Q&A: HOGAN LOVELLS - JSE MAGAZINE

Q&A: HOGAN LOVELLS

Warren Beech, head of mining at Hogan Lovells on Section 54 safety
stoppages, amendments to current laws and the challenges the industry
faces over regulatory uncertainty

Q&A: HOGAN LOVELLS

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Q: What is the current state of SA’s mining legislation?
A:
There are approximately 240 pieces of legislation that apply to the mining industry. This makes for an extremely complex environment that is further exacerbated by regular and constant changes to legislation.

Change in itself is not a problem and must be expected. The real concern relates to key pieces of legislation, the Mineral and Petroleum Resources Development Act (MPRDA) and Mine Health and Safety Act (MHSA). As it stands, the MPRDA isn’t bad – and neither is the MHSA, given the frequent amendments they have undergone over time. However, there is the perception that government is not accelerating the required amendments to the MPRDA, some of which have been under discussion for more than two years.

Q: To what do you attribute this lack of urgency?
A:
With all legislation, there is a process that needs to be followed within the Constitutional framework. This process cannot be rushed. We are often quick to criticise government but there is a need for a fine balancing act and proper, in-depth consultation and engagement with all stakeholders before a piece of legislation is enacted.

In addition, what we may see as urgent is not necessarily government’s priority. It is a matter of constantly engaging with government and promoting the required changes. A complicating factor is that we have had a number of different mining ministers over the past three to four years, each with their own approach and having to bring themselves up to speed after their appointment. We really need to see one minister sustain that position for between four and six years to ensure that changes occur adequately and swiftly, and are implemented.

Q: Are there any clear solutions?
A:
To change legislation quickly but in an efficient and effective way requires a number of stakeholders to work together. For example, if the trade unions and mining companies work together, agreements can be reached quickly.

A good example is the recent wage negotiations in the platinum industry, where trade unions and mining companies have developed a level of trust. This can achieve good results and bring about prompt change.

It is, however, also crucial to recognise that other stakeholders, such as the communities and regulators, play an important role.

Q: How much regulatory uncertainty exists in the industry?
A:
The amount of legislation applicable to the industry demonstrates that change is constant, expected and, in fact, acceptable where these changes are made to meet the requirements of a dynamic industry. The primary challenge is the changes to the MPRDA – which have not been finalised – and the often inconsistent interpretation and application thereof.

The changes include the environmental components of the MPRDA and the implementation of the ‘one environmental system’. The ability to comply with the environmental requirements is of key importance to most investors for various reasons, including the medium- to long-term costs of compliance and the potential consequences of non-compliance. This has created a very cautious investment environment, especially with the amendments to the MPRDA still in process and with the third version of the Mining Charter that was expected in December.

Q: How does this uncertainty impact on investment?
A:
It is important to note that there are a number of significant aspects that impact on investment decision-making, including perceptions around political stability, in-country risk, employment costs and community influence. Concerns regarding available infrastructure (roads, rail, ports, electricity and water) also play a significant role in decision-making.

Generally, a good rate of return will mitigate some or all of these risks. SA has, historically, provided a good rate of return, and as long as this continues – in comparison to other countries in Africa – SA should still see a good level of investment.

Investors are also more frequently considering the social aspects associated with the mining operations. It has become vital for communities to endorse the mining operations. Without community buy-in, the commencement of projects and subsequent operations can be severely impacted, and operations can even be closed completely.

Q: Will mechanisation of the mines help?
A: SA has a long mining history, with several of the mining operations still in existence today designed and constructed many years ago. These older mines are generally labour intensive, and it is easier to design new ones with mechanisation and automation in mind. As a result, we are likely to see a mixture of mechanised mines and those that remain labour intensive.

Mechanisation and automation is a subject of frequent discussion among mining companies and must – out of necessity – be considered, as SA’s mines go deeper and the working faces move further away from the shaft infrastructure. Mechanisation and automation can also impact on a critical aspect, namely health and safety. However, mechanisation and automation is incredibly expensive, and while there are good examples of mechanised mines, it is likely to take some time for mechanisation or automation to be the predominant mining mechanism.

Q: Can you put Section 54 stoppages into perspective?
A:
It is always a huge topic of discussion, given that there is a large percentage of mines on stop on any given day as a result of the Section 54 notices. There is a broad range of opinions regarding whether or not the Section 54 stop notices achieve the intended goal, which is ultimately about health and safety. While it’s possible to argue that when operations are stopped, health and safety improves, frequent stoppages also have a disruptive impact on the ‘mining rhythm’.

There has to be a careful balance between the use of the Section 54 notices and the various other options that are available to the Department of Mineral Resources (DMR) in support of the health and safety objectives, such as instructions that don’t necessarily stop the mine or a portion thereof but can achieve the same result. Any criticism of the Section 54 instructions generally acknowledges that any death in the industry is one too many, and there is a commitment to zero harm. The view is that all factors must be taken into account before issuing a Section 54 instruction.

The recent judgment of the Labour Court in an application brought by AngloGold Ashanti – challenging a Section 54 instruction that had been issued – reinforced the principles applicable to the issuing of Section 54 instructions. The judge was critical of the DMR and the manner in which the department had applied the provisions of Section 54 of the MHSA, and confirmed the need for objectivity, balance and proportionality.

Q&A-1-PQ2

Q: Why are there delays in the issue of mining licences?
A:
There are two main reasons. The first is that the applicants often do not prepare applications that meet the minimum requirements for acceptance, and the quality of the supporting documents are questionable. The person handling the applications at the DMR must be in a position to easily compare the application with the requirements. If this is not the case, it often results in ongoing engagement between the DMR and the applicant, which delays the process.

The second reason is the capacity constraints within the DMR, from both a people and budget perspective. One of Hogan Lovells’ main activities is in guiding and advising our clients in how to complete such applications – something we have considerable knowledge of as a result of our being actively involved in government consultations and advising on regulatory changes.

Q: Are there any particular aspects of legislation that should be introduced?
A:
In my view, no. We are generally comfortable with the range of legislation that is in place. It is more a question of identifying the gaps and addressing those. The primary legislation, such as the MPRDA and MHSA, has been around for a long time now and there is a good history from which we can learn and therefore tighten up on the legislation.

We have found that mines are keen to comply with all legislation but there has to be a level of certainty on the interpretation and application for effective compliance to be achieved. In addition, the industry has come through a horrific period, with many mines being placed on care and maintenance, in business rescue or liquidation.

When this happens, income is reduced or non-existent and this may have an impact on compliance. It is therefore essential for all stakeholders to work together so that the mines can either re-open or continue operations to the benefit of all stakeholders.

Q: What’s your prediction for the mining sector’s future?
A:
There has been some recovery and the general view is that this recovery is sustainable. My opinion is that we are going into a period of stabilisation to ensure that the operations can be sustained. There has also been significant restructuring of the mining industry, with several of the major mining companies disposing of assets. This has created opportunities for new entrants into the industry, but it will take some time for these new entrants to settle down.

By Kerry Dimmer
Image: Ricardo Lategan
Repro artist: Lauren Bubb