Modern Mining October 2016

COMMENT

Mining law – South Africa urged to go back to the drawing board

A lthough our government often congratulates itself on South Af- rica’s mining legislation, which it appears to believe is world beating, not everyone shares this view. Indeed, many industry experts believe that our mining law has serious shortcomings and has actually throttled growth in our min- ing industry. The latest commentator to find fault with the legislation is Dr Anthea Jeffery, who is Head of Policy Research at the South African Institute of Race Relations (IRR). A highly respected author (she has ten books to her credit) and an expert on modern South African politics, she argues in a policy paper – Back to the drawing board on mining law – which has just been published in @Liberty , the IRR’s policy bulletin, that the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 has been deeply flawed from the start. She says the MPRDA is one reason why South Africa’s mining industry shrank by 1 % a year during the global commodities boom from 2001 to 2008 while the mining sectors of other countries expanded by 5 % a year on aver- age over the same period. She also notes that since the advent of the MPRDA South Africa has steadily lost ground as a mining invest- ment destination in the Fraser Institute mining survey – to the point where it is now ranked 66th out of 109 countries, behind most African countries including unstable jurisdictions such as the DRC, Eritrea and Ethiopia. In her paper, Dr Jeffery takes aim in par- ticular at the BEE requirements in the Mining Charter, which she regards as being particularly problematic. As she writes, “The 26 % BEE ownership requirement (which had to be met by 2014) has made it possible in practice for DMR officials to choose the ‘correct’ BEE inves- tors for mining companies to partner with by signalling that an application for a mining right is unlikely to succeed unless a specific BEE partner is brought in.” Dr Jeffery also takes issue with the ‘shifting goalposts’ in respect of BEE targets and recounts how in 2015, at the end of the 10-year charter period, the DMR used revised empowerment rules to claim that only 20 % of mining com- panies had met the BEE ownership obligation. This figure was contested by the Chamber of Mines, which said that all its members had at least 26 % black ownership, with the average black ownership level being 38 %. She adds that the MPRDA’s require- ments regarding social and labour plans have

also generated a host of practical problems. “Applicants must develop plans that are accept- able to DMR officials; and show that they have provided, financially and otherwise, for the implementation of these proposals,” she writes. “In practice, social and labour plans commonly include undertakings by companies to improve living conditions and human capital in mining areas, but the MPRDA provides little guidance as to what they should incorporate. Uncertainty about these requirements has made it easy for DMR officials to approve or disapprove social and labour plans on arbitrary, and often spuri- ous, grounds.” On the subject of nationalisation, Dr Jeffery concedes that it is not a stated policy of the ANC but says the party has “skirted around the issue” and that many of the steps needed to embark on a wider process of mine expropriation or nationalisation “have quietly been taken.” She is in no doubt that nationalisation – or anything resembling it – would be disastrous for South Africa’s mining industry and to prove her point she quotes the examples of Zambia and Chile, countries of almost identical physi- cal size and population. In 1970 both had a copper production in the region of 680 000 t/a. At around this time Zambia nationalised its copper mines while Chile went in the opposite direction, liberalising its mining regime. The results were all too predictable. By 2012 Chile was producing over 5 million t/a of copper while Zambia’s production (though improving as a result of reprivatisation of the mines) was just 675 000 t/a. How to correct the situation? Dr Jeffery’s view is that we need to learn from Botswana which has got much of its mining law right. “Its rules for the granting and cancellation of mining licences are certain, clear, and stable,” she writes. “It does not impose BEE, benefi- ciation, or onerous socio-economic conditions on mining investors. It has not threatened the mining industry with nationalisation or expro- priation, whether direct or indirect. It has avoided corruption and other aspects of the resource curse, and generally used its mining revenues well to promote growth and increase prosperity.” She concludes by saying that South Africa “urgently needs to go back to the drawing board on its mining regime” and that it would be “well advised to follow the example of its Botswana neighbour which offers a sound way to bring its mining law into line with interna- tional best practice.” Arthur Tassell

“In practice, social and labour plans commonly include undertakings by companies to improve living conditions and human capital in mining areas, but the MPRDA provides little guidance as to what they should incorporate.”

October 2016  MODERN MINING  3