Q&A: Norton Rose Fulbright

Tina Costas, a director from Norton Rose Fulbright’s mining and environmental team, on the legal regulations and standards through which the industry is monitored

Q&A: Norton Rose Fulbright

Q: How progressive is SA in terms of its mining environmental legislation?
A: SA’s environmental mining legislation is quite progressive compared to other international mining jurisdictions. In 2014, the One Environmental System was introduced to integrate the different aspects of environ-mental management of mining activities in an attempt to avoid double regulation. In terms of the One Environmental System, environmental management of mining is managed in terms of the National Environmental Management Act, 2008 (NEMA), the National Water Act, 1998 and the National Environmental Management: Waste Act, 2008 (NEMWA). However, the assessment procedures under the relevant authorisations and licence applications are extensive, and substantial remediation obligations are generally imposed as conditions of such authorisations and licences. The holders of the authorisations are required to submit audit reports and comply with the conditions.

Q: What new laws are crucial to consider?
A: On 11 June 2021, the NEMA environmental impact assessment regulations were amended to remove an exemption permitting applicants for an environmental authorisation relating to mining activities, to apply for it without the written consent of the landowner on whose property the mining activity was to be undertaken. The amendment immediately sparked concern about imposition of additional administrative burdens and anticipated consequences of further delays to applications for mining rights. In March 2022, the Minister of Forestry, Fisheries and the Environment published a notice whereby the amendment, resulting in the deletion of the exemption, was withdrawn on the basis of insufficient public participation. The exemption was reinstated with retrospective effect, restoring the status quo.

Clause 82 of the National Environmental Management Laws Amendment Bill, 2017 (NEMLA 4) introduced amendments relevant to whether environmental management programmes and plans approved under the MPRDA can be considered to be environmental authorisations under NEMA. This amendment is important in the light of Section 12(4) of the NEMA Amendment Act, 2008 and the judgement in Global Environmental Trust and Others v Tendele Coal Mining and Others. In the Tendele case (which concerned a coal mine for which an environmental authorisation had not been obtained), the High Court held that an environmental management plan approved in terms of the MPRDA prior to December 2014 was deemed an environmental authorisation in terms of NEMA. Clause 82 of NEMLA 4 would replace Section 12(4) in a way that would undo the beneficial effect of the Tendele judgement. The rationale behind the amendment was unclear and may serve to create confusion among industry and competent authorities, if brought into effect.

Q: What was the Environmental Authorisa-tion /Waste Management licence application controversy and the potential impacts?
A: NEMLA 4 seeks to move the regulation of residue deposits and stockpiles from NEMWA into NEMA. The effect of this change (a reversal of amendments enacted by NEMLA 3 in 2014) is that a waste-management licence would no longer be required for these deposits and residues. Associated activities will instead be authorised under an applicant’s requisite environmental authorisation, thereby reducing the bureaucratic burden on industry and government, and furthering implementation of the One Environmental System.

Q: How does the latest Climate Change Bill apply to the mining sector?
A: The mining sector, to an extent, is an emitter of greenhouse gases, yet also plays a strategically important role in the economy and is essential to the energy transition. It is also vulnerable to the effects of climate change and the energy transition. This is particularly relevant for SA, where the electrical energy consumed by mines is predominantly generated by coal-fired power stations.

The Climate Change Bill (B9-2022) (CCB) is one of the steps government is taking to respond to climate change and drive the just energy transition in SA in line with the country’s Nationally Determined Contribution and 2015 Paris Agreement obligations. The CCB contains both adaptation and mitigation components, which are structured around various principles, including the just transition objective of the CCB as well as the Polluter Pays Principle. The CCB requires the Minister of Forestry, Fisheries and the Environment to develop national adaptation objectives, adaptation scenarios and a national adaptation strategy and plan to guide SA’s adaptation to climate-change impacts, and other ministers are required to develop and implement sector adaptation plans.

The biggest impact on the mining sector will most likely be the mitigation clauses provided for in the CCB. These include identifying GHG-emitting sectors and subsectors, which will be subject to sectoral emission targets. Another mitigation component is the allocation of carbon budgets, which will be allocated to any person who conducts an activity identified as one that causes, or is likely to cause or exacerbate, climate change due to resultant emissions.

There has been significant progress to date. Major mining companies are placing an emphasis on sustainable mine-development practices and turning to self-generation of electricity from renewable sources. Companies are able to leverage technological advances that allow for increased efficiency, reduced waste and greater use of renewable energies. But the sector will need to continue to focus on reducing emissions through greater adoption of technologies, operational innovation, resource efficiency and circular-economy practices.

Although the CCB may ultimately result in electricity generation being less dependent on coal – and hence a reduction in coal mining – the government’s energy policy is still reliant on coal-fired power stations until at least 2050, so that the CCB will not affect coal mining for some time.

Q: How can SA better align its mineral development policy structures to promote an improved mining investment climate?
A: Ultimately, predictability and stability are key. To that end it is desirable that co-ordination occurs at Cabinet level among ministries and departments involved in prospecting and mining projects. It would be beneficial if the Department of Mineral Resources and Energy and all other departments involved in prospecting and mining projects could adhere to co-ordinated time limits (or where no time limits exist, to reasonable time periods) for processing of applications and appeals. Registration procedures could also be expedited. Where possible, administration and discretion should be reduced. Where this is not possible, positive and expeditious decision-making is to be encouraged. Double granting and overlapping grants, which cause disputes and delays, need to be avoided. The legislative objects of security and continuity of tenure should be implemented in order to promote a stable and predictable operating environment.

Q: What is the current status of mining taxation and taxation of mineral rights, and how enabling/restricting is this for small developing mines?
A: There are a number of ‘tax breaks’ for mining operations in order to stimulate development. A deduction in relation to income tax of capex and of contributions made to rehabilitation trusts applies, and a tax tunnel formula exists for gold mines in terms of which income tax is higher in good times and lower in bad times. Taxation of mineral rights occurs by way of royalties payable to the state on the disposal of mineral resources mined in SA. Such royalties are in the nature of a resource rent for the depletion of SA’s mining resources. Royalties are payable on a formula basis – higher royalties are payable as a company’s earnings margin increases with a maximum royalty of 5% (in the case of refined mineral resource) and 7% (in the case of an unrefined mineral resource) being payable. A small business royalty exemption is provided for SA residents where gross sales and royalties do not exceed R10 million and R100 000 respectively. Again, provision is made for the conclusion of fiscal stability agreements. Income tax and royalties rates compare favourably with those imposed by other countries.

Q: How can legislation best be structured to attract more junior miners to the industry?
A: By its nature, mining is a highly regulated and capital-intensive industry. This creates natural barriers of entry for smaller-scale miners, which require arguably higher government regulation or at least a higher level of collaboration between stakeholders. The balance between economic opportunities and the protection of the environment through, for example, environmental rehabilitation trusts, results in a complex web of considerations. Small-scale and artisanal mining (for example, by way of mining permits where the operation will endure for two years or less, on an area of 5 ha or less) is enjoying more attention as government grapples with these competing imperatives, and certain provisions for reduced regulation do apply in these instances. However, junior miners that exceed these thresholds have to comply with the same regulatory requirements as more established miners (as they equally affect the environment in which they operate). The mining regulatory framework exists for a reason – to protect people, the environment and resources. As a result, perhaps it is not mining regulation that should be restructured, but the access that junior miners have to the capital required to operate and maintain sustainable and responsible operations.

By Kerry Dimmer