number of mining houses that fail to take all necessary measures to minimise the impacts of mining on the environment, particularly on water resources.

‘There are a number of provisions of the bill that, if enacted in its current form, would be problematic for the petroleum sector’

Q: Can we expect any new mining-related environmental laws to be introduced soon?
Yes, without a doubt. The 2013 bill and its accompanying regulations will need to be finalised sooner rather than later. This will contain provisions impacting environmental regulation. Draft legislation has also been introduced to regulate, inter alia, the environmental management of residue stockpiles and the water impacts of hydraulic fracturing.

Legislative amendments are also expected to address the integration and alignment of the application processes for the multiple environmental consents required for mining operations, and to address certain lacunas in the law caused by the transition of environmental regulation from the MPRDA to the National Environmental Management Act of 1998. The regulations pertaining to the financial provision for prospecting, exploration, mining or production, published in November 2015, will need to be considered further.

Q: What is being done to ensure that SA has a sufficiency of mining-focused legal professionals?
Given the size and importance of the mining industry in the SA economy, a large number of lawyers practice in this space. Furthermore, a number of universities offer elective courses in mining and mineral law. There are also various postgraduate academic programmes available that are focused on legal areas relevant to the mining industry, including mining law, environmental law, employment law and mining taxation. At Cliffe Dekker Hofmeyr, we service our clients in the mining industry across a multitude of specialised legal disciplines, and we focus on intensive training of our junior professionals across this broad spectrum. It is a case of learning at the coalface, as it were.

By Kerry Dimmer
Image: Cindy Fourie