WHERE TO FROM HERE? February 2018

By LUCAS MOALUSI AND GODFREY MALESA, Published in Mining Feature

South Africa is a country rich in minerals and the mining sector plays a pivotal role in the country's economy. The South African mining industry has for the last few years been plagued by legal uncertainty.

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The Mineral and Petroleum Resources Development Act, 2002 (the MPRDA) came into effect on 1 May 2004. It was enacted to facilitate equitable access to and sustainable development of the nation's mineral and petroleum resources. The promulgation of the MPRDA was generally welcomed and embraced by the mining industry. However, since the enactment of the MPRDA, the South African mining industry has been plagued by the lack of policy and legal certainty. This has undermined the country as a leading mining investment destination and has resulted in a drastic decline in investment in the mining sector.

The election of the new African National Congress leadership has brought with it optimism in the mining sector, particularly the election of Cyril Ramaphosa as the new president of the ruling party. Mining stakeholders hope this will bode well for both the country's economy and mining industry, but the burning question on most stakeholders' minds is whether the newly elected ANC leadership will bring about the policy and legal certainty that is urgently needed and necessary to encourage and improve investment in the mining sector.

Legal uncertainty in the mining sector

At the heart of the legal uncertainty in the mining sector is first, the delay in finalising the Mineral and Petroleum Resources Development Bill [B15D- 2013] (the Amendment Bill) and second, the introduction of the new Re- viewed Broad Based Black-Economic Empowerment Charter of the South African Mining and Minerals Industry, which led to the Chamber of Mines launching a review application to set aside the new Mining Charter.

In 2008, the Mineral and Petroleum Resources Development Amendment Act (49 of 2008) was passed. However, it was only partly brought into force in June 2013. In 2013 the Amendment Bill was introduced to parliament. In January 2015, President Zuma referred the Amendment Bill back to the National Assembly to consider his reservations around its constitutionality. Some of the President's reservations included that the National Council of Province did not afford sufficient opportunity for public participation, as required by the Constitution, and the lack of consultation with the National House of Traditional Leaders, despite the Amendment Bill affecting customary law and traditional communities. Some think this was a "kick for touch". It has been over four years since the introduction of the Amendment Bill and it is yet to be finalised. The proposed amendments introduced by the Amendment Bill are mostly taken from the ANC's State Intervention in the Minerals Sector Report, but perhaps the powers that be are having second thoughts? This remains up in the air.

The introduction of the contentious new Mining Charter by the Minister of Mineral Resources in June 2017 has caused further legal uncertainty in a sector where investor confidence has been rocked by the combination of regulatory un- certainty and the political climate in the country. The review application by the Chamber of Mines is pursuant to a range of contentious changes for the mining sector that have been introduced by the Mining Charter. The Chamber of Mines and the Department of Mineral Resources have reached an agreement prevent- ing the implementation of the new Mining Charter. In terms of the agreement, the Minister of Mineral Resources has given a written undertaking that the new Min- ing Charter will not be implemented until judgment has been handed down in re- spect of the Chamber of Mines' review application. This remains up in the air.

The Chamber of Mines has also sought a declaratory order from the courts on the "once empowered, always empowered" principle, which has also con- tributed to the lack of policy and legal certainty in the mining sector. The order was heard by a full bench of the High Court of South Africa (Pretoria) on 9 and 10 November 2017 and judgment has been reserved. As at the date of this article, judgment has not been handed down. This remains up in the air.

As a result of the delay in finalising the Amendment Bill, the introduction of the new Mining Charter and the numerous court challenges, the South African mining industry is currently paralysed by policy and regulatory uncertainty. Even if the Amendment Bill is passed into law, its constitutionality is likely to be challenged because the new amendments added by the Department of Mineral Resources which (it has been argued) have not been subjected to proper public consultation.

All of these "balls in the air" need to be caught and dealt with. They are having a negative impact on South Africa's economy. No investment will take place until the investors know what they are investing in.

In November 2017, the Chamber of Mines published What if? Mining investment in South Africa in an improved policy and regulatory environment, a report on the findings of an aggregated survey recently conducted amongst its members in an attempt to understand the investment and employment potential of the mining industry in the event of a return to better practice in policy, legislation and regulation formulation. The report looked at what could happen if the policy, regulatory and governance environment improved substantially enabling the South African mining industry to return to the top 25% of global mining jurisdictions.

According to the report, the estimated current capital spending in the mining sector(stretch ing over the next four years) amounts to more than R145billion. The potential capital expenditure in a more certain and conducive environment (covering at least another three years) could amount to an additional outlay of more than R122 billion. This, according to the report, means that capital expenditure on mining projects could be 84% higher than the current R145 billion.

Furthermore, South Africa's consistent drop in the Fraser Institute's rankings, illustrates the adverse effects that the lack of policy and regulatory certainty in the mining sector is having on investor confidence. South Africa is currently ranked 74th in the 2016 Fraser Institute Investment Attractiveness Index, out of 104 jurisdictions. The Fraser Institute Investment Attractiveness Index ranks jurisdictions around the world based on geologic attractiveness and the extent to which government policies encourage or deter mining and investment.

Given that the court challenges brought by the industry bodies and mining companies may take several years to come to finality, it is in the best interest of all stakeholders that the mining sector and government should enter into negotiations in order to come to an amicable solution that will benefit all stakeholders.

In order to promote and raise investment in the mining industry, government must ensure that the country's mineral regulatory framework provides certainty and predictability to mining investors. Accordingly, it appears that the only feasible solution is for the newly elected ANC leader- ship to urge government take proactive measures to engage with all the stakeholders to find a lasting solution that will benefit the economy.

Looking forward

There is a high road and a low road for 2018. Getting on the high road is not about getting industry favourable or government favourable settlements to the current disputes. It's about getting workable answers quickly – before the end of the first quarter. The mining sector remains a central pillar of South Africa's struggling economy. We cannot continue as we are at the moment. Government and industry, hopefully guided by a practical new leadership at the party level, need to bring about regulatory certainty to help the mining industry overcome its current challenges.

The new leadership of the ANC has a considerable task to ensure the min- ing sector attracts investors and flourishes again as a central pillar of South Africa's economy. It is hoped that they will prioritise the creation of a certain and attractive legal and regulatory environment that will be conducive to in- vestment. That would be the first prize. The second prize would just be to get the amendment bill settled and passed and the litigation finalised so that the mining industry can get on with what it does best – mining.

The low road of course will be that, one year on, the industry and government are in exactly the same position as they are now. The country cannot afford that.

Moalusi is Senior Partner and Malesa a Partner with Fasken (South Africa).

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