Getting the deal – Mining in South Africa

Getting the deal – Mining in South Africa
09 Sep 2011

Get acquainted with the mining industry with this extensive overview of mining in South Africa.

1. What is the nature and importance of the mining industry in your country?

South Africa is renowned for being a mineral treasure trove with an abundance of resources. It owns and produces a significant proportion of the world’s minerals: nearly 90 per cent of platinum metals, 80 per cent of manganese, 73 per cent of chrome, 45 per cent of vanadium and 41 per cent of gold are located in South Africa. A substantial variety of other minerals are extracted, including iron ore, copper, nickel, diamonds, coal, building materials and other non-metallic metals.

South Africa’s wealth has been built on its vast resources and mining as an industry is therefore crucial. Based on 2011 statistics, while gold export earnings have declined, contributing only 5.7 per cent to South Africa’s GDP, precious metals account for 65 per cent of the country’s mineral export earnings and 30 per cent of total goods exports. The mining industry contributed 5.2 per cent to South Africa’s GDP in 2011.

The mining industry is also South Africa’s biggest employer, with over 510,000 employees and another 400,000 employed by suppliers of goods and services to the industry. South Africa’s mining indus­try is probably the world’s most highly developed. With a strong background as a major mining country, its strengths include high levels of technical and production expertise, as well as comprehensive research and development activities.

The country has some of the most highly developed primary processing facilities worldwide, covering the carbon steel, stainless steel, and aluminium industries, in addition to gold and platinum. It is also a world leader of new technologies. The industry suffers, however, from price fluctuations due to shifts in world demand for mining products and, presently, the absence of mineral beneficiation before export.

2. What are the target minerals?

Several minerals are mined in South Africa, including platinum met­als, manganese, chrome, vanadium, gold, coal, diamonds, iron ore, copper, nickel, building materials and other non-metallic metals.

3. Which regions are most active?

Mining occurs throughout South Africa, particularly in the Mpu­malanga Province, North West Province, KwaZulu Natal Province, Limpopo Province and Northern Province.

LEGAL AND REGULATORY STRUCTURE

4. Is the legal system civil or common law-based?

Mineral resource exploitation in South Africa is regulated by both statute and common law. The Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA) is the primary regu­latory framework legislation. The MPRDA specifically directs that where there is a conflict between the MPRDA and common law, the MPRDA will prevail. However, the MPRDA does not nullify the common law. Accordingly, the common law principles must be considered in interpreting the MPRDA where there is no conflict between the MPRDA and common law. The principles must espe­cially be considered where the MPRDA does not contain provisions on mineral resource issues.

5. How is the mining industry regulated?

The MPRDA established the state as the custodian of all mineral resources in South Africa, through the minister of mining. The min­ing industry is regulated by the MPRDA, through the national and regional offices of the Department of Mineral Resources (DMR).

6. What are the principal laws that regulate the mining industry?

What are the principal regulatory bodies that administer those laws? The principal law that regulates the mining industry is the MPRDA.

Other related environmental legislation includes: the National Environmental Management Act 107 of 1998 (NEMA); National Water Act 36 of 1998; National Environmental Management: Air Quality Act 39 of 2004; and National Environmental Management: Waste Act 59 of 2008.

The DMR is the principal regulatory body in the mining industry.

7. What classification system does the mining industry use for reporting mineral resources and mineral reserves?

The South African Code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC Code) sets out the classification sys­tem for reporting mineral resources’ and mineral reserves’ required minimum standards, recommendations and guidelines for public reporting of exploration results, mineral resources and mineral reserves in South Africa.

Public reports are prepared to inform investors or potential investors and their advisers according to the Code. They include but are not limited to company annual reports, quarterly reports and other reports incorporated in JSE circulars, or as required by the Companies Act. In certain instances the Code also applies to environmental statements, information memoranda, expert reports, technical papers, website postings and public presentations. SAMREC was established in 1998 and modelled its Code on the Australasian Code for Reporting of Mineral Resources and ore Reserves (the JORC Code). The Code has been adopted by SAIMM, GSSA, SACNASP, ECSA and PLATO and is binding on members of these organisations.

MINING RIGHTS AND TITLE

8. To what extent does the state control mining rights in your jurisdiction?

Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining rights in those areas?

As the custodian of mineral rights, only the state can authorise exploitation of mineral resources and grant these rights through the minister.

The minister has the right to cancel or suspend a mineral right in specified circumstances. These include: contravening the MPRDA while conducting mining related operations; breaching any material term or condition of a mineral right; contravening an approved envi­ronmental management programme (EMP); or submitting inaccurate or misleading information to the DMR. The minister must however first give written notice to the holder, indicating the intention to sus­pend or cancel the mineral right and giving reasons. The holder must also be given a reasonable opportunity to show why the right should not be suspended or cancelled.

Owners of surface rights do not hold the mineral rights, unless they make application to the state for such rights.

Mineral rights are commonly granted to private parties. <strong>A min­eral right is a limited real right with various related rights attaching to it.

A holder and its employees may:

  • enter the land to which a right relates;
  • bring onto such land any equipment and construct any infra­structure required for the operations;
  • prospect, mine, explore or produce for its own account on or under the land for the mineral for which a right has been granted;
  • remove and dispose of any mineral found during operations;
  • subject to the National Water Act 36 of 1998, use water on the land; and
  • carry out any other activity incidental to the operations, if it does not contravene the MPRDA’s provisions.

The MPRDA provides that the minister may refuse to grant a pros­pecting right if the granting of such right will result in an exclusion­ary act; prevent fair competition; or result in the concentration of a mineral resources under the control of an applicant. This provision may therefore be used to prevent one private entity holding a monop­oly over rights to a specific mineral across large areas. Some private entities have however acquired mineral rights over large areas prior to the MPRDA’s commencement, such as the De Beers Namaqualand Mine on the West Coast of South Africa.

Third parties cannot obtain mineral rights in the same area where rights have already been granted to another party for the same miner­als. Nothing, however, precludes a third party from submitting an application for a right to a different mineral that is not included in a holder’s existing right.

9. What information and data is publicly available to private parties that wish to engage in exploration and other mining activities?

Is there an agency which collects mineral assessment reports from private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database available online?

The Mineral and Petroleum Titles Registration office, which is regu­lated by the Mining Titles Registration Act, is the office for the regis­tration of all mineral and petroleum titles and all other related rights, deeds and documents. Documents that are registered at this office are not publicly available and an application to access them must be made under the Promotion of Access to Information Act 2 of 2000 (PAIA). Under the PAIA a person requesting public documents does not need to furnish reasons for their disclosure.

The MPRDA contains obligations for mineral rights holders to submit reports to the DMR, although these are not generally avail­able to the public.

The Council for Geoscience (CGS) is a public entity that col­lects geoscience data (particularly geological, geophysical, mineral, geochemical and engineering-geological) in maps and documents. This information includes data received from mining companies, uni­versities and research institutions worldwide. It maintains several mineral databases, some of which are accessible at its library, such as the COREDATA and COAL databases. The South African Min­eral Deposits Database (SAMINDABA) is an online database (www.geoscience.org.za). Access to information not publicly available is subject to the PAIA and the Geoscience Act 100 of 1993, which regulates the functions of the GCS.

10. What mining rights may private parties acquire?

How are these acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such tenure give the holder to a preferential right acquire a mining licence?

A private party may acquire a permit for reconnaissance, technical cooperation, mining and retention. Rights for prospecting, explora­tion and mining may also be acquired.

The application procedure to acquire mineral rights from the state is set out in the MPRDA. The minister can grant, issue, refuse, control, manage or administer any of these rights.

Rights are acquired on a first-come, first-served basis. An appli­cation for a prospecting right, mining right or mining permit must be accepted where no other person holds such right for the same mineral and land.

The minister may also publish invitations for applications for prospecting and mining rights and set out the terms and conditions on which these rights will be granted.

Holders of prospecting or retention rights have the exclusive right to be granted a mining right for the land in question. Simi­larly, holders of an exploration right have the exclusive right to be granted a production right for the petroleum and exploration area in question. Prospecting, mining and exploration rightholders have an exclusive right to be granted a renewal of their respective rights. A reconnaissance permit holder does not have any exclusive right to be granted a prospecting right or mining right and is also not automati­cally entitled to conduct any prospecting or mining operations.

Various limitations on the periods for exploitation of mineral resources are provided in the MPRDA for the different mineral rights. Limitations on the number of renewals are also specified.

The rights holder’s obligations depend on the nature of the right or permit. The extent of the activities that the holder of a right or permit is entitled to undertake is clearly set out in the MPRDA. The obligations include rehabilitation obligations, obligations to employ­ees, obligations to the surrounding community, etc.

In terms of the MPRDA the rights holder has an obligation to ensure optimal exploitation of the mineral resource. A person is only entitled to a mining, prospecting, exploration or production right to the extent that they actively exploit these rights. Holders of such rights therefore have an obligation to continuously conduct their operations within the period of the right.

A retention permit may only be issued if the applicant has com­pleted prospecting activities and market studies have revealed that mining of the mineral will be uneconomical due to prevailing market conditions.

To ensure optimal exploitation a planned mining, prospecting, exploration or production work programme must be followed. There are specified periods for rights holders to commence such operations. Corrective measures may be taken against a holder if minerals are not mined optimally.

A mineral rights holder is obliged to consult with interested and affected parties, landowners and lawful occupiers in respect of their operations and activities.

Any person other than the mining right holder only has the right to mine as a contractor or service provider, by agreement with the holder.

Mining permits and mining, prospecting, exploration and pro­duction rights may only be transferred, ceded, let, sublet, alienated, disposed of, or encumbered by mortgage with ministerial consent and on just cause. Consent to both the transfer of a right and sub­stitution of the holder should be requested for the purposes of the MPRDA.

The person to whom the right will be alienated or disposed must show that they are capable of complying with the obligations, terms and conditions of the right in question and satisfy the requirements of an applicant.

A contravention or failure to comply with the MPRDA is an offence, for which penalties are stipulated in the Act.

11. Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?

There are no restrictions in the MPRDA or in practice on a foreign party acquiring mining rights in South Africa.

Due to legislation providing for advancement of historically dis­advantaged people, however, there are benefits in a domestic partner having some form of interest in the foreign party’s mining activi­ties. The foreign party should give careful consideration to the most appropriate business entity utilised to acquire mining rights and take note of South Africa’s exchange control restrictions.

12. How are mining rights protected?

Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction? A mining right is a limited real right that may be enforced against third parties and once granted the state has a limited power to interfere in the right. Failure to respect a right could give rise to criminal liability, a civil claim for damages or an administrative justice action.

When a party’s rights or legitimate expectations have been mate­rially and adversely affected or that party has been aggrieved by any administrative decision taken under the MPRDA, the MPRDA allows for an appeal against such decision.

Once the person has exhausted the remedies provided for by the MPRDA, they may apply to the High Court for a review of the administrative decision, according to the provisions of the Promotion of Administrative Justice Act 3 of 2000.

Foreign arbitration awards are enforceable in South Africa, pro­vided that local requirements for enforcement are met.

13. What surface rights may private parties acquire? How are these rights acquired?

Any mining rights holder may seek to purchase the surface rights and South Africa has a free market in such property purchases

If the surface rights are not purchased, the MPRDA grants a lim­ited real right to the mineral rights holder over the land as well as the minerals. In accordance with common law, the landowner is bound to allow the holder to do whatever is reasonably necessary for the proper exercise of the holder’s rights. The mineral rights holder must, however, exercise his or her rights with due regard to the landowner’s.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
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