Q&A: ENSafrica - JSE MAGAZINE

Q&A: ENSafrica

Lloyd Christie, a director in ENSafrica’s natural resources and environment department, on the significance of stable regulations, the need to attract investors and sector dynamics

Q&A: ENSafrica

Q: What, briefly, is SA’s current mining legislative/regulatory situation?
A: In our assessment, it can be characterised by at least two trends, namely a strained relationship between the industry and government; and the role of courts in developing legislation/regulations and the policing thereof. When the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) was brought into effect in 2004, it was a hallmark of the SA mining industry in that government, industry and organised labour could join hands to produce a Mining Charter to give effect to the transformative objective of the MPRDA.

Reflecting on the more than a decade of the MPRDA and the Mining Charter being in force, industry and the Department of Mineral Resources (DMR) could not, as evidenced by the utterances of mining executives and the various ministers of Mineral Resources, be further apart regarding the direction of mineral policy in the country. This palpable tension has been vividly displayed in the public reactions to proposed amendments to the MPRDA and the Mining Charter. Although certain amendments were made to the MPRDA in 2008, it’s the proposed amendments in the Mineral and Petroleum Resources Development Amendment Bill that are most concerning.

The bill was passed by the legislature in 2014 but referred back to it by President Zuma in 2015 for its dubious constitutionality. The latest version of the bill, however, still contains provisions that would have a significant impact on the mining industry. For example, the bill currently proposes that the consent of the Minister of Mineral Resources would be required to transfer one share in an unlisted company holding a mining right or prospecting right in terms of the MPRDA, or to transfer the controlling interest in a listed company holding a mining right or prospecting right on an interest therein.

One of the most important factors in the success of mining projects in any jurisdiction depends on the ability to raise capital. The proposed amendment could negate market liquidity in the country and therefore stunt private equity transactions in SA mining securities.

Q: What has been the result of these circumstances?
A: As a consequence of the strained relationship between the sector and government, the industry and the DMR have been waging ‘lawfare’ for a number of years over the status of the Mining Charter and the ambit of the mining industry’s obligations under it. Amid out-of-court settlement discussions, the Minister of Mineral Resources published a new version of the Mining Charter in June 2017 that had a significant impact on the market cap of many SA mining companies. This led to an urgent court application by the Chamber of Mines of South Africa, hoping that an independent judiciary could resolve the impasse.

With two court cases pending and the fate of the Mining Charter potentially in the hands of a court, it is likely that if the bill were to be passed into law, it too would be challenged by the industry in court. The current legislative/regulatory environment is therefore also characterised by this growing role of the courts in arbitrating between the regulator and the regulated. Consequently, the lustre of SA as a prime resources jurisdiction has been temporarily dulled because the stability of the country’s regulatory framework has significant bearing on attracting investment. In our considered opinion, the publication of a new version of the Mining Charter in June 2017 is a symptom, at an industry level, of a strained relationship between the mining industry and the DMR – and, at a national level, of political indecision and a lack of leadership.

Q: What would you consider the ideal legal outcome in terms of resolving the Mining Charter issue?
A: The ‘ideal legal outcome’ would be the one that brings about legal certainty. However, a court judgment will not resolve the systemic issues. At the heart of the current impasse is a trust deficit between the SA mining industry, as represented by the Chamber of Mines, and the Minister of Mineral Resources, making any out-of-court settlement difficult but not impossible with incisive leadership.

Q: SA has a reputation for a fluctuating regulatory framework. Why is this?
A: When the MPRDA came into force, it needed to transition the mineral regulation framework from the privately held mineral right era to state custodianship of mineral resources, in line with international practice. This was also necessary  given the historical issues that plagued the mining industry under apartheid in the country.

The MPRDA’s coming into force in 2004 was the first step in moving into the new mineral regulation regime. This was a fundamental policy shift and was generally welcomed and understood all around the world. A dynamic regulatory framework is often a function of a new mineral regulation regime finding its feet and figuring out the best way to exploit natural resources in a manner that meets the expectations of all stakeholders. Whereas a dynamic framework that responds to the needs of the industry is healthy, we need to avoid vacillating regulatory frameworks based on political malaise.

Q: Do gaps still exist created by amendments between the MPRDA and the National Environmental Management Agency, and what are their impacts?
A: Strides have been made to give effect to the intent of the ‘one environmental system’ introduced in 2008, and it has taken several further amendments to bring about a more efficient regulatory regime for mining. In March 2017, the National Environmental Management Laws Amendment Bill, 2017 (NEMLA 4) was introduced in the National Assembly as yet another attempt to improve the co-ordination of environmental management in the mining industry between the relevant regulators. The process has, in large measure, therefore demonstrated responsive regulation and a willingness to engage the industry in ironing out inefficiencies.

One of the remaining concerns for the implementation of the ‘one environmental system’ is the delay in the issuance of water-use licences by the Department of Water and Sanitation, which has been chronically plagued by capacity constraints. As a water-use licence is a prerequisite for conducting mining operations, this is the one issue that still requires further legislative and executive attention as part of the good efforts to streamline and expedite the decision-making processes in the industry.

Q: How does the law help close the gaps between compliance requirements? Environmental authorisations, for instance, can take years even though operations are ready to commence?
A: There is nothing inimical about the statutory obligation to obtain prerequisite consents. The fact that operations are rearing to go but waiting on regulatory consents is not the fault of the law. The delays experienced in granting consents are not due to bad law. Regulators and the legislature could embark on the rationalisation and integration of fragmented legislative requirements, which is a hallmark of an investor-friendly legal regime.

In addition to such legislative efficiency, regulators – working with the legislature – could also ensure that the law dictates the time frames within which decisions have to be made on applications for the various regulatory consents required to mine. But the law can only do so much since it is conceived by political will and matured by administrative diligence.

Q: What, therefore, do you consider the ideal mining regulatory environment?
A: It has often been said that foreign direct investment in the mining sector in Africa primarily requires a stable political and legal regime. The success of the mining sectors in other African countries is largely due to the conscientious efforts of their governments to provide regulatory certainty. What does an investor-friendly mineral regulatory regime entail? Based on what has been said above, one would expect such a regime to include the following basic principles: efficient macro-economic management; effective investment protection mechanisms; the rationalisation and integration of fragmented legislative requirements for the grant of the suite of authorisations required to mine; competitive mining taxes; security of tenure; objective criteria for the grant of rights to exploit mineral resources; limited administrative discretion; a defined role for government; and a capacitated and responsive mining administrative department.

Canada has done well to achieve this, with two of its jurisdictions ranked in the Fraser Institute’s Annual Survey of Mining Companies 2016 as the most attractive mining jurisdictions in the world. In terms of investment attractiveness, Botswana is the highest-ranking African mining jurisdiction, according to the survey.

Q: What aspects of mining law impact most on foreign investment decisions?
A: Investors are most concerned about the security of tenure of their investments. Investors prefer regimes where the laws are certain and change infrequently. Regimes that provide security of tenure and legal certainty do well in attracting foreign investment. In addition, efficient macro-economic management, competitive mining taxes and a capacitated and responsive mining administrative department are important considerations in assessing jurisdictional risk.

Q: Are you seeing interest in raising capital for mining projects?
A: There is much talk about the existing ‘investment strike’ in SA mining projects, but in December 2017, we assisted a client in listing on the AIM. There will always be interest in listing SA mining projects, domestically and on foreign security exchanges, where the fundamentals are strong and investors are willing to take a long-term view on the SA market.

The country remains probably the most well-endowed country in the world from a mineral resource perspective, so the opportunity to raise capital internationally will remain robust in the long term. The global investment environment is currently difficult, but it will not deter investors willing to look past the current hurdles.

By Kerry Dimmer
Image: Wilnicque Rall; Repro: Karin Livni