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5

Whither the South African

Mining Industry?*

Peter Leon**

The South Arican mining industry, a mainstay o the country’s US$357bn economy,

the biggest in Arica as well as the basis o the country’s industrialisation, is at

a crossroads. Despite having the world’s largest mineral reserves (estimated at

US$2.5tn), mineral production in Q3 2011 contracted by 12 per cent while South

Arica’s policy potential, according to the 2011 Fraser Institute survey o the

world’s major mining jurisdictions, ranked 67 out o 79 countries reviewed. By

contrast, other mining jurisdictions, such as Chile, showed a 12 per cent increase

in the value added by mining to gross domestic product (GDP). A signicant cause

o the industry’s decline lies in the regulatory uncertainty engendered by theimplementation o the Mineral and Petroleum Resources Development Act 2002

(MPRDA), which came into orce in 2004. The MPRDA replaced private ownership

o mineral rights with one o state custodianship and conditional state licences.

In addition, key provisions o the Act are linked to the MPRDA’s socio-economic

objectives, in particular black economic empowerment (BEE). These provisions, in

turn, are linked to wide ministerial discretion. A combination o an entirely new

regulatory regime, combined with the MPRDA’s vague and ambiguous provisions,

has led to critical licensing delays, well in excess o South Arica’s peers. At the same

time, the promotion o BEE has been fawed, by promoting narrow rather thanbroad-based black ownership o the mining industry. This, in turn, has become the

catalyst behind calls rom the Arican National Congress (ANC)’s youth league or

the nationalisation o the industry itsel. While this has not been supported by the

ANC-led government, the state itsel has become more interventionist in the industry.

This has led to the revival o the state-owned mining company and the opening o its

rst coal mine. An ANC research committee has investigated the easibility o mine

nationalisation, but its report is yet to be made public. A nal decision on the issue

is expected by December 2012, at the ANC’s quinquennial elective conerence. At

the same time, the Minister o Mineral Resources has announced or implemented

a number o regulatory initiatives to address the industry’s problems, including

proposed amendments to the MPRDA itsel.



6 Journal of EnErgy & n atural r EsourcEs l aw Vol 30 No 1 2012

Asked about the historical impact o the French Revolution o 1789, Zhou

Enlai, Premier o the People’s Republic o China rom 1949 until his death

in 1976, is reputed to have remarked ‘it is too soon to say’. When aced with

the question as to whether there is an existential crisis in the South Arican

mining industry, one can only observe, similarly, that ‘it is too soon to say’.

Unortunately, this question cannot be too easily dismissed, particularly as it

reers to a key sector o the South Arican economy, which accounts or some

5.3 per cent o South Arica’s GDP1 and provides employment to some 500,000

workers directly, and a urther 500,000 indirectly.2

The centrality o mining to South Arica’s economy is illustrated by the

act that nearly 60 per cent o the country’s export revenue is attributable to

mining, mineral and secondary beneciated products.3 In 2010, Citigroup

valued South Arica’s mineral resources at just under US$2.5tn, the biggest in the world – a staggering endowment by any standards.4 Further, South

Arica is estimated to possess 89 per cent o the world’s platinum group

metals reserves and 13 per cent o its gold.5 In country league tables, South

Arica’s mining industry in 2008 ranked th in the world in terms o the

contribution o mining to GDP.6 South Arica also possesses signicant

quantities o hanium, chromite, zirconium, manganese, vanadium, fuorspar,

nickel and phosphate rock.7

Despite its unhappy association with colonialism and apartheid,

South Arica’s mining industry was the raison d’être o the country’s* This article is based on developments as o 31 January 2012.

** Peter Leon is a Partner and Head o Arica Mining & Energy Projects at Webber

Wentzel, Johannesburg, South Arica. He is the immediate past Chair o the

International Bar Association’s Mining Law Committee. The author grateully

acknowledges the research assistance o Carina Wentzel, candidate attorney at Webber

Wentzel, in the preparation o this article. Responsibility or the submissions made

and conclusions contained in the article lies solely with the author. The author can be

contacted by e-mail at [email protected].

1 This gure relates to the real value added by the mining and quarrying industries to

South Arica’s GDP or the year 2009. Fact Sheet 2: Contribution o the percentage

change in real value added by industry to the total real annual economic growth rate(real GDP at market prices), Statistics South Arica, 29 November 2011.

2 Global Competitiveness o the SA Mining Industry (presentation), McKinsey & Company

15 January 2010, at slide 3.

3 National Development Plan: Vision or 2030 , National Planning Commission,

11 November 2011, at 124.

4 Metals and Mining Strategy: Royalties, Riches and Taxes , Citigroup Global Markets,

27 April 2010, at 1.

5 T Yager, The Mineral Industry o South Arica, 2009 Minerals Yearbook: South Arica

(Advance Release), US Geological Survey, September 2011, at 37.1.

6 Roger Baxter, The Vision Towards Competitive Growth and Meaningul Transormation o

South Arica’s Mining Sector (presentation), McKinsey & Company, 7 March 2011, at

slide 16.7 T Yager, note 5 above.



7 w hithEr thE south a frican Mining industry ?

industrialisation and contributes signicantly to its US$357.3bn economy,8

the biggest in sub-Saharan Arica.9 According to Citigroup, globally

diversied miners with South Arican operations distributed US$49bn to

their stakeholders in 2010, most o which (41 per cent) went to industry

suppliers, ollowed by 18 per cent to employees and communities,

11 per cent to the South Arican Government in taxes and similar charges,

21 per cent to the mines themselves (principally or capital expenditure)

and only seven per cent to shareholders.10

Yet, despite South Arica’s impressive mineral resource inheritance and the

longest-sustained commodities boom in history, between 2001 and 2008 the

value added to GDP by South Arica’s mining sector remained fat.11 To make

matters worse, by October 2011, South Arican mine production had allen

by 12.7 per cent year on year.12 Despite having the world’s largest mineralresources (Russia’s reserves are nearly a billion dollars less at US$1.6tn), the

country is simply not exploiting them: its rate o new investment growth is

the lowest o any signicant mining jurisdiction.13

According to Canada’s Fraser Institute, South Arica continues to slip down

the policy potential index, ranking the attractiveness o mining destinations to

investors, rom 28 out o 47 jurisdictions in the 2002/2003 period, to 67 out

o 79 jurisdictions surveyed in the 2010/2011 period.14 This all represents a

precipitous decline in the country’s standing as an investment destination.

According to Ernst & Young, there has similarly been a marked decline in thenumber o South Arican mining and metals transactions over the last decade,

with deal values alling alarmingly rom US$13bn in 2001 to US$2.9bn in 2010.15

The South Arican mining sector is currently in recession ater contracting

in the rst three quarters o 2011.16 Actual mine production was 6.7 per cent

8 South Arica’s GDP in 2010. US Department o State website (www.state.gov/r/pa/ei/

bgn/2898.htm), last updated 3 October 2011; accessed 19 December 2011.

9 World Economic Outlook: Recovery, Risk and Rebalancing , International Monetary Fund,

October 2010, 89.

10 Calculated by aggregating South Arican mining companies’ direct economic value

generated and distributed statements (Metals and Mining: Nationalisation – Killing the

Goose That Lays the Golden Eggs , Citigroup Global Markets, 29 June 2011, at 1 and 3).

11 Medium Term Budget Policy Statement 2011, National Treasury o the Republic o South

Arica, 25 October 2011, at 15.

12 Mining: Production and Sales (Preliminary): October 2011, Statistics South Arica,

8 December 2011, at 2.

13 As measured by a country’s valued mineral wealth divided by project growth. Citigroup

Global Markets, note 10 above, 10.

14 Fraser Institute Annual Survey o Mining Companies 2010/2011, Fraser Institute,

3 March 2011, at 12.

15 Arica: A Golden Opportunity. A Spotlight on Mining and Metals Transactions , Ernst &

Young, 2011, at 7.

16 ‘“Horric” Fall in Output or Mining, Factories’, Business Day , 9 September 2011;Statistics South Arica, note 12 above, 2.




lower or the three months ending in October 2011 rom that recorded

during the same period a year earlier.17 These gures ollow Rio Tinto’s

recent announcement that it intended to sell its 57.7 per cent stake in the

Palabora Mining Company, allegedly on the basis that its copper operations

are not o a scale to suit its investment criteria.18 On completion o the sale,

Rio Tinto’s 37 per cent shareholding in Richards Bay Minerals will be the

company’s only major remaining South Arican asset.19

The state o the South Arican mining industry is in stark contrast to

that in the rest o the world. Between 2001 and 2008, Chile, a key mining

jurisdiction in the developing world, experienced a 12 per cent growth in

value added to GDP.20 During the 2000s, in more stable mineral regulatory

regimes, such as Australia, investment in the mining industry advanced by

24 per cent, while average investment growth in South Arica was a relatively pedestrian seven per cent.21 South Arica’s decline can, to a large degree,

be linked to the regulatory uncertainty precipitated in no small part by the

architecture, as much as the implementation, o the Mineral and Petroleum

Resources Development Act 2002 (MPRDA).22

To be air, in 2011 the South Arican Department o Mineral Resources

(DMR) announced some steps to address these problems. In February,

the Minister o Mineral Resources (the ‘Minister’) proposed a series o

measures, which, once implemented, should result in improvements to the

overall regulatory environment.23

These proposals are addressed in moredetail below.

Upheaval o South Arica’s previous mineral regulatory regime

Most people will agree that it was imperative that South Arica’s irst

democratic government, elected in April 1994, develop a new mineral

regulatory ramework to address the apartheid government’s past

exclusionary practices against black South Aricans. While these, it is worth

recalling, were eected across all sectors o the economy, they were almost certainly worst in the mining industry with its terrible legacy o migrant

labour, unsae working conditions, labour repression and economic

exclusion. In order to address these – and related – socio-economic issues,

17 Ibid .

18 ‘Rio Tinto to Sell Out o Palabora’, Miningmx , 5 September 2011.

19 Ibid.

20 National Treasury o the Republic o South Arica, note 11 above.

21 Ibid .

22 Also reerred to in this article as ‘the Act’.

23 Minister Susan Shabangu’s statement on the new electronic mineral management system

and its implications or the regulatory environment, Cape Town, 7 February 2011.




the MPRDA was passed by Parliament in June 2002 and brought into orce

on 1 May 2004. Despite the MPRDA’s laudable socio-economic objectives,

its implementation has, unortunately, contributed signicantly to many o

the mining industry’s current travails.

The MPRDA repealed the Minerals Act 1991 (the ‘Minerals Act’) and

the common law to the extent that the common law was in confict with the

MPRDA. It thus abolished the property-law-based system o the Minerals

Act, and introduced a undamentally dierent regulatory regime – one o

administrative law based on conditional state licences . Accordingly, landowners no

longer owned the mineral rights to the mineral resources on their property.

These now all under the public trust doctrine o ‘state custodianship’,

under which the state, acting through the Minister, holds mineral rights in

‘custody’ or ‘the benet o all South Aricans’, and is empowered to ‘grant,issue, reuse, control, administer and manage’ rights to minerals.24 The

concept o ‘state custodianship’ is in turn based on South Arica’s ‘permanent

sovereignty’ over its mineral and petroleum resources. Both concepts, in turn,

have been infuenced by two United Nations General Assembly resolutions

passed during the Cold War:25 the rst declaring a nation’s permanent

sovereignty over its non-renewable natural resources26 and the second on

the creation o a new international economic order.27

In order to acilitate the introduction and establishment o the new mineral

law regime, Schedule II to the MPRDA created ‘transitional arrangements’,under which holders o pre-MPRDA ‘old order’ prospecting and mining

rights had an opportunity to apply to convert these rights into ‘new

order’ prospecting and mining rights by 30 April 2006 and 30 April 2009,

respectively. Holders o unused old order rights had until 30 April 2005 to

apply or ‘new order’ rights. On any one o these dates, the respective old

order rights simply ceased to exist .

24 The objects o the MPRDA include, among others, a recognition o the ‘internationally

accepted right o the [s]tate to exercise sovereignty over all the mineral and petroleum

resources’ within South Arica and the need to give eect to the principle o ‘[s]tate

custodianship’ (sections 2(a) and (b) o the MPRDA). These objects are given eect toby section 3 o the MPRDA.

25 Save or certain exceptions, United Nations General Assembly resolutions neither

bind its members nor are they sources o international law: its resolutions are ‘purely’

recommendatory. ‘Such resolutions, o course, may be binding i they refect rules

o customary international law and they are signicant as instances o state practice

that may lead to the ormation o a new customary rule, but Assembly resolutions in

themselves cannot establish binding legal obligations or member states’ (M N Shaw,

International Law (5th edn, Cambridge University Press, 2003), 1090).

26 United Nations General Assembly Resolution 1803: Permanent sovereignty over

natural resources, 1962.

27 United Nations General Assembly Resolution 3201: Declaration on the establishment

o a new international economic order, 1974.




The case o Holcim (South Arica) (Proprietary) Limited v Prudent Investors

(Proprietary) Limited & Others 28 demonstrates some o the legal consequences

arising rom the introduction o the MPRDA. In particular, the case analysed

the issue o security o tenure in relation to the MPRDA and its transitional

arrangements. In this case, Holcim (South Arica) (Proprietary) Limited

(Holcim) operated a limestone quarry under a mining licence granted in

1997 under the Minerals Act. The licence covered a number o contiguous

arms. Prudent Investors (Proprietary) Limited and Others ( Prudent), in

turn, owned several portions o one arm, which ell under Holcim’s licence.

Holcim had commenced mining limestone beore the implementation

o the MPRDA; it had, however, yet to start mining on Prudent’s properties.

Prudent consequently reused to allow Holcim access to its land on the basis

that Holcim had not commenced mining operations on Prudent’s propertiesimmediately prior to the commencement date o the MPRDA. Prudent

contended that Holcim consequently did not possess an ‘old order mining

right’, but rather an ‘unused old order mining right’. Under the MPRDA,

an unused old order right is only valid or one year rom the date on which

the Act took eect. Holcim’s ailure to exercise its exclusive right to apply

or a prospecting or mining right under the MPRDA during the relevant

period meant that the right had ‘ceased to exist’.29

In an important judgment on the legal eect o the MPRDA, the Supreme

Court o Appeal (SCA) rejected Prudent’s argument and overturned theHigh Court’s nding that the MPRDA’s transitional arrangements did not

provide security o tenure in Holcim’s case.30 The court a quo had considered

‘the subject-matter’ preserved by the denition o an old order mining right,

as per item 1 o Schedule II to the MPRDA,31 to be ‘primarily the land’.32

28 [2010] JOL 26143 (SCA).

29 The appeal thus ocused on whether the MPRDA’s transitional arrangements ‘provide

security o tenure to the holder o a mining licence which, immediately, beore the

Act took eect, was conducting authorised mining operations on land covered by the

licence even though the operations had not been extended to all cadastral units so

covered and might not be so extended in the immediate uture’ (ibid , at para 1).

30 The court a quo based its decision, inter alia , on what it perceived to be the essential

requirement that mining operations were conducted on the relevant date ‘in respect o

the land to which the licence relates’. The SCA ound that this emphasis did not accord

with the denition o an old order mining right, which requires that ‘the operations

must be conducted in respect o the authorisation and the rights attaching to it’.

Consequently, the SCA ound it necessary to examine ‘the terms o the relevant licence

in order to determine whether mining operations were being conducted in respect o

that licence at the relevant time’ (ibid, at para 18).

31 Item 1 o Schedule II denes an ‘old order mining right’ as ‘… any mining lease,

consent to mine, permission to mine, claim licence, mining authorisation or right

listed in Table 2 o this Schedule in orce immediately beore the date on which this

Act took eect and in respect o which mining operations are being conducted’.32 Ibid, para 19.




The SCA agreed with Holcim’s submission that such an interpretation

did not take into account ‘the structure o the Act and the reason or the

creation o the concept o old order rights in the context o the [t]ransitional

[a]rrangements’.33 The court ound that the MPRDA had introduced a new

‘composite’ mining right that ‘contains what was previously held separately

by means o the mining licence and common-law mineral right’.34 The SCA

considered the requirement under section 4 that preerence be given to

any ‘reasonable’ interpretation o the MPRDA’s provisions consistent with

its objects.35 The objects o the Schedule, among others, are to: ‘(a) ensure

that security o tenure is protected in respect o prospecting, exploration,

mining and production operations which are being undertaken’ and ‘(b)

give the holder o an old order right… an opportunity to comply with [the]

Act... .’36 The SCA held that an interpretation o an old order mining right that is dependent on mining operations being conducted on every registered

unit o land to which mineral rights attach ‘is contrary to the terms o the

[t]ransitional [a]rrangements and inimical to its objects. By contrast, an

interpretation which depends on the terms o the mining authorisation

that is relied on satises both the word and spirit o the [a]rrangements’.37

In coming to this conclusion, the SCA made some important legal ndings.

First, the new mineral regulatory system introduced by the MPRDA and

the common law system o privately owned mineral rights ‘are mutually

exclusive’.38

Secondly, reerring to Agri South Arica v Minister o Minerals and Energy; Van Rooyen v Minister o Minerals and Energy , where, under the MPRDA,

mineral rights were not exploited by the time o the Act’s commencement,

‘they simply disappeared into thin air’.39 Were it not or the Act’s transitional

arrangements, which conerred certain rights on the holders o old order

rights, ‘the eect o the Act would have been to extinguish all those rights

and to render existing mining operations unlawul’.40 The court reerred

33 Ibid .

34 Ibid, para 21.

35 Ibid, para 27.

36 Ibid, para 28.37 Ibid, para 42. In reaching this conclusion, the SCA observed that according to

Prudent’s interpretation, Holcim would be required to: (a) convert its old order

mining rights; and (b) apply or the processing o its unused old order rights. Both

these procedures are ‘materially’ dierent, with dierent consequences and could

conceivably lead to the reusal o licences in relation to certain units o land. Thus, ‘i

[Prudent’s] construction o an “old order mining right” were to be adopted, a miner in

the position o [Holcim] might nd operations, planned but not executed beore the

commencement o the Act, held up by red tape, and, perhaps, eventually thrown into

disarray by systemic delay or reusal to grant an item 8 application’ (ibid , paras 38–40).

38 Ibid , para 23.

39 2010 (1) SA 104 (GNP) at 109–110, para 11, reerred to in ibid , para 25.

40 Ibid.




approvingly to the Free State High Court’s decision in De Beers Consolidated

Mines Limited v Regional Manager, Mineral Regulation Free State Region: Department

o Minerals and Energy and Another , where it held that: ‘[t]he only relevance o

previous mineral rights is that they constitute an element o the transitional

arrangement in [the Act].’41

Accordingly, the SCA ound that the Act’s transitional arrangements

prevented the ‘stultication’ and ‘ total disruption’ o the South Arican

mining industry – ‘ An important sector o the economy’ – until existing

operations could be regulated under the new Act.42 ‘This was done by

continuing the existing rights with respect to such operations in the orm

o transitional rights called “old order rights” and aording the holder o

such rights the opportunity to comply with the Act.’43 Further:

‘[t]here is no indication in the text o the Act or Schedule II o anintention to limit the continuation o such rights to the very land on

which the operations are being conducted. Rather the ocus in the

[t]ransitional [a]rrangements is the seamless continuation o existing

mining operations which are tested not according to the physical scale

o the operations on the relevant date but by the scope o the licence

pursuant to which the operations are being conducted.’44

The legal upheaval caused by the introduction o the MPRDA was

highlighted earlier in 2011 by the North Gauteng High Court’s ruling in

avour o Agri South Arica’s (Agri SA’s) expropriation claim against theMinister.45 Agri SA was the cessionary o a claim or compensation rom

the liquidators o a company, Sebenza Mining (Proprietary) Limited

(Sebenza), which had, in turn, originally acquired coal rights under the

previous Minerals Act in 2001. Sebenza never used these rights and did not

acquire either a prospecting permit or a mining authorisation under the

Minerals Act. These rights were accordingly unused old order rights or

the purposes o the MPRDA. Once Sebenza was liquidated, its provisional

liquidators attempted to sell these rights to a third party in September

2004 (ie, ater the MPRDA had commenced). The sale was cancelled as theparties received legal advice that it was void owing to the introduction o

the MPRDA (which extinguished all privately owned mineral rights). The

liquidators accordingly lodged a claim or compensation with the DMR,

which was, predictably, rejected.

41 (1590/2007) [2008] ZAFSHC 40 (15 May 2008), reerred to in ibid , para 25.

42 Ibid , para 26.

43 Ibid .

44 Ibid.

45 Agri SA v Minister o Minerals and Energy (Centre or Applied Legal Studies as amicus curiae)

[2011] 3 All SA 296 (GNP) (28 April 2011).




The DMR has long argued that the MPRDA did not bring about any

expropriation o common law privately owned mineral rights, as all it did

was regulate the use o mineral rights.46 The court made short shrit o this

argument, however, nding that ‘[i]n sum the holders o mineral rights

have, since the enactment o the MPRDA not one o the competencies that

the law conerred upon them [under the common law]…’47 and that Agri

SA’s ‘coal rights… had been legislated out o existence’.48 The court held

that the mere enactment o the MPRDA brought about an uncompensated

expropriation o unused old order rights.49

Other actors contributing to the mining industry’s decline: lack o

regulatory certainty and maladministration As is well known, in resource-rich developing economies with ambitious

transormation and development goals, such as South Arica, investors require

regulatory certainty as well as administrative efciency . This, in turn, requires that

laws and policies are clear, denite and consistently applied, particularly in

the high-risk, capital-intensive, mining industry owing to the signicant capital

outlays required beore mining operations actually commence. Further,

investors are always wary o corruption in developing countries, particularly as

a lack o legal certainty may allow ‘get-rich-quick’ opportunists to manipulate

the legal system, as well as those who regulate it, or their own ends.There are, unortunately, many examples o legal uncertainty in the South

Arican mineral regulatory regime. The MPRDA, the backbone o this regime,

is raught with vague and ambiguous provisions, as is illustrated below. So too

is the Mining Charter, an ancillary document aimed at providing a ramework

or the promotion o Black Economic Empowerment (BEE) in the mining

industry. This has recently led South Arica’s National Treasury, unusually,

to criticise South Arica’s mining regulatory and administrative regime as

both ‘opaque’ and inecient.50

In this regard, it is relevant that the DMR can take substantially longer toprocess prospecting and mining rights than regulators in competitor mining

46 Ibid , para 66.

47 Ibid , para 50.

48 Ibid , para 57.

49 Peter Leon, ‘Compensation or Expropriation o Old Order Mineral Rights’, De

Rebus , July 2011, at 47 and 54. The DMR has noted an appeal with the SCA against the

decision. I this decision is upheld on appeal, however, all holders o unused old order

mineral rights who have lodged claims or the compensation with the DMR, will be

entitled to ‘just and equitable’ compensation in accordance with section 25(3) o the

Constitution o South Arica or the expropriation o their mineral rights.

50 National Treasury o the Republic o South Arica, note 11 above.




jurisdictions.51 Previous DMR statistics have shown that over 90 per cent o

mining right applications have taken more than a year to process; some

up to ve years.52 This is illustrated by the act that during the 2009/2010

nancial year,53 the DMR received approximately 20,163 applications or,

among others, prospecting and mining rights. O these applications, 5,805

were granted, 3,653 rejected, with 16,190 pending,54 a less than optimal

picture given a 25 per cent success rate.

Last year the situation was no better. According to the DMR’s annual

report or 2010/2011, in processing licensing applications, the DMR ailed

to meet its target o complying with prescribed timerames a staggering 90

per cent o the time. Instead, only 1,387 o 3,798 applications received were

processed on time, resulting in a 36.5 per cent adherence to the prescribed

timerames: a 53.5 per cent variance between the objective and the reality.55 On a slightly more positive note, the same report indicated that double

granting o mineral rights had only taken place in less than one per cent o

cases since the implementation o the MPRDA.56

As mentioned earlier, the MPRDA itsel is replete with uncertainties. For

example, the holder o an old order mining right, wishing to convert it into

a new order mining right, must comply with the BEE objectives espoused

in the Mining Charter.57 The processing o such an application is subject to

wide ministerial discretion. For example, it is within the Minister’s discretion

to determine whether or not an applicant has urthered the objectives o the MPRDA, specically the advancement o its BEE and socio-economic

welare objectives.58 This lack o an identiable standard consequently places

51 McKinsey & Company, note 2 above, slide 25.

52 Ibid.

53 As at 31 March 2010. Annual Report 2009/2010 , Department o Minerals and Energy,

at 76.

54 The applications were accepted but not yet granted. Ibid .

55 Formula: number o applications received that were processed on time (1,387)/

total number o applications (3,798) = % (36.5 per cent). Annual Report 2010/2011,

Department o Mineral Resources, at 81.

56 Ibid , 77.57 For example, the requirement that 26 per cent ownership o a mining company’s assets

or equity be transerred to Historically Disadvantaged South Aricans by 2014.

58 Item 7(2), Schedule II to the MPRDA, provides: ‘[a] holder o an old order mining

right must lodge the right or conversion… together with… a prescribed social and

labour plan’ and ‘… an undertaking that, and the manner in which, the holder will

give eect to the object reerred to in section 2(d) and 2() [o the MPRDA].’

Section 2(d) provides that the object o the MPRDA is to ‘substantially and

meaningully expand opportunities or historically disadvantaged persons, including

women, to enter the mineral and petroleum industries and to benet rom the

exploitation o the nation’s mineral and petroleum resources’. According to section

2(), it is also intended to ‘promote employment and advance the social and economic

welare o all South Aricans’.




applicants at a signicant disadvantage, as it makes it dicult to determine

whether or not they have complied with the Act itsel; a pivotal point o

the rule o law.59 Sel-evidently, i key requirements o a mineral regulatory

regime are vague, subjective and indeterminate, it is unsurprising that the

licensing process itsel operates at such a glacial pace.

These issues, as well as an inecient and seemingly erratic administrative

system, can best be illustrated by three recent examples: the recently resolved

legal dispute between Kumba Iron Ore Limited, the DMR and Imperial

59 The undamental nature o this legal principle was recently highlighted in

Democratic Alliance v The President o the Republic o South Arica [2011] ZASCA 241(1 December 2011), which concerned the validity o the President’s decision to

appoint the National Director o Public Prosecutions. The Democratic Alliance

(the DA) contended, inter alia , that the appointee, Menzi Simelane, was appointed

contrary to section 9(1)(b) o the National Prosecuting Authority Act 32 o 1998,

which species that the proposed candidate must be a ‘t and proper person’ to

hold such a position (the requirement) (para 4).

The SCA ordered that the President’s decision was ‘inconsistent with the Constitution

and invalid’ (para 124). The SCA held, inter alia , that:

• ‘[s]ection 1(c) o the Constitution states that the Republic o South Arica is… ounded

amongst other values on the supremacy o the Constitution and the rule o law…’

(para 57);

• urther, Chapter 3 o the Constitution requires that ‘all spheres o government must adhere to constitutional principles’ (emphasis added; para 58);

• urthermore, ‘[t]he rule o law is a central and ounding value… Accountability,

responsiveness and openness are constitutional watchwords… To ensure a

unctional, accountable constitutional democracy the draters o our Constitution

placed limits on the exercise o power. Institutions and oce bearers must work

within the law and must be accountable. Put simply, ours is a government o laws

and not o men or women’ (para 66).

The SCA reerred to a number o previous decisions o the Constitutional Court, in

particular Pharmaceutical Manuacturers Association o SA & Another: In re Ex parte President

o the Republic o South Arica 2000 (2) SA 674 (CC) (2000 (3) BCLR 241), paras 84–85:

‘In S v Makwanyane Ackerman J characterised the new constitutional order in the

ollowing terms:“We have moved rom a past characterised by much which was arbitrary and

unequal in the operation o the law to the present and a uture in a constitutional

State where State action must be such that it is capable o being analysed and

justied rationally… Arbitrariness, by its very nature, is dissonant with these core

concepts o our new constitutional order.”’

The SCA also cited Chie Justice Mahomed in his address to the International

Commission o Jurists on 21 July 1998:

‘… i [the legislature] does make laws which transgress the constitutional mandate or

i it reuses to deer to the judgment o the court on any challenge to such laws, it is in

breach o its own mandate. The court has a constitutional right and duty to say so… A

democratic legislature does not have the option to ignore, dey or subvert the court…’

(I Mahomed, ‘The Independence o the Judiciary’ (1998) 115 SALJ 658 at 662–663).




Crown Trading 289 (Proprietary) Limited (ICT),60 the conditional and

recently aborted US$110m acquisition o ICT by ArcelorMittal61 and the

2010 regulatory saga with Lonmin,62 which placed South Arica under an

unavourable international media spotlight shortly ater its successul hosting

o the FIFA 2010 soccer World Cup.

A fawed BEE policy

The original Mining Charter was substantially amended, with the industry’s

agreement, on 13 September 2010 (the revised Mining Charter), despite the

act that the MPRDA makes no provision or its amendment. The intention

60 Kumba Iron Ore Limited (Kumba), the majority shareholder in the Sishen Iron OreCompany (Proprietary) Limited (Sishen), held a 78.6 per cent undivided share in

an old order mining right over the iron ore and quartzite mined at the Sishen mine.

ArcelorMittal South Arica Limited (Amsa) held the residual 21.4 per cent undivided

share in the same right (the residual share). Under the MPRDA’s transitional provisions,

Sishen duly converted its share into a new order right. Amsa inexplicably ailed to do

so and thus its residual share ceased to exist. Sishen immediately applied or a mining

right or this residual share; however, it then transpired that ICT had lodged a competing

application or a prospecting right over the entire Sishen mine. Despite concerns over the

validity and lawulness o ICT’s application, ICT, most o whose shareholders have links

to the governing Arican National Congress (ANC), was granted a prospecting right,

in part, by the DMR Deputy Director-General on 30 November 2009 in relation to the

residual share. In essence, ICT was granted a prospecting right that diers materially rom the one that it applied or. Kumba launched an internal appeal on 1 March 2010,

which was rejected by the Minister. On 21 May 2010, Kumba lodged an application or

judicial review. On 15 December 2011, the North Gauteng High Court held, inter alia ,

that Sishen was the exclusive holder o a converted mining right in relation to iron ore

and quartzite (with eect rom 5 May 2008, alternatively 18 June 2008) (at para 1.1); the

decision to accept or grant a mineral right application lodged ater this date in respect o

the residual share (or any other share or shares) by any individual (including ICT) was

void ab initio (para 1.2); and the whole o the prospecting right granted in avour o ICT

is to be set aside and its registration with the Mineral and Petroleum Titles Registration

Oce cancelled (para 2.2). The court’s ull judgment was released on 20 December 2011

(case number: 28980/10) (‘Stage Set or Govt to Enter Amsa, Kumba Fray’, Miningmx ,

15 December 2011).61 ‘Amsa Conrms ICT Deal is Dead’, Miningmx , 6 October 2011.

62 Lonmin lodged an appeal against the DMR’s decision, rst, to accept Keysha

Investments’ application or a prospecting right over a portion o property already

subject to Lonmin’s mining operations and, secondly, its decision subsequently to grant

the right. (See Annual Report and Accounts or the Year Ended 30 September 2010 , Lonmin

PLC, at 9). A decision rom the Director-General is still pending. Once all internal

avenues have been exhausted, and in the ‘absence o a avourable’ decision, the matter

would proceed to judicial review. The company continues to assess the merits o its

compensation claim or the purported expropriation o its mineral rights (as well as

its claim against a ormer director or breach o his statutory and common law duties).

(See Final Results Announcement or the Year Ended 30 September 2011, Lonmin PLC,

14 November 2011, at 11.)




behind both the original and the revised Mining Charter was to champion

the government’s BEE policy, which itsel is an attempt to deracialise the

economy by requiring mining companies, inter alia , to divest equity in

avour o black South Aricans: 15 per cent by 2009 and 26 per cent by 2014,

supposedly at air market value.

According to the Minister’s 2011 Budget vote address to Parliament,

black ownership achieved in the mining industry in 2009 was approximately

8.9 per cent, well below the target o 15 per cent. 63 Public hearings on

the revised Mining Charter were recently held beore the Parliamentary

Portolio Committee on mineral resources. It emerged that there is a real

dispute as to the actual level o black ownership o the mining industry: the

DMR advised the Portolio Committee that black ownership in the mining

industry was a paltry nine per cent (well below the 2009 15 per cent target).It also indicated that, owing to the slow pace o transormation, the DMR is

‘looking at beeng up the penalty provisions that may be imposed on mining

companies or non-compliance to serve as a deterrent and to ensure there

is greater compliance’.64 The Chamber o Mines, however, claimed in the

same hearing that black ownership among its members averages 28 per cent

and so already exceeds the Charter’s targets.65 The South Arican Mining

Development Association (SAMDA) disputed the gures presented by the

Chamber o Mines, claiming that none o the targets set by the Mining

Charter had actually been reached.66

These vastly dierent gures o blackownership in the South Arican mining industry could possibly be attributed

to the methodology used to calculate the level o black ownership.

The promotion o BEE in the mining sector has, ironically, become a

catalyst or the populist support or the nationalisation o South Arica’s

mines. This is because both the original and revised Mining Charters promote

a orm o ‘narrow’ BEE, or crony capitalism, resulting in the enrichment

63 ‘Strongly Conficting Views on SA’s Mining Charter Progress’, Mining Weekly ,

19 August 2011.

64 ‘State Eyes Tougher Mining Penalties’, Fin24 , 24 August 2011.65 ‘Black Mine Ownership Targets Met: Chamber’, Fin24 , 24 August 2011.

66 SAMDA comments on the broad-based socio-economic empowerment charter or the

South Arican mining and minerals industry – August 2011, Parliamentary Committee

on Mineral Resources: Public Hearings on the Mining Charter , 26 August 2011. In its

submissions, SAMDA asserted that it was ‘extremely concerned that transormation

in the mining industry has not been met and the mining charter targets have not

been achieved by the majority o the industry’ (at 1). SAMDA relies heavily on the

independent research conducted by KIO Advisory Service in 2010 and 2011. The 2010

research indicates that the gross value o black shareholdings (‘HDSA market cap’)

within the top 25 mining companies is 4.53 per cent o the total market capitalisation

and in 2011 the gross ownership percentage is indicated as 4.53 per cent o the total

market capitalisation (at 15).




o the well-connected ew, as opposed to the economic empowerment o

workers, as well as poor and marginalised black communities, who should

be the principal beneciaries o BEE.

The Congress o South Arican Trade Unions (Cosatu) in 2010 called or

the revision o BEE itsel, stating that ‘the current BEE policy is based on the

view that empowerment means giving millions o rands worth o shares to a ew

individuals, while they leave the overwhelming black majority as disempowered

as ever. Instead o making a rich elite minority even richer, BEE should benet

the workers, including the unemployed and poor communities’.67

An example o the promotion o narrow BEE can be ound in the act

that, while the revised Mining Charter requires that BEE transactions ascribe

to the aspirant goal o bringing about ‘meaningul economic participation’

(ie, by including workers and communities as beneciaries), conusingly, it requires that these beneciaries are vested with ‘eective ownership’, which

entails their holding ‘direct ownership, voting rights, economic interest and

management control o mining entities’. This seemingly precludes broad-

based share schemes with communities and workers as their beneciaries,

as such schemes tend to be in the orm o a trust, which holds shares in a

mining company, and collectively exercise the voting rights attaching to the

shares on behal o the community.68

The underlying pressure or real socio-economic change and the

government’s apparent ailure to respond to this challenge adequately areimportant contributors to the industry’s current problems. According to

Empowerdex, during the period 2004 to 2008, o all the BEE transactions

conducted in the mining sector, only ‘[seven] per cent o the mining

sector transactions involve[d] employee share schemes directly’ and ‘only

10 per cent involve[d] community schemes’.69 Politically connected and

already empowered individuals seem to be the primary beneciaries o a

policy that was originally intended to benet a broader class o previously

disenranchised black South Aricans.

This is illustrated by ArcelorMittal’s recently aborted US$110m acquisition

o ICT,70 conditional, inter alia , on ICT retaining its prospecting right over

67 ‘BEE Policies Should Be Replaced – Cosatu’, Miningmx , 18 August 2010.

68 The denition o ‘meaningul economic participation’, however, specically states

that transactions can be concluded with non-operational BEE partners, or example,

ESOPs and communities (being communities not usually involved in the management

or control o a mining company). Eective ownership may thus require that such

entities be aorded a greater opportunity to participate in a mining company’s

operations. The Mining Charter does not provide guidance on the manner in which

the participation o non-operational BEE partners would be assessed.

69 ‘A Summary o the BEE Transactions in the Mining Sector: 2004–2008’, Empowerdex , 27

October 2009, at para 6.

70 Miningmx, note 61 above.




ArcelorMittal’s oreited residual share to the Sishen iron ore mine.71 ICT’s

shareholders include a ormer ANC employee and partner o Deputy

President Kgalema Motlante, Prudence Mtshali, while 50 per cent is held

by Jagdish Parekh, a key executive o the Gupta group o companies. The

Guptas, in turn, are reputed to be beneactors o President Jacob Zuma and

his extended amily. A urther example o crony capitalism in the mining

industry is the act that a politically connected company, Keysha Investments,

controlled by Sivi Gounden, the erstwhile Director-General o Public

Enterprises, was granted a prospecting right or associated minerals on a

portion o Lonmin’s mine in the Marikana area in Rustenburg in May 2010.

The DMR argued that in March 2009, when Keysha Investments lodged its

application or this prospecting right, no prior applications had, at that time,

been made regarding associated minerals over this property, and thus ‘theDepartment thereore had no choice but to process the Keysha application

in terms o the “rst come, rst served” provisions o the [MPRDA]’ and to

grant it.72 The political connectivity in this case raises questions as to how

Keysha Investments was aware o Lonmin’s alleged ailure to apply or new

order rights or associated minerals.

The majority o South Aricans who were disadvantaged by the racist

economic policies o the past are simply not beneting rom the government’s

key empowerment policy. A fawed BEE policy will continue to uel discontent

among the historically underprivileged majority in South Arica. This is likely to strengthen the hand o those stoking the res o nationalisation. This

was illustrated recently by a poll among urban black South Aricans which

demonstrated 45 per cent support or mine nationalisation.73

Spectre o mine nationalisation

As the demand or eective socio-economic transormation increases,

so too does the demand or mine nationalisation. Indeed, the resource

nationalism trend appears to be gathering pace in Southern Arica as a whole. Namibia’s mining and energy minister, Isak Katali, announced at

the end o April 2011 the Namibian Government’s intention to declare

copper, coal, gold, uranium and zinc, as ‘strategic’ minerals and thus

subject to ‘additional national protection’.74 This means that exclusive

exploration and mining rights to all these ‘strategic’ minerals will in uture

71 Ibid .

72 ‘Statement: Lonmin PLC Did Not Lose Mining Rights’, Business Day , 10 August 2010.

73 Just over a third o metro adults eel that SA’s mines should be nationalised, TNS

Research Surveys , 7 April 2011.

74 ‘Namibia’s Strategic Minerals’, Mining Journal , 28 April 2011.




be held by Namibia’s state-owned mining company, Epangelo Mining

Company Limited (Epangelo). Consequently, investors will be required to

partner with Epangelo should they wish to acquire rights to any o these

‘strategic’ minerals in Namibia.75 While initially concerned about this,

mining companies operating in Namibia appear to have been reassured

by Katali’s subsequent statement that the government’s reorms would

only apply prospectively: existing exploration and mining licences would

remain unaected.76 Their condence may have been somewhat attenuated,

however, by the Namibian Government’s announcement that Canadian

Ari-Can Marine Minerals Corporation, which owns the rights to Namibia’s

second largest copper deposit in Haib, must enter into a joint venture with

Epangelo. The Namibian Government has made no secret o the act that

it wishes Epangelo to participate in the project’s development.77

This comes on top o the publication o Zimbabwe’s Indigenisation

and Economic Empowerment Regulations, on 25 March 2011. Under

these regulations, non-indigenous mining companies with an asset value

o or above US$1 are required to dispose o at least 51 per cent o their

shareholding to designated entities – originally within six months rom the

date o the publication. Seemingly aware o what this had done to skittish

investor sentiment in Zimbabwe, President Robert Mugabe in his opening

o Parliament address in September, merely called or ‘compliance with the

country’s laws’ and emphasised that investment in Zimbabwe ‘remains sae’.78

At odds with President Mugabe’s reassurances have been Indigenisation

Minister Saviour Kasukuwere’s various public assertions that Zimplats, which

is 87 per cent owned by Impala Platinum,79 Zimbabwe’s largest oreign

investor, could lose its mining licence i it ailed to comply with Zimbabwe’s

new legislation.80 Fortunately, an agreement was reached in late 2011 between

the parties,81 under which Impala Platinum agreed to sell ten per cent o

its Zimbabwean operations to a community trust. It also agreed to make a

US$10m donation to acilitate the administration o the awarded shares.82

75 Ibid.76 ‘Mining Companies Welcome Clarication on New Namibian Policy’, Mining Weekly ,

11 May 2011.

77 ‘Epangelo Mining Wants In On Haib Copper’, The Southern Times , 5 September 2011.

78 ‘Mugabe Says Foreign Firms to Abide by Stakes Plan’, Mining Weekly , 6 September 2011.

79 ‘Zimplats Wrangle Descends into Farce’, Miningmx , 7 September 2011.

80 ‘Zimplats, Zimbabwe Reach Deal’, Business Day , 13 September 2011.

81 Ibid .

82 This is the rst step made by the company to ensure that it complies with local

legislation vis-a-vis the transer o a majority stake in the mining company to

indigenous Zimbabweans. ‘Implats Agrees to Sell 10% o Zim Division’, Business Day ,

14 October 2011; ‘Zimplats Submits Revised Ownership Plan – Minister’, Mining

Weekly, 18 November 2011.




Further amendments to the plan were announced on 18 November 2011.83

South Arica itsel is now in the midst o a serious debate around mine

nationalisation. A recent source o populist pressure or the nationalisation o

the country’s mining industry stems rom the ANC’s Youth League (ANCYL).

More than two years ago, while the world was battling the global nancial

crisis, Julius Malema, the recently suspended ANCYL President, called or the

nationalisation o South Arica’s mines.84 This call began an intense and very

public debate within the Tripartite Alliance, the ANC’s electoral partners.

In a documentary entitled ‘Mining or Change: a Story o South Arican

Mining’ released in June 2011, Malema argued that the country’s mines must

be nationalised to return mineral wealth stolen by the white colonists to the

black majority. This call or ull-scale nationalisation, unaccompanied by any

compensation,85 became a central aspect o Malema’s successul campaignor re-election as the ANCYL President in June 2011. What ollowed in the

wake o Malema’s nationalisation proposal was an intense debate both in

the media and eventually within the ANC itsel, which has been at pains to

emphasise that nationalising the mining industry is not the policy o the

ruling party or o the government. The issue is strongly opposed by many

sectors o South Arican society including, at one point, the National Union

o Mineworkers (NUM). The NUM’s initial position was one o concern

that a change in ownership could potentially result in the exploitation o

workers.86

James Motlatsi, ormer NUM president, went as ar as to cautionthat nationalisation without compensation was unworkable, as it would

put the retirement unds o numerous workers at risk and could lead to

international retaliation through a boycott o South Arican exports.87 It now

appears, however, that the NUM has reversed its initial position, by voicing

its support in avour o nationalisation. This is subject to any policy being

inormed by the country’s developmental needs.88

At Malema’s instigation, the ANC discussed the issue o nationalisation

at its third national general council (NGC) meeting in September 2010.

Although, contrary to ANC practice, the matter had not been previously

discussed by either its Economic Transormation Committee or its national

Executive Committee, it was decided that the matter o mine nationalisation

would be the subject o urther research and a nal decision delayed until

83 Mining Weekly , note 76 above.

84 ‘ANC Rejects Call to Nationalise Mines’, Mail & Guardian , 2 July 2009.

85 ‘We are not going to buy what has been stolen rom us…’: ‘Julius Malema quoted in

ANC youth leader targets mines in new lm’, Reuters , 8 June 2011.

86 ‘NUM to Canvass Workers’ Views on Nationalisation’, The New Age , 4 May 2011.

87 ‘Mine Nationalisation Without Compensation Will Spark Revolution – Motlatsi’,

Mining Weekly , 1 April 2011.

88 ‘NUM Explains its Nationalisation Stance’, Miningmx , 19 August 2011.




the ANC’s December 2012 elective conerence, which will be preceded by

its June 2012 policy conerence.

In February 2011, the ANC’s most important decision-making body, its

National Working Committee, appointed a research team to investigate and

report back by November 2011, on the easibility o mine nationalisation.

The three-person research team, led by Paul Jourdan, has conducted a

detailed inquiry, involving extensive case studies o Botswana, Brazil, Chile,

China, Finland, Malaysia, Nigeria, Norway, Sweden Venezuela, Zambia and

Zimbabwe.89 While the report was submitted on schedule, its contents remain

unknown. This is because o the subsequent request that the report is redrated

into plain language to ensure that its ndings can be understood by rank and

le members o the ANC, as well as provide additional detailed country-specic

case studies.90 Leaked media reports suggest that the report may recommendsome orm o windall prots tax, modelled on Australia’s resource rent tax91 or

the mining industry; restrictions on the export o unprocessed minerals (which

will be subject to export duties)92 to encourage domestic beneciation and a

substantially increased role or the state mining company, possibly modelled

on Codelco, the Chilean state-owned copper producer.93

Contradictory statements that nationalisation is a question o how, not

i, as well as statements that nationalisation will never happen, have been

condently made by key participants in the debate. On the one hand,

Minerals Minister Susan Shabangu has gone on record as saying that whetherSouth Arica should nationalise its mining industry was a dangerous question

89 According to the Sunday Times , the research team examined: the eective use o

mining licences; local beneciation strategies; royalties; various orms o ownership,

including joint ventures; and passive nationalisation, which entails public control but

private management o mine production.

In particular, the team examined: the 50:50 joint partnership between the Botswana

Government and De Beers; the ailed nationalisation o Zambia’s copper industry; and

how Sweden has successully implemented a state-owned sovereign wealth und. ‘Study

Due Soon on State Mines’, Sunday Times , 16 October 2011.

90 ‘ANC Tells Researchers to Simpliy Mining Report’, Business Day, 29 November 2011.

91 ‘ANC Warms to Chile Mines Policy’, Miningmx , 11 December 2011.92 ANC drat documents indicate that an export tax to ensure the ‘security o supply’

o commodities is currently being considered. To support the South Arican

manuacturing industry, the government is also encouraging producers to increase

local mineral beneciation (‘ANC Targeting Export Taxes, Pension Funds in South

Arica’s Economic Plan’, Bloomberg , 23 November 2011).

93 News reports suggest that this model has been particularly well received by the ANC

due to the act Chile and South Arica share similar challenges and it accommodates

both public and private participation in the mining industry. Other eatures o the

Chilean model include: the identication o ‘strategic’ minerals; state participation

in resource asset ownership; joint ventures with the state; and, or the purposes o

beneting the country’s Copper Stabilisation Fund, the imposition o a ‘supertax’

during particular ‘boom’ periods (Miningmx , note 91 above).




to ask in searching or the answer to South Arica’s ‘evil triplets’ o poverty,

inequality and unemployment.94 On the other, Cosatu has asserted that

nationalisation will happen; the only remaining question is how. According

to Cosatu economist Chris Malekane: ‘[i] you say business needs certainty

to make investments… this is the certainty you need to have, that what is

being discussed now is models.’95

Despite the Minister’s commendable attempt to quell concerns regarding

the mine nationalisation issue, the ANC’s decision to deer the mine

nationalisation issue until 2012, coupled with an apparent shit by the NUM

(and Cosatu) in avour o nationalisation, creates a real cloud o uncertainty,

which will continue to hang over the industr y as we await the decision o

the ANC conerences in 2012, potentially increasing the country’s sovereign

risk prole. This in turn may diminish South Arica’s success in attractingoreign direct investment. According to Fred McMahon, Fraser Institute

Vice-President or international research, the key to attracting investment

is clarity since: ‘[m]iners have or a long time had to deal with uncertainty

under the ground, now they have to deal with human uncertainty above

the ground.’96

In the meantime, Malema has been suspended rom the ANC or ve

years, having been ound guilty o dividing the party and bringing it into

disrepute.97 He has also been removed rom his post as ANCYL President.

Unsurprisingly, Malema has appealed his suspension,98

but whether he isultimately successul is unlikely to aect the nationalisation debate itsel.

Some commentators have speculated that this decision may mark the

end o Malema’s political career, with damaging consequences or his

nationalisation proposals.99 This does not seem likely. In any event, Cosatu

has made it clear that its demands or change within the mining industry

remain.100 Malema himsel has previously dismissed the suggestion that the

issue will disappear should he be suspended rom the ANC.101 With the

nationalisation genie out the bottle, one can only but agree with him. While

outright nationalisation o South Arica’s mining industry seems very unlikely,

94 ‘Mine Nationalisation Wrong, Dangerous Question to Ask – Shabangu’, Mining Weekly ,

2 August 2011.

95 ‘Costau: Nationalisation is a Given’, IOL , 4 August 2011.

96 ‘“Uncertainty” the Big Killer or Mining Investment’, Mining Weekly , 3 March 2011.

97 ‘Zero Nationalisation’, Mining Weekly , 18 November 2011.

98 ‘Malema Submits Appeal’, Business Day , 25 November 2011. Malema will remain on ull

pay until his appeal has been disposed o (‘Julius Malema On Full Pay Until Appeal’,

Miningmx , 10 November 2011).

99 ‘Malema’s Demise Will Change Mining Debate’, Miningmx , 28 August 2011.

100 Ibid.

101 ‘Julius Malema’s Hearing Cuts To the Heart o the ANC’s Internal Confict’, The Guardian

(blog: Alex Duval Smith), 1 September 2011.




what is much more likely is a series o regulatory intrusions, as previously

discussed, with their genesis in resource nationalism.102

State-owned mining company

Although it seems improbable that the ANC (and in all likelihood the next

government elected in 2014) will embrace a policy o mine nationalisation,

it is clear that the Zuma administration is much more assertive about

the exploitation o the patrimony o South Arica’s treasure trove o

mineral resources. This rst became evident with the 2008 resurrection

o the state-owned mining company, Arican Exploration Mining and

Finance Corporation (Proprietary) Limited (Arican Exploration). On

26 February 2011, Arican Exploration duly opened its rst coal mine at an initial cost o R130m in South Arica’s eastern Mpumalanga Province.

President Zuma, on this occasion remarked that ‘[the] role o the state

cannot merely be conned to that o a regulator... [it] must actively

participate in the mining industry to ensure that [the] national interest

is protected and advanced’. As an indication o the company’s uture

intentions, Arican Exploration has applied or 123 prospecting and

mining rights in South Arica.103 So ar it has been granted 27 prospecting

rights and one mining right.104

Although the mining industry has, rather surprisingly, not opposed thecreation o a state-owned mining company, it has insisted that it operate at a

level playing eld with the private sector. Until recently, the scales were tilted

in the other direction. Shortly ater Arican Exploration was resuscitated in

October 2008, the then Minister, Buyelwa Sonjica, purported to exempt it

rom the key licensing provisions o the MPRDA, something that the industry

could have challenged legally but did not.105 In act, Arican Exploration’s

exemption was only withdrawn by the current Minister in March 2011, nearly

three years later.106

102 ANC drat documents indicate that an export tax to ensure the ‘security o supply’o commodities is currently being considered. To support the South Arican

manuacturing industry, the government is also encouraging producers to increase

local mineral beneciation (‘ANC Targeting Export Taxes, Pension Funds in South

Arica’s Economic Plan’, Bloomberg , 23 November 2011).

103 Internal Question Paper no 34, question 3098, 29 October 2010.

104 Ibid ; ‘State Mining Boss Gited Hety Bonus’, Miningmx , 27 September 2011.

105 Notice 1081 in Government Gazette No 31485 o 10 October 2008 purported to

exempt Arican Exploration rom ‘the provisions o sections 16, 20, 22 and 27 o the

[MPRDA] in so ar as it relates to any activities to prospect, mine and the removal o

any mineral or accumulating and stock piling or purposes o security o supply and

purposes incidental thereto’.

106 Notice 220 in Government Gazette No 34115 o 14 March 2011.




There are several undamental problems with the notion o a state-owned

mining company: (i) it sets the state up in competition with the private

sector; (ii) it makes the state both player and reeree in a situation where

Arican Exploration beneted rom a key regulatory exemption or nearly

three years and was granted rights on this basis; and (iii) it may presage

urther advantages, by, or example, granting it a ree carry or interest in new

prospecting or mining rights. Some o these concerns could be addressed

by the introduction o an independent industry regulator on the Brazilian

and Ghanaian model,107 as well as by ensuring that Arican Exploration

competes or rights on the same basis as the private sector and is not unairly

advantaged by taxpayer-unded subsidies.

Positive signs rom the Department o Mineral Resources

In the midst o all these concerns, the Minister has announced (and in some

cases is already implementing) a series o measures, which should result in

the general improvement o South Arica’s mineral regulatory environment.

First, the DMR introduced a seven-and-a-hal-month moratorium (which

only ended in mid-April 2011)108 on all new prospecting right applications,

while conducting an internal audit into those that had been granted. To this

end, a DMR internal audit highlighted several problems: inconsistencies in

the grant o rights, clear instances o bureaucratic ineciency, as well as alack o transparency in the granting o prospecting rights. In particular, the

Minister has highlighted the detrimental eect these shortcomings have

had on the development o the mineral complexes in the Mpumalanga and

Limpopo regions.109

Next, the DMR introduced a new electronic mining cadastre system (‘the

new mining cadastre’), in mid-April 2011. The new mining cadastre system

should add greater transparency to the process o applying or prospecting

rights, mining rights and permits, though not, according to the Minister, at

107 The Ghanaian Minerals Commission (established under the Ghanaian Constitution andthe Minerals Commission Act) is a government agency responsible or the ‘regulation

and management’ o the countr y’s mineral sector. Its unctions include making

recommendations regarding national policies; advising the Minister o Lands and

Natural Resources and monitoring the implementation o policies and the operation

o mineral regulating bodies or establishments. It ensures legislative compliance

through eective monitoring. Its vision is to ‘make Ghana the leading destination o

mining sector investment in Arica through creating a congenial atmosphere in which

all stakeholders work as partners in a sae environment to achieve one common goal:

sustainable development through mining’. (www.ghana-mining.org; accessed

29 November 2011).

108 The moratorium was extended in relation to Mpumalanga.

109 Address by Minister Susan Shabangu, note 23 above.




the cost o eciency. An electronic real-time mining title system should not

only enhance transparency, but should limit opportunities or corruption,

as well as insider dealing in the licensing process, while promoting

administrative eciency and good governance. O concern, however, is the

act that use o the new mining cadastre is apparently optional, as parties may

still submit an application or the grant o a right, physically.110 Unless the

DMR actually uploads all physical applications to the new mining cadastre,

it will do little to enhance the transparency o the application process itsel.

The new system has also experienced substantial teething problems, which

have still not been xed, several months ater the new system was launched.111

Finally, both the ormer Director-General o the DMR as well as the

Minister, have publicly acknowledged ambiguities in the MPRDA that need to

be claried, with administrative discretion identied as an area o particularconcern.112 To this end, the Minister has highlighted a number o gaps in the

law, such as the diculty in awarding rights in relation to associated or mixed

minerals, as well as limiting the scope o unbridled administrative discretion

in the MPRDA. Further, South Arica’s National Planning Commission has

recognised that the ‘major constraints impeding [the] accelerated growth

and development’ o South Arica’s mining sector must be addressed by, inter

alia , ensuring ‘certainty in respect o property rights’ and a ‘predictable,

competitive and stable mining regulatory ramework’, to be achieved through

major amendments to the MPRDA.113

These amendments were originally dueor adoption by Parliament in 2011. According to the Minister, this has now

been delayed until late 2012.114 This invites the somewhat cynical observation

that such a delay may allow next year’s ANC policy conerence potentially to

infuence any undamental regulatory reorm in South Arica.115

Conclusion

This is a critical time or South Arica’s mining industry. South Arica’s

precipitous decline in the 2011 Fraser Institute rankings, a fawed BEEpolicy driving populist pressures or mine nationalisation coupled with the

increased assertiveness o Arican Exploration do not, at rst sight, create a

pretty picture. At the same time, the DMR’s introduction o a new mining

110 Notice 349 in Government Gazette No 34225 o 18 April 2011.

111 ‘New Mine Licences Furore’, The New Age , 20 April 2011.

112 Mineral Resources Minister Susan Shabangu announces measures to bring stability to

South Arica’s mining sector, Pretoria, 17 August 2010.

113 National Planning Commission, note 3 above, 126.

114 Internal Question Paper 36, question number 3406, 4 November 2011.

115 ‘Revised MPRDA At Least a Year Away’, Miningmx , 28 November 2011.




cadastre system, the audit o rights by the DMR and the prospect o signicant

amendments to the MPRDA next year may well presage a signicantly better

uture or the mining industry.

As I began with Zhou Enlai’s reputed remarks on the French Revolution,

it may, in the current circumstances, be apt to end with Dickens’s on the

same subject:

‘It was the best o times, it was the worst o times, it was the age o

wisdom, it was the age o oolishness, it was the epoch o belie, it was

the epoch o incredulity, it was the season o light, it was the season o

Darkness, it was the spring o hope, it was the winter o despair, we had

everything beore us, we had nothing beore us, we were all going direct

to Heaven, we were all going the other way [...]’.116

116 C Dickens, A Tale o Two Cities , Book 1, Chapter 1.

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