SOUTH AFRICA: MINING 2020

Authors: Peter Leon, Patrick Leyden and Matthew Burnell

1. RELEVANT AUTHORITIES AND LEGISLATION

 

1.1 WHAT REGULATES MINING LAW? 

The mineral resources sector is primarily regulated by statute and in terms of the Mineral and Petroleum Resources Development Act, 28 of 2002 (MPRDA).

Black economic empowerment (BEE) in the mining industry is regulated under the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (Mining Charter III). Mining Charter III came into force on 1 March 2019 and significantly increased BEE threshold requirements in respect of ownership, procurement and employment equity. To understand the extent of the BEE obligations for South Africa’s mining industry, regard must also be had to the Implementation Guidelines for the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (Guidelines), which the Minister of Mineral Resources and Energy (Minister) published on 19 December 2018.

In addition, prospecting and mining activities are regulated by various environmental and health and safety laws which are considered in more detail in section 9.

1.2 WHICH GOVERNMENT BODY/IES ADMINISTER THE MINING INDUSTRY?

The state is the custodian of South Africa’s mineral and petroleum resources and has a duty to administer these resources for the benefit of all South Africans. The Minister is authorised to grant or refuse applications for rights under the MPRDA.

The mining industry is regulated at a national level by the Department of Mineral Resources and Energy (DME) (previously the Department of Mineral Resources) which, through its regional offices, implements and administers the MPRDA.

In respect of environmental matters, the Department of Environment, Forestry and Fisheries is responsible for drafting all relevant legislation and regulations governing mining and environmental issues. The DME, in turn, is responsible for implementing these laws or regulations insofar as the laws/regulations pertain to the mining sector.

1.3 DESCRIBE ANY OTHER SOURCES OF LAW AFFECTING THE MINING INDUSTRY

The Constitution of the Republic of South Africa, 1996 is the supreme law of the Republic. Law or conduct inconsistent with it is invalid. The common law will apply to the extent that the MPRDA does not regulate a specific issue but the provisions of the MPRDA will prevail to the extent of any inconsistency. Other relevant statutes include:

• the National Environmental Management Act, 1998 (NEMA);
• the National Environmental Management: Waste Act, 2008
  (NEMWA);
• the National Environmental Management: Air Quality Act,
  2004 (NEMAQA);
• the National Water Act, 1998 (NWA);
• the National Environmental Management: Protected Areas
  Act, 2003 (NEMPAA);
• the National Environmental Management: Biodiversity Act,
  2003 (NEMBA) (and the relevant provincial conservation
  ordinances and statutes);
• the National Heritage Resources Act, 1999 (NHRA);
• the Mineral and Petroleum Resources Royalty Act, 2008;
• the Labour Relations Act, 1995; and
• the Mine Health and Safety Act, 1996 (MHSA).

2. RECENT POLITICAL DEVELOPMENTS

 

2.1 ARE THERE ANY RECENT POLITICAL DEVELOPMENTS AFFECTING THE MINING INDUSTRY? 

The most recent political developments in the mining industry include the consolidation of the previously separate portfolios of mining and energy into the DME. Gwede Mantashe, who was appointed as the Minister of Mineral Resources in 2018, was reappointed as the Minister of the DME after the departments were merged in May 2019.

Significant regulatory changes include the lapsing of the MPRDA Amendment Bill on the last sitting day of Parliament in February 2019 and the commencement of Mining Charter III on 1 March 2019.

Recently, the DME also indicated that it intends to publish a Petroleum Resources Development Bill (to regulate the oil and gas sector separately).

2.2 ARE THERE ANY STEPS THE MINING INDUSTRY IS TAKING IN LIGHT OF THESE DEVELOPMENTS?

While the private sector welcomed the lapsing of the MPRDA Amendment Bill, the obligations imposed under Mining Charter III remain a source of contention. On 27 March 2019, the Minerals Council of South Africa instituted judicial review proceedings against the Minister and the DME and requested the High Court to review and set aside certain onerous provisions of Mining Charter III such as: (i) the ownership obligations in respect of the renewal and transfer of existing mining rights; (ii) the obligations imposed on applicants for new mining rights to have a minimum of 30 per cent BEE shareholding comprising: a minimum of 5 per cent non-transferable carried interest to each of the Qualifying Employees and Host Communities; and (iii) 20 per cent effective ownership to BEE entrepreneurs (5 per cent of which must preferably be owned by women). The Minerals Council has also requested the High Court to review and set aside the provisions which would empower the DME to invoke the enforcement mechanisms provided for under the MPRDA if a mining right holder fails to comply with the obligations imposed by the Charter.

3. MECHANICS OF ACQUISITION OF RIGHTS

 

3.1 WHAT RIGHTS ARE REQUIRED TO CONDUCT RECONNAISSANCE? 

Any person that wishes to conduct reconnaissance operations must first apply for and obtain a reconnaissance permission under the MPRDA. A reconnaissance permission is valid for one year and cannot be renewed or transferred.

3.2 WHAT RIGHTS ARE REQUIRED TO CONDUCT EXPLORATION? 

Any person that wishes to conduct prospecting (exploration) activities must first apply for and obtain a prospecting right under the MPRDA. A prospecting right grants the holder the exclusive right to prospect for prescribed minerals over a prescribed area of land. The holder of a prospecting right also has the exclusive right to apply for and be granted a mining right in relation to the minerals and land to which the prospecting right relates. A prospecting right may be granted for a period of up to five years and may be renewed once for a period not exceeding three years.

3.3 WHAT RIGHTS ARE REQUIRED TO CONDUCT MINING? 

Any person that wishes to conduct mining activities must first apply for and obtain a mining right under the MPRDA. A mining right entitles the holder to the exclusive right to mine for prescribed minerals over a prescribed area of land. A mining right may be granted for a period of up to 30 years and may be renewed for further periods, each of which may not exceed 30 years.

A mining permit may also be granted for small-scale mining operations in relation to mineral deposits that do not exceed five hectares in extent and which can be mined optimally within a period of two years. A mining permit is valid for a period of up to two years and may be renewed for three further periods, each of which may not exceed one year.

3.4 ARE DIFFERENT PROCEDURES APPLICABLE TO DIFFERENT MINERALS AND ON DIFFERENT TYPES OF LAND? 

The procedures set out in the MPRDA apply to all minerals equally.

3.5 ARE DIFFERENT PROCEDURES APPLICABLE TO NATURAL OIL AND GAS?

The MPRDA distinguishes between mineral resources and petroleum resources (which includes natural oil and gas). The oil and gas sector is regulated by the Petroleum Agency of South Africa which acts as the custodian of the national petroleum exploration and production database.

In July 2019 the Minister announced that work had begun on a Petroleum Resources Development Bill which will result in the oil and gas industry being regulated separately from mining.

4. FOREIGN OWNERSHIP AND INDIGENOUS OWNERSHIP REQUIREMENTS AND RESTRICTIONS

 

4.1 WHAT TYPES OF ENTITY CAN OWN RECONNAISSANCE, EXPLORATION AND MINING RIGHTS? 

Under the MPRDA, any person (natural or juristic, foreign or local) may apply for and be granted a prospecting right, a mining right, a retention permit or a mining permit.

4.2 CAN THE ENTITY OWNING THE RIGHTS BE A FOREIGN ENTITY OR OWNED (DIRECTLY OR INDIRECTLY) BY A FOREIGN ENTITY AND ARE THERE SPECIAL RULES FOR FOREIGN APPLICANTS? 

The MPRDA does not draw a distinction between local and foreign applicants. Irrespective of the nationality of the applicant, all applicants for mining rights must comply with the requirements of the MPRDA, which includes compliance with Mining Charter III.

4.3 ARE THERE ANY CHANGE OF CONTROL RESTRICTIONS APPLICABLE? 

The Minister’s prior written consent is required for the transfer of a controlling interest (both direct and indirect) in a company that holds a mining or prospecting right. The transfer of any interest in a company listed on a recognised stock exchange is exempt from having to obtain the Minister’s consent. The Minister’s consent must be granted if the transferee is capable of carrying out and complying with the obligations and the terms and conditions of the right in question, and if it satisfies the requirements for the initial granting of such right.

4.4 ARE THERE REQUIREMENTS FOR OWNERSHIP BY INDIGENOUS PERSONS OR ENTITIES? 

Mining companies which hold mining rights granted under the MPRDA must comply with the requirements imposed under Mining Charter III. Existing mining right holders that achieved a minimum of 26 per cent BEE shareholding will be recognised as compliant for the duration of the mining right. This is so irrespective of their current BEE shareholding.

Applicants for new mining rights must have a minimum of 30 per cent BEE shareholding comprising: a minimum of 5 per cent non-transferable carried interest to each of qualifying employees; host communities; and a 20 per cent effective ownership to BEE entrepreneurs (5 per cent of which must preferably be owned by women). The minimum level of BEE shareholding may be met at holding company level, mining right level, on units of production, shares or assets. Where the BEE shareholding is met at any level other than mining right level, the flow-through principle will apply.

4.5 DOES THE STATE HAVE FREE CARRY RIGHTS OR OPTIONS TO ACQUIRE  SHAREHOLDINGS? 

No, the state has no free carry rights or options to acquire shareholdings.

5. PROCESSING, REFINING, BENEFICIATION AND EXPORT

 

5.1 ARE THERE SPECIAL REGULATORY PROVISIONS  RELATING TO PROCESSING, REFINING AND FURTHER BENEFICIATION OF MINED MINERALS? 

Section 26 of the MPRDA provides that the Minister may initiate or promote the beneficiation of minerals in the country. Historically, only the precious metal and diamond industries have been the subject of local beneficiation requirements in accordance with the obligations imposed by the Precious Metals Act, 2005 (PMA) and the Diamonds Act, 1986 (Diamonds Act).

In terms of the PMA and Diamonds Act, persons that wish to process, refine, beneficiate, sell, import or export precious metals (in unwrought or semi-fabricated form) and unpolished diamonds must first obtain the relevant licence or permit in terms of such legislation.

5.2 ARE THERE RESTRICTIONS ON THE EXPORT OF MINERALS AND LEVIES PAYABLE IN RESPECT THEREOF? 

In terms of the MPRDA, persons who intend to beneficiate any mineral mined in the Republic outside the Republic may only do so after written notice and in consultation with the Minister.

In addition, the PMA and Diamonds Act require any person who intends to export precious metals (in unwrought or semifabricated form) and unpolished diamonds to obtain the necessary permit under such legislation.

6. TRANSFER AND ENCUMBRANCE

 

6.1 ARE THERE RESTRICTIONS ON THE TRANSFER OF RIGHTS TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING? 

A reconnaissance permission may not be transferred. Prospecting rights and mining rights may only be transferred with the prior written consent of the Minister.

6.2 ARE THE RIGHTS TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING CAPABLE OF BEING MORTGAGED OR OTHERWISE SECURED TO RAISE FINANCE?

It is fairly common for lenders to take security over mining assets in South Africa. This security generally takes the form of share pledges, mortgages over mining rights and general and special notarial bonds over mining equipment. However, lenders should carefully consider the provisions of section 11 of the MPRDA before taking security over any mining assets. As mentioned above, the Minister’s consent is required for the transfer of a prospecting or mining right by the holder to a third party and for the transfer of a controlling interest (both direct and indirect) in a company that holds a mining or prospecting right. Accordingly, the Minister’s consent will generally be required for lenders to enforce their security. Foreign lenders (i.e. other than a bank as defined in the Banks Act, 1990) may require the Minister’s consent to enter into the security arrangements and to enforce their security.

7. DEALING IN RIGHTS BY MEANS OF TRANSFERRING SUBDIVISIONS, CEDING UNDIVIDED SHARES AND MINING OF MIXED MINERALS

 

7.1 ARE THE RIGHTS TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING CAPABLE OF BEING SUBDIVIDED? 

A reconnaissance right may not be sub-divided. Prospecting and mining rights may be sub-divided on condition that the Minister consents to this in writing.

7.2 ARE THE RIGHTS TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING CAPABLE OF OF HELD IN UNDIVIDED SHARES?

The MPRDA and the Mining Titles Registration Act, 1967 both provide that reconnaissance, prospecting and mining rights are capable of being held in undivided shares.

7.3 IS THE HOLDER OF RIGHTS TO EXPLORE FOR OR MINE A PRIMARY MINERAL ENTITLED TO EXPLORE OR MINE FOR SECONDARY MINERALS? 

The holder of a mining right may only mine the minerals identified in its mining right. If the holder wishes to mine any secondary minerals it must first obtain the Minister’s consent to amend the existing mining right to include the right to mine the secondary minerals.

7.4 IS THE HOLDER OF THE RIGHT TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING ENTITLED TO EXERCISE RIGHT ALSO OVER RESIDUE DEPOSITS ON THE LAND CONCERNED? 

Tailings dumps or residue deposits created pursuant to mining operations conducted prior to the MPRDA (which came into force on 1 May 2004) are not subject to the provisions of the MPRDA. These tailings dumps are movable assets and are capable of private ownership.

The holder of a mining right granted under the MPRDA may process any tailings dumps or residue stockpiles created under such right but only for so long as the right subsists.

7.5 ARE THERE ANY SPECIAL RULES RELATING TO OFFSHORE EXPLORATION AND MINING? 

The MPRDA does not distinguish between onshore and offshore exploration and mining.

8. RIGHTS TO USE SURFACE OF LAND

 

8.1 DOES THE HOLDER OF A RIGHT TO CONDUCT RECONNAISSANCE, EXPLORATION OR MINING AUTOMATICALLY OWN THE RIGHT TO USE THE SURFACE OF LAND?

In terms of the MPRDA, the holder of a mining or prospecting right has a statutory right to access land. The holder of a prospecting or mining right may enter the land to which such right relates together with his or her employees and bring onto that land any plant, machinery, or equipment and build, construct or lay down any surface, underground, or under sea infrastructure that may be required for the purpose of mining.

8.2 WHAT OBLIGATIONS DOE THE HOLDER OF A RECONNAISSANCE RIGHT, EXPLORATION RIGHT OR MINING RIGHT HAVE VIS-A-VIS THE LANDOWNER OR LAWFUL OCCUPIER?

Both the holder of the prospecting or mining right and the owner of the surface rights must exercise their rights with due regard for the rights and entitlements of the other party. The owner of the surface rights may not unlawfully or unreasonably refuse the holder of the prospecting or mining right access to the property or interfere with the holder’s ability to carry on the prospecting or mining activity on the land.

Despite the mining or prospecting right holder’s statutory right of access to the property, it is common (although not a legal requirement) for mining companies to enter into access and compensation agreements with landowners. The reason for this is to mitigate the potential for disputes and disruptions to mining operations, particularly in circumstances where the land is owned or occupied by rural communities.

Also, see the response to question 10.1 below.

8.3 WHAT RIGHTS OF EXPROPRIATION EXIST?

Section 25 of the Constitution stipulates that no one may be arbitrarily deprived of their property (including a limited real right such as a prospecting or mining right) except in terms of a law of general application, for a public purpose or in the public interest. If the right holder is deprived of its property, the Constitution further provides that s/he is entitled to just and equitable compensation. The compensation must reflect an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances.

Separately, in terms of the MPRDA, the Minister may, in accordance with section 25 of the Constitution, expropriate any land or any right for the purposes of providing equitable access to the nation’s resources, stimulating economic growth, advancing employment and promoting the sustainable and ecological development of mineral and petroleum resources.

9. ENVIRONMENTAL

 

9.1 WHAT ENVIRONMENTAL AUTHORISATIONS ARE REQUIRED IN ORDER TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING OPERATIONS?

Reconnaissance, exploration, prospecting and mining operations require an environmental authorisation in terms of the NEMA read with the Environmental Impact Assessment Regulations, 2014.

A number of other permits/licences may be required depending on the nature of the activities undertaken and the receiving environment. These permits/licences include:

• a water use licence in terms of the NWA;
• a waste management licence in terms of the NEMWA;
• an atmospheric emissions licence in terms of the NEMAQA;
• permits relating to protected fauna/floral species in terms of the NEMBA and/or the relevant provincial ordinances or legislation;
• permits relating to the exhumation and relocation of graves not contained in a cemetery in terms of the NHRA;
• permits for the collection, removal and/or destruction of heritage resources in terms of the NHRA;
• permits for the destruction, alteration or damage to buildings older than 60 years in terms of the NHRA; and
• re-zoning approval in terms of the relevant municipal laws.

9.2 WHAT PROVISION NEED TO BE MADE FOR STORAGE OF TAILINGS AND OTHER WASTE PRODUCTS AND FOR THE CLOSURE OF MINES?

Prior to 2 September 2014, financial provisioning was regulated by section 41 of the MPRDA read with regulations 53 and 54 of the MPRDA Regulations. These sections and regulations required that a mining right applicant make financial provision for rehabilitation of negative environmental impacts arising from their mining activities. Should the mining right holder fail to fulfil their remediation obligations, the DME could implement these obligations using this
financial provision.

Financial provision could be secured by way of a financial guarantee, contributing money to a rehabilitation trust or depositing money into an account managed by the Minister.

The initial quantum and subsequent increases thereof were determined in accordance with the DME’s Guideline Document for the Evaluation of the Quantum of closure-related Financial Provision Provided by a Mine (the DME Guideline). In terms of the DME Guideline and the MPRDA Regulations, the selected financial provision must cater for the actual costs associated with the premature closing, decommissioning and final closure and post-closure management of residual and latent environmental impacts.

With effect from 2 September 2014, section 41 of the MPRDA was deleted and replaced with section 24P of NEMA. Like section 41, section 24P states that the holder of a mining right must annually assess their environmental liability in the prescribed manner and increase the financial provision to the satisfaction of the Minister.

The only material difference between section 41 and section 24P is that, in terms of the latter, the holder is required to maintain financial provision notwithstanding the issuing of a closure certificate by the Minister while the former stated that the holder would be absolved of environmental liability once the closure certificate was issued.

From 2 September 2014 until 20 November 2015, the quantum of financial provision was calculated in accordance with the DME Guideline. On 20 November 2015, the Minister of Environmental Affairs (as she was then known) published the Financial Provision Regulations, 2015 (the FP Regulations). The FP Regulations revolutionised financial provisioning in South Africa and were viewed by the mining industry as burdensome and prohibitive.

Unlike the MPRDA and the MPRDA Regulations, the FP Regulations require that financial provision must be made for “annual rehabilitation, as reflected in the annual rehabilitation plan…final rehabilitation, decommissioning and closure of the… mining operations at the end of the life of operations, as reflected in the final rehabilitation, decommissioning and mine closure plan…and…remediation of latent or residual environmental impacts…as reflected in the environmental risk assessment report”.

The “applicant” or “holder of a right or permit” must ensure that the financial provision provided is equal to the sum of the actual costs of implementing the plans and reports contemplated above for a period of 10 years. Where financial provision is provided using a rehabilitation trust, these funds may not be used for financial provision required for annual rehabilitation or final rehabilitation, decommissioning and closure of the mining operations. That is, money held in a trust fund may only be used for latent and residual environmental impacts. The effect of this restriction on the use of trust funds (when read with section 37A of the Income Tax Act) is that monies held in trust funds could not be withdrawn to fund other forms of financial provision permitted in terms of the FP Regulations for annual or on-going rehabilitation without suffering significant tax penalties in terms of section 37A on the basis that the funds were not being distributed for the prescribed purposes set out in the Income Tax Act.

In terms of the Regulations, the financial provisioning must be audited on an annual basis and adjusted by providing for the shortfall within 90 days of the audit. If the financial provision is in excess of the amount, such amount must be deferred against future assessments.

These restrictions, however, only apply to financial provision contemplated in terms of the FP Regulations. Under the transitional provisions of the FP Regulations, financial provision that was already in place at the time the FP Regulations came into effect needs to be converted in accordance with the FP Regulations by February 2020. However, given the apparent difficulties with the FP Regulations there have been various draft amendments to the FP Regulations published for comment. It is anticipated that the February 2020 date will be extended or new regulations will come into effect before February 2020 in order to correct the defects identified above. The drafts published for comment, however, have also been riddled with problems.

9.3 WHAT ARE THE CLOSURE OBLIGATIONS OF THE HOLDER OF A RECONNAISSANCE RIGHT, EXPLORATION RIGHT OR MINING RIGHT?

The MPRDA provides that the holder of a prospecting right or a mining right must apply to the relevant Regional Manager for a closure certificate within 180 days of (i) the lapsing, abandonment or cancellation of the right, (ii) the cessation of the prospecting or mining operation, (iii) the relinquishment of any portion of the prospecting of the land to which a right, permit or permission relate, or (iv) the completion of the prescribed closing plan to which the right relates. The application must be accompanied by all information, programmes, plans and reports prescribed by the MPRDA and NEMA.

The holder of a prospecting right or mining right must implement and ensure compliance with the relevant procedures and requirements on mine closure, especially as they relate to compliance with the conditions of an environmental authorisation.

9.4 ARE THERE ANY ZONING OR PLANNING REQUIREMENTS APPLICABLE TO THE EXERCISE OF A RECONNAISSANCE, EXPLORATION OR MINING RIGHT?

Depending on the area in which the prospecting or mining operations are intended to be undertaken, there may be zoning requirements which require re-zoning applications in line with a town planning scheme.

10. NATIVE TITLE AND LAND RIGHTS

 

The MPRDA provides that the applicant for a prospecting right, mining right or mining permit must notify and consult with the relevant landowner or lawful occupier and any other affected party. In circumstances where the holder of a reconnaissance permission, prospecting right, mining right or mining permit is prevented from commencing or conducting any reconnaissance, prospecting or mining operations because of the actions of the landowner or lawful occupier, the MPRDA provides various dispute settlement mechanisms.

In addition, recent judicial decisions on the MPRDA and the Interim Protection of Informal Land Rights Act, 1996 (IPILRA) have indicated that informal land rights holders must be consulted and in some instances may need to consent to the mining operations before a mining right is granted. The definition of an informal right to land includes, amongst other things, the use of, occupation of or access to land in terms of any tribal, customary or indigenous law or practice of a tribe.

11. HEALTH AND SAFETY

 

11.1 WHAT LEGISLATION GOVERNS HEALTH AND SAFETY IN MINING?

Health and safety in mining is governed by the MHSA and the regulations promulgated in terms of that Act.

11.2 ARE THERE OBLIGATIONS IMPOSED UPON OWNERS, EMPLOYERS, MANAGERS AND EMPLOYEES IN RELATION TO HEALTH AND SAFETY?

Owners of mines are responsible for ensuring the health and safety of employees at a mine. The chief executive officer (or similar person) is responsible for ensuring that the owner complies with the requirements set out in the MHSA. The chief executive officer can delegate these responsibilities to other parties to fulfil these obligations. Such delegations, however, do not absolve the chief executive officer (and the owner) of their obligations in terms of the MHSA.

12. ADMINISTRATIVE ASPECTS

 

12.1 IS THERE A CENTRAL TITLES REGISTRATION OFFICE?

Owners of mines are responsible for ensuring the health and safety of employees at a mine. The chief executive officer (or similar person) is responsible for ensuring that the owner complies with the requirements set out in the MHSA. The chief executive officer can delegate these responsibilities to other parties to fulfil these obligations. Such delegations, however, do not absolve the chief executive officer (and the owner) of their obligations in terms of the MHSA.

12.2 IS THERE A SYSTEM OF APPEALS AGAINST ADMINISTRATIVE DECISIONS IN TERMS OF THE RELEVANT MINING LEGISLATION?

Any person whose rights or legitimate expectations are materially and adversely affected, or who is aggrieved by any administrative decision made in terms of the MPRDA, may appeal that decision within 30 days of becoming aware of it.

This internal appeal process must be exhausted before a person may apply to a court to have an administrative decision reviewed.

Appeals in respect of matters governed under NEMA must be lodged with the Minister of Environment, Forestry and Fisheries.

13. CONSTITUTIONAL LAW

 

13.1 IS THERE A CONSTITUTION WHICH HAS AN IMPACT UPON RIGHTS TO CONDUCT RECONNAISSANCE, EXPLORATION AND MINING?

Yes; see the response to question 1.3.

Section 25 [Property] of the Constitution is particularly important as it prohibits expropriation, unless it takes place in terms of a law of general application. In this regard see the response to question 8.3.

13.2 ARE THERE ANY STATE INVESTMENT TREATIES WHICH ARE APPLICABLE?

South Africa is party to various bilateral investment treaties (BITs), many of which include clauses aimed at protecting investments and restricting the South African government’s ability to expropriate the property of foreign investors in South Africa. It should, however, be noted that South Africa has terminated many BITs in recent years on the basis that the protection offered to investors under them is also provided under the Protection of Investment Act, 2015.

In addition to the BITs, South Africa is also party to several relevant international treaties which play an important role in foreign investment, including:

• Treaty of the Southern African Development Community and its Protocols, including the Protocol on Finance and Investment (SADC Treaty).
• The Economic Partnership Agreement between the European Union and the Southern African Development Community EPA Group.
• Southern African Customs Agreement between the governments of the Republic of Botswana, the Kingdom of Lesotho, the Republic of Namibia, the Republic of South Africa and the Kingdom of Swaziland (SACU)
• Memorandum of Understanding between the Government of the Republic of South Africa and the Government of the People’s Republic of China promoting Bilateral Trade and Economic Co-operation.
• African Continental Free Trade Area Agreement.

14. TAXES AND ROYALTIES

 

14.1 ARE THERE ANY SPECIAL RULES APPLICABLE TO TAXATION OF EXPLORATION AND MINING ENTITIES?

Mining and prospecting companies are subject to various rules on taxation in terms of the Income Tax Act, 1962. In particular, there are certain capital expenditure deductions available in specific circumstances.

14.2 ARE THERE ROYALTIES PAYABLE TO THE STATE OVER AND ABOVE ANY TAXES?

Royalties are payable in accordance with the obligations imposed under the Mineral and Petroleum Resources Royalty Act, 2008. The payment of royalties is triggered once a mineral resource is “transferred” (i.e. disposed of, consumed, stolen, destroyed or lost). Royalties are calculated on the value of the minerals and the royalty percentage rate, which is applied to the base amount. The aforementioned royalty percentage is capped at 5 per cent for refined mineral resources and 7 per cent for unrefined mineral resources.

15. REGIONAL AND LOCAL RULES AND LAWS

 

15.1 ARE THERE ANY LOCAL PROVINCIAL OR MUNICIPAL LAWS THAT NEED TO BE TAKEN ACCOUNT OF BY A MINING COMPANY OVER AND ABOVE NATIONAL LEGISLATION?

Depending on the region in which exploration or mining activities are undertaken, exploration and mining companies will need to comply with various local provincial and municipal laws. These may include, for example, the Land Use Planning Ordinance 15 of 1985 which applies in the Western Cape and parts of the Eastern Cape and North-West, and which prescribes that land needs to be re-zoned for mining and prospecting purposes.

15.2 ARE THERE ANY REGIONAL RULES, PROTOCOLS, POLICIES, OR LAWS RELATING TO SEVERAL COUNTRIES IN THE PARTICULAR REGION THAT NEED TO BE TAKEN ACCOUNT OF BY AN EXPLORATION OR MINING COMPANY?

Exploration and mining companies may take cognisance of the SADC Treaty (including the Protocol on Mining and the Protocol on Finance and Investment). The Protocol on Mining, among other things, imposes regional standards for the mining industry, encourages information exchange and promotes sustainable development, whereas the Protocol on Finance and Investment provides selected investment protection mechanisms.

16. CANCELLATION, ABANDONMENT AND RELINQUISHMENT

 

16.1 ARE THERE ANY PROVISIONS IN MINING LAWS ENTITLING THE HOLDER OF A RIGHT TO ABANDON IT EITHER TOTALLY OR PARTIALLY?

A prospecting or mining right holder may abandon such right totally or partially, subject to, amongst others, obtaining a closure certificate from the DME.

16.2 ARE THERE OBLIGATIONS UPON THE HOLDER OF AN EXPLORATION RIGHT OR A MINING RIGHT TO RELINQUISH A PART THEREOF AFTER A CERTAIN PERIOD OF TIME?

No, there are no obligations upon the holder of an exploration or mining right to relinquish their part.

16.3 ARE THERE ANY ENTITLEMENTS IN THE LAW FOR THE STATE TO CANCEL AN EXPLORATION OR MINING RIGHT ON THE BASIS OF FAILURE TO COMPLY WITH CONDITIONS?

The Minister may cancel or suspend a right, permission or permit where the holder:

• conducts prospecting or mining operations in contravention of the MPRDA;
• breaches any term or condition of such right, permit or permission;
• contravenes any condition in the environmental authorisation; or
• has submitted inaccurate, false, fraudulent, incorrect or misleading information for the purposes of the application or in connection with any matter required to be submitted under the MPRDA.

Before acting upon these contraventions, the Minister must notify the holder of his intention to suspend or cancel the right, permission or permit and allow him or her a reasonable opportunity to remedy the contravention.

This article was first published in ICLG: Mining Law 2020

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For more information, please contact Peter Leon, Patrick Leyden or Matthew Burnell or your usual Herbert Smith Freehills contact: