South Africa - mining, MPRDA and NUM

http://www.miningmx.com/grnbk08/895040.htm

MINING COMPANIES OPERATING in South Africa face a barrage of changes to their legislative environment.

From the Mining Charter to royalties, to health and safety and including environmental laws and a deeply controversial Expropriation Bill, companies are going to have to be on their toes in an environment already regarded with a great deal of suspicion by investors overseas.

The perception of SA and its mineral policies leaves it at the bottom end of a list of 68 mining countries surveyed by the Canadian-based Fraser Institute despite soothing assurances by officials from our Department of Minerals & Energy (DME) claiming its new legislation enacted in 2004 has liberalised the industry and introduced new players.

The institute says its survey acts as a “report card to governments on how attractive their policies are from the point of view of an exploration manager”.

SA’s Minerals & Petroleum Resources Development Act (MPRDA) outlines requirements for black economic empowerment at a shareholder level as well as in management and procurement. It obliges companies to become involved in social and community development. All those boxes have to be ticked in order to win new order prospecting and mining rights.

In the institute’s 2007/2008 survey SA came in at 50th position out of 68 jurisdictions – little changed from its 53rd place of 64 jurisdictions in 2004/2005. It’s one place below Tanzania and one above the Democratic Republic of Congo, which is conducting a review of all existing mining contracts, which has rattled the markets. The DRC is regarded as very risky by investors but with potentially high returns from its largely underutilised treasure trove of minerals.

Currently, one of the most important issues in SA’s mining sector is safety and Government has proposed amendments to the Mine Health & Safety Act (MHSA), designed to force a change of behaviour of mining companies and impose heftier penalties.

“The legislation we have is weak in sanctioning certain behaviours,” says Thabo Gazi, Chief Inspector of Mines. “We want to close loopholes that people used for endless appeals.”

One proposal is to increase by fivefold the maximum fine to R1m, which miners argue could shut down small-scale mining companies. That doesn’t go far enough for the National Union of Mineworkers (NUM), SA’s largest mine labour organisation. The NUM has submitted an increase in fines for safety negligence from R200 000/accident to up to 10% of the company’s revenue. It also wants CEs to face prosecution if negligence is found to have caused a fatality.

“The chamber is particularly concerned about the NUM’s proposal that the constitutional protection of every accused person – namely, the presumption of innocence – shouldn’t apply to senior managers (but should ironically continue to apply to every other person on a mine),” Mzolisi Diliza, CE of the Chamber of Mines, says.

“It’s proposals such as these that will further inhibit professionals from entering and remaining in this industry, which will ironically make it even more difficult to mine safer and healthier,” he said in a letter published in Business Day.

The chamber said in its Parliamentary submission on the Amendment Bill that Government’s proposals showed a much stronger emphasis of punitive measures, which is a “significant shift away from a system that’s finely balanced between preventative and punitive measures”. It said that could result in certain employers focusing more of meeting the letter of the law instead of implementing leading practice.

“Another consequence is that there will be less transparency about the real and underlying causes of incidents, thereby reducing the possibility of preventing similar incidents in future. International best practice in fact shows the emphasis should be more on preventative than punitive measures,” it said.

It criticised the introduction of safety permits to be administered by a chronically understaffed mines inspectorate. “It should be clear the system of health and safety permits would create another enormous layer of bureaucracy for a licence to mine, in addition to the current provisions in the MHSA, the MPRDA and other statutes,” the chamber said.

“Furthermore, ineffective management of a permit system, due to an insufficient number of persons administering and managing the system, will lead to delays with major concomitant losses to employers and the country as a whole. This system thus has the potential to negatively affect the international competitiveness of the South African mining industry, as it will introduce more red tape and have the potential of causing considerable delays.”

Royalties will be introduced in 2009, bumping up costs for an industry caught in the global maelstrom of soaring input prices, volatile commodity markets and turmoil in the financial sector, making it difficult to raise capital.

The MPRDA is being reassessed and the review is due around May next year – five years after it was enacted. DME director general Sandile Nogxina, who is critical of the empowerment deals the industry has struck, says: “Companies haven’t entered into the spirit of the charter. There’s no sustainability [in the deals being completed].”

There will be a change in emphasis, of that there can be little doubt, with President Thabo Mbeki recalled as the country’s president by his ruling party in September. The people now in charge of the ANC are leftist, swept into power on the back of a populist agenda that’s appealed to the impoverished majority.

The new secretary general of the ANC is Gwede Mantashe, former head of the National Union of Mineworkers. The party is cognisant that radical changes will frighten off foreign investment – one of the keys to reducing unemployment – but at the same time it’s aware it has to bring change to more peoples’ lives.

“I don’t want to pre-empt what the SA people want, but they’re more impatient and angrier – which could manifest itself in a revised charter,” says Nogxina. That isn’t a wholesale turnaround in policy, but Nogxina hastens to add: “A change in emphasis is possible.”

Law firm Webber Wentzel’s Peter Leon says the review is under way and the industry and Government appear to be approaching it from very different perspectives. “The industry says the charter has to be reviewed if it’s working and if people are meeting targets. The DME, the way I see it, regards this as ‘open sesame’ in terms of statements made by the minister and the DG to review targets. Potentially, they could look at the 26% ownership. They haven’t said so explicitly, but they’ve certainly implied it,” Leon says.

“It’s in a state of suspended animation. It could come back to bite everybody,” says Leon. “For the mining industry it creates a much more intrusive regime in relation to expropriation than the Minerals & Petroleum Resources Development Act does, because it now could take place on a much more discretionary basis. It creates another level of regulatory risk.

“The biggest problem with the Bill is that it is, I think, unconstitutional because it effectively strips the courts of the power to determine what’s just compensation, as required by the Constitution, and vests the power in the expropriating authority – leaving the courts with a very limited power of judicial review.”

Leon says the Expropriation Bill hasn’t been withdrawn despite public works committee chairwoman Thandi Tobias-Pokolo telling Parliament at end-August it had been shelved until further notice for further consultation. To withdraw a Bill requires an announcement from the minister who introduced it in the first place.

“It’s not completely off. There’s still room for it to be reintroduced,” said Public Works director general Manye Moroka in September.

The Bill is highly controversial, as it proposes Government be able to seize land at below market value and restricts court rulings on the processes and not the merits. That makes it much easier for Government to move ahead with its slow land ownership reform programme.

“It’s in a state of suspended animation. It could come back to bite everybody,” says Leon. “For the mining industry it creates a much more intrusive regime in relation to expropriation than the Minerals & Petroleum Resources Development Act does, because it now could take place on a much more discretionary basis. It creates another level of regulatory risk.

“The biggest problem with the Bill is that it is, I think, unconstitutional because it effectively strips the courts of the power to determine what’s just compensation, as required by the Constitution, and vests the power in the expropriating authority – leaving the courts with a very limited power of judicial review.”

Dave Steward, executive director of the FW de Klerk Foundation, set up by SA’s last white president, says: “If it’s adopted in its current form it will have far-reaching implications for domestic and foreign investment, for future food security and for national unity.”

Steward says it’s “the most serious challenge yet to the agreements on which the new SA was established” – referring to the political settlement reached to end apartheid and usher in democracy.

A titanium mine proposed for part of SA’s eastern seaboard – the Wild Coast – has shown up sharp divisions within Government about environmental considerations against wealth and job creation. The DME has granted Australia’s Mineral Commodities a mining right at Xolobeni.

As it stands the DME has the authority whether to approve environmental impact assessments (EIA) for mining projects while the Department of Environmental Affairs & Tourism (DEAT) will handle appeals for or against that decision.

“That’s one area where there was and is a difference of opinion between two departments,” Environment Minister Marthinus van Schalkwyk recently said on 702 Talk Radio. “My predecessor, myself and my department have said we’re opposed to mining because we think it’s one of the pristine areas of the country we must protect. The emphasis must be on eco-tourism.

“We acknowledged the right to take that decision is still with DME and accept it’s their decision to take until we have the legislation amended and approved in Parliament.”

It’s an unwieldy system and could ultimately see the entire process folded into DEAT, says Webber Wentzel’s Marius Diemont. “That really is an unwieldy process and it adds too much texture to the whole debate. It’s going to make things more complicated – that’s for sure. I don’t think it’s a good compromise. The whole process should be done by DEAT.”

The two ministries are struggling to find middle ground on amending the relevant acts under their jurisdictions.