November 22, 2017

The Biggest Deterrent to Investment in South Africa’s mining sector

Regulatory uncertainty is certainly a central topic of discussion in the mining sector at present.  According to Jonathan Veeran, Partner and Deputy Head of Webber Wentzel’s Mining Sector Group, regulatory uncertainty is generally regarded as the biggest deterrent to investment in South Africa’s junior mining sector.

Speaking at the recent Junior Mining Indaba, which was held in Johannesburg, South Africa, Veeran said, “Mining investment is normally of significant magnitude, high risk and long-term in nature.  Risks flow from the macro-economic factors beyond the control of the investor and host countries and cannot be avoided.  The period over which the investment will render returns normally extends beyond the reasonably foreseeable and predictable,” he explains.

Lack of coordinated policy development among government departments and a poor and inefficient administration are also to blame for the poor investment climate in the junior mining sector.

  • The lack of consultation on and the potentially far reaching amendments to the Mining Charter is of grave concern to the industry.
  • The lack of certainty around when the MPRD amendment bill would come into force is also a deterrent to investment.
  • Housing and living conditions – Investors are expected to comply to many regulative legislations on this aspect, of which many contradict each other:
    • Housing and Living Standards;
    • Requirements in the revised Mining Charter
    • The Mining Codes, among other things, set out eight elements, including one which is entitled “Housing and Living Conditions”, with which mining companies are to comply;
    • Stakeholders’ declaration on strategy for the sustainable growth and meaningful transformation of South Africa’s mining industry (the “Stakeholders’ Declaration“)[1] as well as the revised social and labour plan guidelines.

“These are but three examples of the impact that regulatory uncertainty has on investment,” says Veeran.

  • The South African government should look very closely at developing a lighter regulatory regime for the junior mining sector. As:
    • Cost efficiency – the regulatory framework is complex and requires a host of skilled personnel and consultants to ensure initial and sustained compliance. Such skilled services and consultants are usually too expensive for juniors; and
    • Administrative burden – the time consuming tasks of regulatory compliance is not only costly but burdensome in terms of time for juniors. .

Veeran says the creation of an efficient and transparent public administration system is critical to driving investor confidence.  “It requires consistent application of legal principles across the board and timely decision making that won’t leave the industry in limbo.”

“Compliance with and the enforcement of anti-corruption laws, both locally and internationally, as well as sanctions against rogue states and individuals are making its presence felt in South Africa practically in among foreign listed companies where foreign statues with extra-territorial reach, such as the UK Bribery Act and the US’ FCPA, find application.  It means that the legislative parameters within South Africa’s mining industry need to be about more than just political grand gesturing,” he says.

Veeran uses the fact that South Africa is missing from the EITI, which comprises of 41 members of which 26 are African states, as an example.

“Mineral policies and regulation should be aimed at promoting a competitive mining industry that is sustainable in the long run.  A good start would be to drive a more equitable share of revenue from mineral resources to economic growth and employment creation in downstream industries. It is necessary for stakeholder, investors and government to form a social compact for the industry within which the needs and requirements of each party are understood and addressed to create an investor friendly regulatory regime,” concludes Veeran.

[1]              The Stakeholders’ Declaration was the product of a mining summit held in the Drakensberg on 30 and 31 March 2010 (“the Summit“), stakeholders in the mining industry, including government, business and labour stakeholders.  The Stakeholders’ set a deadline of 30 June 2010 for the finalisation of a strategy for sustainable growth and meaningful transformation in the South African mining industry.  At the Summit, it was announced that the Mining Industry Growth Development and Transformation Task Team (“MIGDETT”), which represents all industry stakeholders, would have the task of reviewing issues such as competitiveness, infrastructure, sustainable development, beneficiation and transformation as well as other concerns arising out of the Mining Charter and make recommendations to address these issues. MIGDETT’s recommendations were taken into consideration in the drafting of the declaration.

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