May 2011

Lawyers raise concerns about South African policy

Increasing regulations creating uncertainty for mining investment

By Virginia Heffernan


Peter Leon, of South African law firm Webber Wentzel | Courtesy of MineAfrica Inc.

The euphoric atmosphere of the 2011 PDAC Convention dissipated somewhat down the road at the Radisson Hotel in Toronto, where a sobering session on the state of the mining industry in South Africa took place in tandem with the annual gathering of global miners. The truth is that South Africa has missed out on the commodity boom other countries have enjoyed because of the uncertainty of its regulatory environment, explained Bruce Shapiro, president of MineAfrica Inc., the organizer of the event.

The “South Africa’s Mining Industry: The Perceptions and Reality” seminar drew roughly 75 participants to hear lawyers from South Africa and Canada discuss the country’s regulations and the possibility of mining assets being nationalized. While most presenters concluded that nationalization was unlikely, even though the option is being investigated by the ruling African National Congress, they could not ignore the fact that South Africa has fallen to 67th place out of 79 countries in the Fraser Institute’s annual ranking of ability to attract investment in mineral exploration. “It’s too soon to tell if we face a crisis,” said Peter Leon, a partner at Webber Wentzel Attorneys in South Africa. But he added that even though the country has vast mineral reserves, mining GDP declined one per cent per year during a seven-year boom period for commodities.

When South Africa introduced its mining charter in 2002, the idea was to make changes to redress historical imbalances entrenched by apartheid. But regulatory uncertainty, vague licensing requirements and a few high-profile cases of alleged corruption have discouraged investment in the sector. To address these inadequacies, the country has placed a moratorium on issuing prospecting licences and set up a task force to review the mining laws.

While the legal experts were encouraged by the promise of a new electronic system to track mineral rights, they remain dismayed by the vague demands of recent amendments to the mining charter concerning beneficiation, community development and black economic empowerment, including the requirement for a minimum target of 26 per cent ownership of mining companies by historically disadvantaged South Africans by 2014. Presenters also voiced concerns about the recent launch of a state-owned mining company called the African Exploration Mining and Finance Corporation. The national company may be given exemptions under the Mining Act, would be competing with the private sector for mineral resources, would be self-regulating and would rely on taxpayer funding, all negatives in their eyes.

Most of the hope for a better regulatory environment rests with South African Mineral Resources Minister Susan Shabangu, who was in Toronto to attend the PDAC Convention and allay investor concerns. She is reviewing the lack of transparency in the system and came out publicly against nationalization at the Mining Indaba conference held in Cape Town in February.

“I don’t think nationalization is a real threat, but it is unfortunate that it is being investigated by the government,” said Manus Booysen, another partner in Webber Wentzel. “And it’s disappointing that we have slipped once again on the Fraser Institute report.”

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