The two “corrections” to the draft Mineral Resources Development Bill published this week go some way to easing industry concerns but major problems remain, legal experts say.
An erratum notice issued on Monday by the minister of mineral resources & energy, Gwede Mantashe, relieves companies of the duty to comply with BEE requirements when applying for prospecting rights and to seek ministerial consent for changes in control.
Industry players had argued that BEE rules should not apply to prospecting because this stage of the mining process yielded no returns or profits.
The draft bill seeks to amend the Mineral & Petroleum Resources Development Act (MPRDA).
Claire Tucker, head of public law and regulatory practice at Bowmans, said issuing an erratum notice in the middle of a consultation process was very unusual.
The fact that the minister has backed off on these two issues could mean the industry will struggle to be heard on the many other very problematic aspects that remain in the draft amendment bill
— Claire Tucker, head of public law and regulatory practice at Bowmans
“It seems the government as a whole was surprised by these [provisions in the bill], which go against much of the investor-friendly sentiment government is seeking to foster. It seems the minister was forced to backtrack as a matter of some urgency, given the shock expressed by all sectors of the industry,” said Tucker.
She said changes introduced in the bill were disruptive at a time when the mining industry is facing many headwinds. There are other far-reaching changes proposed in the MPRDA that have not been withdrawn, said Tucker.
“The fact that the minister has backed off on these two issues could mean the industry will struggle to be heard on the many other very problematic aspects that remain in the draft amendment [bill]. In particular, far-reaching changes to the BEE regime are signalled but no detail is actually set out. This sort of uncertainty is very bad for investor sentiment,” said Tucker.
She said the proposal requiring ministerial consent for every change in interest was difficult to understand, and its impact on day-to-day corporate actions, including financing, preference share arrangements and employee share ownership schemes, was unclear.
“Breach of these unclear provisions is criminalised and subject to very large penalties, including 10% of turnover. This sort of micromanagement from a department that is not known for its responsiveness would be extremely disruptive for investors, is unprecedented in other industries in South Africa and worldwide, and would make investors reluctant to commit to a South African mining company,” said Tucker.
The draft bill, published last month for public comment, has been condemned by Minerals Council South Africa, which represents 90% of the mining industry.
The council said its input during consultations with the department had not been taken into consideration, and at its annual general meeting in Johannesburg last month president Paul Dunne said the legislation does not contribute to an improved investment climate.
“When we examine the bill, we ask ourselves two questions: does it contribute to an improved investment climate, and is it employment positive? Our considered answer is it does not, and it shall not go unchallenged,” he said.
Council spokesperson Allan Seccombe said this week the council would submit its perspectives to the government.
“The bill in its current form does not encourage or sustain the growth and investment that the mining industry needs to realise its full potential to create employment, stimulate the economy and fulfil its social mandate,” said Seccombe.
Patrick Leyden corporate partner at Herbert Smith Freehills Kramer, who specialises in mining and energy legislation, said Mantashe’s corrections meant listed companies would be exempt from obtaining consent for changes in control, but the position of unlisted companies was less clear.
“While the correction is a step in the right direction, the uncertainty remains a concern,” he said.
Vivien Chaplin, head of the mining and minerals sector at Cliffe Dekker Hofmeyr, said the erratum notice simplified the obligations on holders of prospecting rights holders. “Despite this improvement, references to the Broad-Based BEE Act remain in the bill, which may still present significant challenges,” she said.
“The erratum notice also removed the proposed inclusion of small-scale and artisanal mining permits from the ambit of section 11 [on obtaining ministerial consent], which is a welcome move should never have been there in the first place,” she said.
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