MINING FEATURE www.withoutprejudice.co.za - Without Prejudice
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MINING FEATURE
www.withoutprejudice.co.za
MINING & MINERALS Together we provide integrated solutions to the mining industry. The mining sector faces many challenges and is regulated by a complex legislative framework that is constantly evolving. To navigate your way through this complexity, you need a multi-faceted legal team with expertise in all aspects of the relevant laws and an in-depth understanding of the mining sector. Partner with us for our vast experience and extensive insight that guide SA’s top mining businesses through an industry in flux. The mining legal partner for your business. cliffedekkerhofmeyr.com
2018
MINING FEATURE 1
INTRODUCTION CONTENTS
Mining is synonymous with South Africa. Its history – both the good and the
bad – has had considerable impact on the country and vice versa. Will the new broom sweep clean? 2
Man’s insatiable curiosity played a large role in the discovery of the met-
Rita Spalding and Jonathan Veeran | Webber Wentzel
als and minerals that have shaped the way we live in the 21st century. We
forget, at our peril, the impact of mining, and the impact of other industries
on this important sector. Where to from here? 4
In January I saw an episode of a fascinating BBC series on Tate Britain
which looked at Polish-born artist, Josef Herman, whose bold studies of Lucas Moalusi and Godfrey Malesa | Fasken (South Africa)
working class people reflected not only the very human side of mining, but
also the pathos that comes with the risks mining entails. Josef Herman left An industry in flux – will uncertainty bring a
Poland to escape the Nazis. He spent many years living in a Welsh mining certain end? 6
community, Ystradgynlais, South Wales and his miners, of large sculptural
proportions, are portraits of those who lived there. Artists such as Herman Giada Masina and Neo Tshikalange | Cliffe Dekker Hofmeyr
depict not only day-to-day lives, they also reflect the economy of the time
and, very often, have much to say about the political arena.
The South African mining industry is changing and
South African artists too have been fearless in their commentary of
that’s a fact 8
tragedies such as Marikana. Think of painters such as Lehlohonolo
Dhlamini whose moving work, “Unexpected is always upon us”, silently con- Warren Beech, Nicholas Veltman, Eben van Zyl and Refiloe Vengeni |
veys much of the tension of the miners at Marikana and Ayanda Mabulu’s Hogan Lovells (South Africa)
political painting of “Yakhalinkomo - Black Man's Cry”, that caused such
outrage in certain quarters.
The mining community, often in isolated areas, is a microcosm of the Surface rights use – to agree or not to agree 10
political and economic life in South Africa. It is impacted by decisions taken
Estelle Bester and Pieter Smit | Falcon & Hume
in other communities, both private and public, and it can be said quite un-
equivocally that it has had an enormous impact on the fortunes of the
country. Can the trust be trusted? 12
The articles in this feature on mining focus strongly on both the impact
Marc Yudaken, Janine Howard and Kimberley Barker |
of legislation and legislative uncertainty that has come about as the politi-
cians sit in their ivory towers. Baker McKenzie (South Africa)
The politics of the past impacted negatively on a vast number of people
involved in the mining industry while also enriching, both literally and in CSR in mining: collaboration the key to success 14
many other more positive ways, the lives of others. For me, while one can-
not erase the tragedies of the past, there is an equal tragedy in that those Georg Kahle and Nick Gordon | Norton Rose Fulbright (South Africa)
in a new democratic South Africa, entrusted with the task of improving, in
particular, the lives of miners, the safety of the environment in which min-
ing takes place and of ensuring that the impact of mining is positive for fu-
Decommissioning and the environment 17
ture generations seem to have had little understanding of the consequences Sonia de Vries | Baker McKenzie (South Africa)
of proposed legislative amendments.
Those involved appear to have no economic knowledge or are uncon-
cerned that their apparent inability to move forward in a positive way is The fox guarding the henhouse? 18
costing the country dearly in terms of foreign investment and both local and
Wessel Badenhorst | Hogan Lovells (South Africa)
foreign confidence in the future of the country. The Chamber of Mines fig-
ures for 2016 show the industry contributed less than 8% to South Africa’s
GDP and employed only 8% of private sector labour – tens of thousands Mining opportunities in a low carbon economy 20
lost their jobs and, since it is well known that every miner supports between
eight and 10 people, that figure is much worse than it appears. Matthew Burnell | Herbert Smith Freehills (South Africa)
Legislative certainty will surely change the dynamics and process. Ac-
cording to the Fraser Institute a common view is that, “In South Africa, the
Landmark court decision shakes up mineral royalties 22
entire process of the administration of, and applying for, and awarding of,
exploration rights is protracted, corrupt, arbitrary, inconsistent , and a night- Arnaaz Camay and Rui Lopes | Baker McKenzie (South Africa)
mare”. That must not continue.
The past several years have seen South Africans increasingly despon-
dent, but the election of a new president of the ANC at the end of 2017 has
Losing control 24
undoubtedly changed the energy in the country. It is to be hoped that this Samantha Horsfield | Hogan Lovells (South Africa)
translates into positive changes in the “nitty gritty” of running the country.
Without a doubt all those lawyers who have contributed to this extremely in-
teresting feature have shown no fear in strongly voicing what needs to be Proposed amendments to the Financial Provision
done to rescue the mining industry and, at the same time, South Africa. • Regulations 25
Lia Bolz and Davide Bishop | Malan Scholes
Myrle Vanderstraeten
2 MINING FEATURE 2018
WILL THE NEW BROOM SWEEP CLEAN?
RITA SPALDING AND JONATHAN VEERAN
When Roman historian Suetonius described Emperor Nero as “fiddling while suppliers to the industry; result in a compulsory local beneficiation and also
Rome burns” he could well have been referring to the Zuma regime, whose demand that research and development be focused locally, ideally at previ-
political legerdemain over the last decade has resulted in the erosion of trust ously disadvantaged universities.
among government, business and labour. The goals behind these moves are, make no mistake, laudable. But impos-
During 2017, a few high-profile moves succeeded in widen- ing regulation for such issues and expecting homogenous growth is both imprac-
ing the trust deficit in the mining sector, with the Depart- tical and unrealistic. This is likely to discourage investment in the Mining Sector
ment of Mineral Resources (DMR) and Zuma protégé, at a time when market conditions, restructuring exercises and commercial
Mosabenzi Zwane, in one corner, and industry and sense has resulted in a number of well-priced assets coming into focus. An ex-
stakeholders in the other. ample of this is Sibanye Stillwater’s acquisition of Lonmin plc which would
First, the tragic saga of the Mineral potentially grant the fledgling platinum producer its very own smelting
and Petroleum Resources Development capacity.
Amendment Act, 2013, (the Amend- While the Mining Charter and the MPRDA are the core docu-
ment Act) which has been held up in ment for transformation in the industry, their respective
parliamentary processes for more goals cannot be achieved without the full buy-in of in-
than four years and, more recently, the dustry. The mining sector’s major gripe is lack of trust
publication of the controversial Mining between government and business. If there is a lacklus-
Charter 3, in June 2017. tre consultation process with key stakeholders, it be-
Viewed cumulatively, the publication comes impossible to implement changes in a
of the Amendment Act and the imposition of commercially viable fashion. Little thought has
the Mining Charter 3 have and will continue to been given to how the policy can be practically
result in international and domestic investors implemented or the pressure it might bring to
looking elsewhere for regulatory certainty and bet- bear on a sector which has seen mass retrench-
ter returns on investment owing to a lower cost of ments and has yet to recover from the recent global
compliance. commodity downturn.
These instruments increase the The best solution to overcome
ownership targets for historically dis- this impasse would be to sit down,
advantaged individuals to 30%; create formally agree on the vision and then
more onerous ownership requirements for approach the practicalities of how this can be
It is vital that all stakeholders appreciate
that the country faces a far more daunting
future without a healthy mining industry.
Spalding Veeran
2018
MINING FEATURE 3
achieved. We’ve just seen an ANC Elective Conference. Post the conference, without recognising the value it brings to the economy. That said, it is impera-
the newly installed ANC President, Cyril Ramaphosa, expressed opposition to tive to appreciate how the legacy of apartheid continues to impact the mining
the implementation of the Charter. If this statement is genuine, and not mere sector today. It is perhaps the industry’s biggest stumbling block. But, as re-
politicking, then there is cause for hope. cent fiascos have shown, addressing the imbalances of the past cannot be
Ramaphosa's sentiments, coupled with a commitment to a more efficient achieved without getting over historical divisions.
and less corrupt administration, will result in great interest and more invest- Much of this failure to communicate hinges on a fundamental lack of un-
ment in a country which is often said to be blessed with the greatest endow- derstanding of how the industry works. Take, for example, the Charter’s intro-
ment of natural resources in the world. duction of a problematic 1% of annual turnover payment to BEE shareholders
The reality is that if the grant of new licences is delayed, if miners can’t get in the Mining Charter. This payout is based on turnover, not profits, may not
consent to do transactions – be it a transfer of a share or a right – that is hugely be used to settle debt and would have to be paid before dividends. Thus, a
problematic. Financiers certainly aren’t going to wait forever for the DMR to give mining company could find itself in a position where it is obliged, under the
clarity, and if you can’t get new rights you can’t explore, can’t mine and can’t cre- Mining Charter, to pay out large sums of cash regardless of whether or not
ate jobs. Unfortunately, it will be the poorest of the poor who suffer the most. such a payment is commercially viable. Again the objective behind this move
South Africa is not the only country in the world with minerals and many is admirable and is designed to get money flowing into the hands of BEE
investors are already opting to rather invest in other countries in Africa, like shareholders now, not tomorrow or in a decade’s time. This is indeed in the
Botswana, Mozambique, Namibia, Zambia and, more recently, Zimbabwe. spirit of transformation but basing it on turnover is yet another example of a
While historically we have been welcoming, compliance is become increas- failure to understand the financial inner workings of mining companies.
ingly onerous, expensive and tangled. Similarly, the proposal that a Mine Development and Transformation
Certainly the mining industry is heavily associated with the errors of the Agency, run under the auspices of government but funded by the industry as
past and continues to be penalised far more aggressively than other sectors, part of a new levy, creates more questions than answers. With respect, this is
Unearth the power of partnership
Speak to Africa’s fully integrated, multi-disciplinary mining
and natural resources legal team.
We recognise that in the dynamic mining, regulatory, energy and natural resources environment, a unique
service offering is required from a team that understands the industry, the law and the people. Our mining
and regulatory team is ideally positioned to assist you in successfully managing the demands and challenges
of this sector.
Our practitioners have an in-depth knowledge of the mining and related sectors, such as construction and
engineering; knowledge that we’ve acquired over many years of partnership with our clients. Our strength lies
in our diversity and experience, and our ability to provide seamless, integrated, practical advice.
To find out more about how we can help you with your mining requests please contact:
Warren Beech Head of Mining, Johannesburg, South Africa T +27 11 523 6076 or warren.beech@hoganlovells.com
www.hoganlovells.com
Hogan Lovells is an international legal practice that includes Hogan Lovells International LLP,
Hogan Lovells US LLP and their affiliated businesses. Images of people may feature current
or former lawyers and employees at Hogan Lovells or models not connected with the firm.
www.hoganlovells.com @HoganLovellsSA
© Hogan Lovells 2018. All rights reserved.
4 MINING FEATURE 2018
a patriarchal and patronising move, which assumes that communities cannot carried out in other government departments and in ignorance of the real-
manage their own affairs. Furthermore, it would give a single agency a say on world pressures on the economy and business.
every single mining company, which opens up competition law issues, confi- Right now the industry is poised on a knife’s edge. So much depends on
dentiality issues, and concerns around how the agency would be staffed. what government and the newly installed ANC management team do in the
If you want to increase black ownership in the mining industry then lock- weeks and months ahead. Right now is the time for level heads, not posturing.
ing black shareholders into these trusts is not the way to go. This prevents It is vital that all stakeholders appreciate that the country faces a far more
the flow of assets and forces black shareholders to sell to a closed pool. If daunting future without a healthy mining industry. Labour has to appreciate the
the point of transformation is to put money into the hands of black citizens, impact of very real cost constraints. Mining companies must accept that there
then this approach offers no flexibility. is a historical cost of doing business in South Africa; yes, it is expensive and
Again, this highlights the tensions between realities on the ground and BEE compliance is essential. Government too needs to play ball, not politics. •
policy. In developing policy in South Africa we often forgo proper economic
analysis. We don’t assess what markets can withstand and what investors Spalding and Veeran are Partners with
are looking for. We devise policy in a vacuum, divorced from the work being Webber Wentzel.
WHERE TO FROM HERE?
LUCAS MOALUSI AND GODFREY MALESA
South Africa is a country rich in minerals and the mining sector plays a pivotal Ramaphosa as the new president of the ruling party.
role in the country’s economy. The South African mining industry has for the Mining stakeholders hope this will bode well for both the country’s econ-
last few years been plagued by legal uncertainty. omy and mining industry, but the burning question on most stakeholders’
The Mineral and Petroleum Resources Development Act, 2002 (the MPRDA) minds is whether the newly elected ANC leadership will bring about the policy
came into effect on 1 May 2004. It was enacted to facilitate equitable access to and legal certainty that is urgently needed and necessary to encourage and
and sustainable development of the nation’s mineral and petroleum resources. improve investment in the mining sector.
The promulgation of the MPRDA was generally welcomed and embraced by the
mining industry. However, since the enactment of the MPRDA, the South African Legal uncertainty in the mining sector
mining industry has been plagued by the lack of policy and legal certainty. This At the heart of the legal uncertainty in the mining sector is first, the delay in
has undermined the country as a leading mining investment destination and finalising the Mineral and Petroleum Resources Development Bill [B15D-
has resulted in a drastic decline in investment in the mining sector. 2013] (the Amendment Bill) and second, the introduction of the new Re-
The election of the new African National Congress leadership has brought viewed Broad Based Black-Economic Empowerment Charter of the South
with it optimism in the mining sector, particularly the election of Cyril African Mining and Minerals Industry, which led to the Chamber of Mines
The election of the new African National
Congress leadership has brought with it
optimism in the mining sector, particularly
the election of Cyril Ramaphosa as the new
president of the ruling party.
Moalusi Malesa
2018
MINING FEATURE 5
launching a review application to set aside the new Mining Charter. stantially enabling the South African mining industry to return to the top 25%
In 2008, the Mineral and Petroleum Resources Development Amendment of global mining jurisdictions.
Act (49 of 2008) was passed. However, it was only partly brought into force in According to the report, the estimated current capital spending in the mining
June 2013. In 2013 the Amendment Bill was introduced to parliament. In Janu- sector (stretching over the next four years) amounts to more than R145 billion.
ary 2015, President Zuma referred the Amendment Bill back to the National As- The potential capital expenditure in a more certain and conducive environment
sembly to consider his reservations around its constitutionality. Some of the (covering at least another three years) could amount to an additional outlay of
President’s reservations included that the National Council of Province did not more than R122 billion. This, according to the report, means that capital expen-
afford sufficient opportunity for public participation, as required by the Constitu- diture on mining projects could be 84% higher than the current R145 billion.
tion, and the lack of consultation with the National House of Traditional Leaders, Furthermore, South Africa’s consistent drop in the Fraser Institute’s rankings,
despite the Amendment Bill affecting customary law and traditional communi- illustrates the adverse effects that the lack of policy and regulatory certainty in
ties. Some think this was a "kick for touch". It has been over four years since the the mining sector is having on investor confidence. South Africa is currently
introduction of the Amendment Bill and it is yet to be finalised. The proposed ranked 74th in the 2016 Fraser Institute Investment Attractiveness Index, out of
amendments introduced by the Amendment Bill are mostly taken from the 104 jurisdictions. The Fraser Institute Investment Attractiveness Index ranks ju-
ANC’s State Intervention in the Minerals Sector Report, but perhaps the powers risdictions around the world based on geologic attractiveness and the extent to
that be are having second thoughts? This remains up in the air. which government policies encourage or deter mining and investment.
The introduction of the contentious new Mining Charter by the Minister of Min- Given that the court challenges brought by the industry bodies and mining
eral Resources in June 2017 has caused further legal uncertainty in a sector companies may take several years to come to finality, it is in the best interest of
where investor confidence has been rocked by the combination of regulatory un- all stakeholders that the mining sector and government should enter into negoti-
certainty and the political climate in the country. The review application by the ations in order to come to an amicable solution that will benefit all stakeholders.
Chamber of Mines is pursuant to a range of contentious changes for the mining In order to promote and raise investment in the mining industry, gov-
sector that have been introduced by the Mining Charter. The Chamber of Mines ernment must ensure that the country’s mineral regulatory framework
and the Department of Mineral Resources have reached an agreement prevent- provides certainty and predictability to mining investors. Accordingly, it ap-
ing the implementation of the new Mining Charter. In terms of the agreement, the pears that the only feasible solution is for the newly elected ANC leader-
Minister of Mineral Resources has given a written undertaking that the new Min- ship to urge government take proactive measures to engage with all the
ing Charter will not be implemented until judgment has been handed down in re- stakeholders to find a lasting solution that will benefit the economy.
spect of the Chamber of Mines’ review application. This remains up in the air.
The Chamber of Mines has also sought a declaratory order from the courts Looking forward
on the “once empowered, always empowered” principle, which has also con- There is a high road and a low road for 2018. Getting on the high road is not
tributed to the lack of policy and legal certainty in the mining sector. The order about getting industry favourable or government favourable settlements to
was heard by a full bench of the High Court of South Africa (Pretoria) on 9 and the current disputes. It's about getting workable answers quickly – before the
10 November 2017 and judgment has been reserved. As at the date of this ar- end of the first quarter.
ticle, judgment has not been handed down. This remains up in the air. The mining sector remains a central pillar of South Africa’s struggling economy.
As a result of the delay in finalising the Amendment Bill, the introduction of We cannot continue as we are at the moment. Government and industry, hopefully
the new Mining Charter and the numerous court challenges, the South African guided by a practical new leadership at the party level, need to bring about regula-
mining industry is currently paralysed by policy and regulatory uncertainty. tory certainty to help the mining industry overcome its current challenges.
Even if the Amendment Bill is passed into law, its constitutionality is likely The new leadership of the ANC has a considerable task to ensure the min-
to be challenged because the new amendments added by the Department of ing sector attracts investors and flourishes again as a central pillar of South
Mineral Resources which (it has been argued) have not been subjected to Africa’s economy. It is hoped that they will prioritise the creation of a certain
proper public consultation. and attractive legal and regulatory environment that will be conducive to in-
All of these "balls in the air" need to be caught and dealt with. They are vestment. That would be the first prize. The second prize would just be to get
having a negative impact on South Africa’s economy. No investment will take the amendment bill settled and passed and the litigation finalised so that the
place until the investors know what they are investing in. mining industry can get on with what it does best – mining.
In November 2017, the Chamber of Mines published What if? Mining in- The low road of course will be that, one year on, the industry and govern-
vestment in South Africa in an improved policy and regulatory environment, a ment are in exactly the same position as they are now. The country cannot af-
report on the findings of an aggregated survey recently conducted amongst ford that.•
its members in an attempt to understand the investment and employment
potential of the mining industry in the event of a return to better practice in Moalusi is Senior Partner and
policy, legislation and regulation formulation. The report looked at what could Malesa a Partner with Fasken
happen if the policy, regulatory and governance environment improved sub- (South Africa).
6 MINING FEATURE 2018
AN INDUSTRY IN FLUX – WILL UNCERTAINTY
BRING A CERTAIN END?
GIADA MASINA AND NEO TSHIKALANGE
The exceptional challenges faced by the South African mining industry during raises questions regarding the authenticity and viability of the document.
2017 had a major impact on mining-related transactions. It was a year of ex- Mining Charter III contains a number of controversial provisions. The re-
treme political turbulence, economic instability and ongoing regulatory and quirement that mining companies contribute 1% of their turnover to the Min-
legislative uncertainty. While the well-known complexities became almost ing Transformation and Development Agency to be formed is a clear example
contemporary custom for deal makers within the industry, investor sentiment of regulatory overreach, and, in the case of foreign companies generating
was at an all-time low and many wondered whether the sector, which plays turnover locally, purports to exercise territorial jurisdiction which will likely
such a pivotal role in the economy, would be able to recover. conflict with many of South Africa's existing international bilateral trade
One of the main contributing factors to the regulatory uncertainty was un- agreements.
doubtedly the publishing of the controversial Broad-Based Black Economic This regulatory overreach is also evident in the retrospective application of
Empowerment Charter for the South African Mining and Minerals Industry by Mining Charter III to existing mining right holders, particularly if one considers
the Minister of Mineral Resources on 15 June 2017 (Mining Charter III). the increase of the black economic (BEE) ownership threshold from 26% to
The exceptional challenges faced by the
South African mining industry during 2017
had a major impact on mining-related
transactions. It was a year of extreme
political turbulence, economic instability
and ongoing regulatory and legislative
uncertainty.
Masina Tshikalange
Since its release, Mining Charter III has been subject to an array of criti- 30% for existing rights holders. These provisions raise legal concerns as they
cisms, particularly relating to the lack of meaningful consultation by the De- violate the presumption against retrospective application of the law and will
partment of Mineral Resources with stakeholders regarding its content. Its be challenged as unconstitutional.
provisions have been labelled arbitrary and prescriptive, economically im- The debate on the "once empowered, always empowered" principle, which
practical and onerous, a hindrance to global trade and investment and mis- contemplates that a mining company can continue to be recognised as compliant
aligned with various legislative and policy frameworks applicable to the with BEE ownership requirements after the exit of an empowerment shareholder
mining industry. At best, its provisions are unclear and ambiguous and would also rages on. Mining Charter III was published at a time when the industry was
leave mining companies with little guidance as to how to apply them. awaiting a declaratory order by the high court to provide guidance on the manner
However, the key question is whether or not Mining Charter III is legally in which compliance with the ownership element should be assessed, and it
valid and enforceable, and that remains to be seen. clearly provides that past empowerment deals will not be recognised.
The Minister of Mineral Resources insists that Mining Charter III in its cur- Mining Charter III sparked urgent legal challenges by the Chamber of
rent form is a key instrument for radical change required in order to meet the Mines regarding the constitutionality and legality of the document. Implemen-
socio-economic needs of the people of South Africa and that the targets it sets tation of its provisions has been suspended pending the outcome of the re-
are realistic. However, Mining Charter III has also been caught up in allegations view application initially due to be heard by the high court in mid-December
of intervention aimed at advancing individual and political agendas, which 2017 but postponed to February 2018.
1867 | DISCOVERY OF DIAMONDS
IN SOUTH AFRICA
Following the discovery of diamonds in Hopetown in 1867, we have
been serving our clients in Africa, driving positive economic and
social transformation through sound legal advice to governments,
mining companies, communities, suppliers and investors.
With 15 decades of experience, a deep understanding of the
mining industry and long held relationships, we are consistently
ranked the leading legal mining practice in Africa.
1 8 6 8 - 2 0 1 8
M A K I N G H I STO RY
SHAPING THE FUTURE
8 MINING FEATURE 2018
Then there is also the Mineral and Petroleum Resources Development Amend- deal flow and value in South Africa. Local and international investors are re-
ment Bill [B 15D – 2013] (Bill) which has been subject to legislative processes in luctant to make the large capital commitments required to embark on new
South Africa since 2013. The revised version of the Bill, which was passed by the development projects and most activity has centred on distressed transac-
National Assembly in early November 2016 and was referred to the National tions, with many companies undergoing restructurings.
Council of Provinces for consideration, still contains numerous controversial pro- In order for South Africa to regain its position as a leading mining invest-
posals that may not pass constitutional muster. The application of parliamentary ment destination on the continent, and for the industry to achieve real sus-
rules regarding the number of changes that were made to the Bill could also raise tainable and inclusive transformation, it is imperative that a legislative
procedural issues. It is difficult to imagine the Mineral and Petroleum Resources framework and policies which are clear and consistent with the rule of law be
Development Act being amended without an agreed new Mining Charter in place adopted. The ANC National Conference taking place in December 2017 and
and it seems likely that the Bill, once finalised and enacted, will also become the the Mining Charter III review application due to be heard in February 2018
subject of a lengthy legal battle regarding its validity and enforceability. will certainly prove crucial to the fate of transactions in 2018, and the state of
Notwithstanding the suspension of the operation of Mining Charter III, the the mining industry as a whole. •
impact of the regulatory uncertainty coupled with the other economic and po-
litical complexities associated with mining in South Africa have been blatantly Masina is a Director and Tshikalange an
evident. Ratings agencies have been vocal about their downgrades in South Associate, Corporate and Commercial
Africa’s credit status; a number of mining companies have announced plans practice, Cliffe Dekker Hofmeyr.
to implement closure of various mining operations; and job losses are at an
unprecedented high. All this has negatively affected merger and acquisition This article was written prior to the Mining Charter III review.
THE SOUTH AFRICAN MINING INDUSTRY IS
CHANGING AND THAT’S A FACT
WA R R E N B E E C H , N I C H O L A S V E LT M A N , E B E N VA N Z Y L A N D R E F I L O E V E N G E N I
2017 was another tempestuous year for the South African Mining and Natu- While much of the day-to-day interpretation and application of South Africa's
ral Resources Sector. The sector was disrupted by a range of changes and Environmental Laws are left to the regulators such as the Department of En-
uncertainties, including the publication of the Reviewed Broad-Based Black vironmental Affairs, the Department of Water and Sanitation, and the Air
Economic Empowerment Charter for the South African Mining and Minerals Quality Manager, at municipal level, the South African courts are occasionally
Industry, 2016 on 15 June 2017 (Mining Charter 3); the proposed morato- called on to interpret key provisions. One of the more prominent judgments
rium on applications for new mining and prospecting rights, mining and was handed down in March 2017, by the High Court of South Africa, Gauteng
prospecting right renewals and mining and prospecting right transfers; mine Division, Pretoria in the matter of Earthlife Africa Johannesburg v Minister of
closures under instructions issued in terms of s54 of the Mine Health and Environmental Affairs and Others (65662/16) [2017] ZAGPPHC58: 2ALL
Safety Act (29 of 1996) (MHSA); the ever-increasing involvement of stake- SA519 (GP) (8 March 2017). This judgment is important not only because it
holders and environmental activists; and regulatory and policy uncertainty. interprets requirements of the applicable Environmental Laws but also be-
While the South African Mining and Natural Resources Sector is facing cause it touches on two very sensitive topics, namely global warming and
constant turmoil, it cannot ignore the reality of the fourth industrial revolu- South Africa's current reliance on coal-fired production of electricity.
tion, more commonly referred to as Industry 4.0: the role of the Internet of Earthlife Africa applied to court to set aside a decision of the Department
Things (IoT) and the impact of Artificial Intelligence (AI). of Environmental Affairs to grant an environmental authorisation to
There is no doubt that the future of mining will include driverless vehicles, Thabametsi Power, the company that had been selected to build a coal-fired
mines run by cellular networks, and automation technology. These develop- power station in the Limpopo Province. If successful, and the environmental
ments will require innovation, and re-consideration of legal principles, with a authorisation was set aside, Thabametsi Power would need to apply for a
strong emphasis on data capturing, data storage, analysis, and of course, new environmental authorisation, without any guarantee that it would be
one of the greatest concerns, privacy. granted.
But for now, the emphasis is also on getting the basics right. Earthlife Africa's argument was essentially that the Minister of Environ-
The South African Mining and Natural Resources Sector is heavily regu- mental Affairs had a legal obligation to consider the global warming impacts
lated, and there are a range of Environmental Laws applicable to mining. of the project and, if it was found that there was a legal obligation, the Minis-2018
MINING FEATURE 9
ter of Environmental Affairs had not properly considered global warming quired environmental authorisations have applied
when deciding whether or not to grant the environmental authorisation. the old adage "it is easier to ask for forgiveness
The court decided in Earthlife Africa's favour, and set aside the decision than for permission", and have applied for
to grant the environmental authorisation. rectification under the provisions of s24G
This judgment interprets the provisions of the National Environ- of NEMA, where the environmental au-
mental Management Act (107 of 1998) (NEMA) and confirms that thorisations had not been applied for
all relevant factors associated with a potential project must be and/or had not been granted, before
taken into account in determining whether or not an en- the commencement of activities
vironmental authorisation should be granted. While that require environmental authori-
s24O of NEMA does not list all relevant factors, sations under s24. In addition to the
the judgment reconfirms that factors set out in administrative fine that must be
sections such as s24O are non-exhaustive, paid in terms of s24G before the
and decision-makers are required to consider rectification application is
all relevant factors, whether listed or not. processed, s24G of NEMA does not
This principle has also been highlighted in exclude the possibility of criminal
the debates surrounding the Integrated Re- proceedings being instituted
source Plan for electricity, and the publica- against the applicant. Section 24F of
tion, on 10 November 2017, of the NEMA provides that no person may
amended schedule II to the Electric- commence a listed activity without the requisite envi-
ity Regulation Act (4 of 2006) (ERA) ronmental authorisation. In terms of s49A, a person who
which has increased the number of breaches this obligation is guilty of an offence.
activities relating to electricity gen- Historically, there have been a number of instances when
eration that do not require a licence criminal prosecution has not been initiated against the applicant that has ap-
in terms of the ERA, but which must be plied for rectification under s24G of NEMA. Recently, an application was
registered with the regulator. While the list of activities has been increased, made with the stated purpose of initiating private prosecutions where the
the requirement to register with the regulator provides the regulator with an state failed to do so, under the provisions of the Promotion of Access to Infor-
opportunity to intervene and set terms and conditions under which electricity mation Act (2 of 2002). The applicant was provided with a schedule setting
generation projects are implemented. This includes those that are being im- out all applications made under s24G of NEMA. While there are several chal-
plemented on an increasing basis by businesses which are attempting to re- lenges that face any person initiating a private prosecution, including the pro-
duce reliance on Eskom generation, and are focusing strongly on generation visions of s33 of NEMA itself, the threat is enough to make applicants
of electricity from waste produced at the various operations. nervous.
It is not only the courts that are intervening in the interpretation and appli- 2016/2017 also saw mining companies challenging the Department of
cation of the Environmental Laws. Historically, some entities that have re- Mineral Resources’ instructions and decisions in the South African courts.
Beech Veltman Van Zyl Vengeni10 MINING FEATURE 2018
One of the matters which was commented on extensively during 2017 was employment could not be found for the applicant and she was sus- pended
that involving AngloGold Ashanti Limited, the Acting Chief Inspector of Mines, without pay. The judgement highlights the gaps in legislation which is meant
the relevant Principal Inspector, and the Inspector who issued a s54 Instruc- to protect pregnant employees. Judge Edwin Tlhotlhalemaje found, that be-
tion in terms of the MHSA. In late 2016, the Labour Court handed down a cause of these shortcomings, the mining company had not breached its poli-
judgment in favour of AngloGold Ashanti, which criticised the Mine Health and cies and it had not acted unlawfully. The court's decision not to award costs
Safety Inspectorate and the manner in which the closure notices were issued. against the applicant is no doubt of little consolation to the applicant, and it is
The Labour Court held, in relation to stoppage notices, such as s54 In- clear that an extensive amount of work is necessary to address shortcomings
structions, that "one ought not to use a sledgehammer to crack a nut". The An- in legislation which aims to protect women in the mining industry.
gloGold Ashanti judgement provided useful guidance to all stakeholders in Industry 4.0, the Internet of Things and Artificial Intelligence is also a real-
the industry. The judgment also urged all stakeholders to consider their posi- ity that should be embraced to improve efficiencies, while balancing a critical
tions carefully, and to engage meaningfully to ensure the ultimate object of component of the South African mining industry, namely its employees,
zero harm. through the implementation of appropriate programmes of re-skilling, imple-
The Labour Court was also asked to weigh in on another sensitive topic – mentation of open source/access infrastructure which can be shared by sec-
that of pregnant women in mining, in the case of Tshegofatso Manyetsa and tors such as the agriculture sector, and buy-in from key stakeholders in the
New Kleinfontein Gold Mine Proprietary Limited (Case No. JS2006/14). The Mining and Natural Resources sector.
court, which handed down its judgment on 7 November 2017, acknowledged South Africa has been acknowledged for its "can do" approach, and many
that South Africa has come a long way in advancing women's rights in various innovations developed in South Africa have been successfully exported
pieces of progressive legislation, including their protection in the world of abroad. It is critical for leaders who embrace the changes that are so neces-
work. The court reiterated that in giving effect to the constitutional right to sary for the success of South Africa to come forward. •
equality, the primary focus of these pieces of legislation is to protect women
and pregnant employees from unfavourable treatment in the workplace. The Beech is a Partner and Head of Mining, Veltman a
judgment summarises the personal and horrific financial situation of the ap- Partner, Van Zyl a Senior Associate and Vengeni an
plicant, despite legislative protection for pregnant women. Suitable alternative Associate with Hogan Lovells (South Africa).
SURFACE RIGHTS USE:
TO AGREE OR NOT TO AGREE
ESTELLE BESTER AND PIETER SMIT
Prospecting and mining companies are well-versed in the conflicts that arise with owner not only of the surface rights of his land but also the mineral rights
land owners regarding the use of their land for prospecting and mining opera- to minerals occurring in, on or under the land. Accordingly, third parties
tions. When the Mineral and Petroleum Resources Development Act, 2002 seeking to exploit the minerals had to negotiate with landowners for such
(MPRDA) was enacted, the legislature provided that the state is the custodian of mineral rights.
South African mineral resources but made very little provision for compensation • Transactions to make mineral rights available to third parties would usu-
to a landowner for the surface use of his property for the purposes of prospecting ally take the form of either a cession of such mineral rights to the third
and mining operations. Landowners often take a very hard stance in negotiating party against payment of a lump sum (sometimes coupled with an on-
access with the mining companies by way of so-called surface use agreements. going obligation to pay a royalty to the landowner) or a lease of such min-
This article investigates whether mining companies should agree (or not eral rights against payment of a fixed rental amount or a royalty.
agree) with landowners by way of so-called surface rights use agreements. • These cessions and/or leases of mineral rights would typically also in-
clude detailed provisions regarding the manner in which the prospecting
Background to the historical practice of surface use agreements or mining operations in question were to be carried out, the manner in
It is a common practice for landowners and holders of prospecting and min- which rehabilitation would be done, and, in some cases, a rental amount
ing rights to enter into surface use agreements. This practice developed for the use of the land.
against the following historical background: • The structure of these agreements was dictated by the relative bargain-
• In terms of South African common law, and prior to the commencement ing power of the landowner, being vested (at least prior to concluding the
of the MPRDA on 1 May 2004, the landowner was (subject to a few ex- transaction) with the ultimate say over whether prospecting or mining op-
ceptions which are not relevant for present purposes) by default the erations may be undertaken on the land in question.2018
MINING FEATURE 11
This position changed fundamentally when the MPRDA came into force right to a third party and accordingly made provision in s54 of the MPRDA
and effect on 1 May 2004. for compensation under certain circumstances. The relevant portion of s4
reads:
Statutory provisions “(3) If the Regional Manager, after having considered the issues raised by the
Section 5 of the MPRDA confers on the holder of a prospecting or mining holder under subsection (1) and any written representations by the owner
right a statutory, limited real right (that is, the equivalent of a servitude) in re- or the lawful occupier of the land, concludes that the owner or occupier
spect of the land and minerals concerned. This limited real right comprises, has suffered or is likely to suffer loss or damage as a result of the recon-
among other things, the right to: naissance, prospecting or mining operations, he or she must request the
“(a) enter the land to which such right relates together with his or her em- parties concerned to endeavor to reach an agreement for the payment of
ployees, and bring onto that land any plant, machinery or equipment compensation for such loss or damage.
and build, construct or lay down any surface, underground or under sea (4) If the parties fail to reach an agreement, compensation must be deter-
infrastructure which may be required for the purpose of prospecting, mined by arbitration in accordance with the Arbitration Act, 1965 (Act No.
mining, exploration or production, as the case may be; 42 of 1965), or by a competent court.”
Notwithstanding the option of legal action,
given the need, many holders of rights
have to maintain good relations with the
landowners. Most holders of prospecting
and mining rights choose to negotiate with
the landowner rather than to litigate.
Bester Smit
(b) prospect, mine, explore or produce, as the case may be, for his or her It is important to understand that the compensation payable under s54 is
own account, on or under that land for the mineral or petroleum for expressly linked to “loss or damage” suffered or likely to be suffered by the
which such right has been granted; landowner or the lawful occupier as a result of prospecting or mining opera-
(c) remove and dispose of any such mineral found during the course of tions. In our view, to succeed with a claim for compensation in terms of s4, a
prospecting, mining, exploration or production, as the case may be; landowner would have to demonstrate that there is an actual loss, and quan-
… tify that loss with reference to the factual circumstances.
(e) carry out any other activity incidental to prospecting, mining, exploration It should be clear that the MPRDA has, legally speaking, deprived landowners
or production operations, which activity does not contravene the provi- of the bargaining power they once had: the grant of a prospecting or mining right
sions of this Act.” is completely out of their hands and, legally speaking, they have no power to pre-
vent the holder from exercising the rights in question. Nevertheless, landowners
These rights are quite comprehensive, and confer on the holder of a continue to (purport to) refuse access to their land, leaving the holder of the right
prospecting right or mining right all the necessary rights and entitlements with two options: negotiate a deal with the landowner, or litigate.
which a landowner could otherwise confer on the holder by way of a lease
agreement or a servitude. The holder of a prospecting right or mining right Negotiating surface use agreements
does not need to enter into a lease agreement or a so-called “surface use Notwithstanding the option of legal action, given the need, many holders of
agreement” with the landowner concerned as there is no additional right rights have to maintain good relations with the landowners. Most holders of
which the holder of the prospecting right or mining right could require, and prospecting and mining rights choose to negotiate with the landowner rather
which the landowner could lawfully confer. than to litigate.
The Legislature realised that the landowners or lawful occupiers of land In these negotiations, it is quite common for landowners to seek some form
may be severely prejudiced by the granting of a prospecting right or mining of rental income or royalty, similar to that which they would be entitled to insist12 MINING FEATURE 2018 on under the pre-MPRDA dispensation. In order to justify charging a rental, the The relevant issues to be considered when determining the rental payable landowner then purports to “grant” any number of rights to the holder of the to the landowner might include: prospecting or mining right, including the right to access, the right to install cer- • the likely impact of the prospecting or mining operations on the sale tain infrastructure, and the right to use the land for purposes of prospecting value of the land; and mining operations and other activities incidental thereto (despite the fact • the impacts of the prospecting or mining operations on income-generat- that the holder already has all these rights under the MPRDA). ing activities that are being carried out on the land at the time prospect- The landowner is not, as of right, entitled to a rental income from the holder ing or mining operations commence. These could include, for example, of the prospecting or mining right concerned (as the landowner’s obligation to rental income derived from the land or income from agricultural or com- tolerate the holder on his land arises from the provisions of s5 of the MPRDA, mercial activities being undertaken on the land; and not from a reciprocal contract of lease). Accordingly such a rental income • the cost of repairing damage to structures on the land caused by the ought not to be taken into account when calculating the compensation payable prospecting or mining operations; and in terms of s54. Rental income would only be relevant if the landowner is al- • the extent to which environmental management and rehabilitation, as ready entitled to a rental income from a third party, which would fall away as a provided for and carried out by the holder of the prospecting or mining result of the prospecting or mining activities concerned. right in question, already address any of the categories of damages al- It should be clear that, depending on the purposes for which the land- ready mentioned and the timing thereof. owner and/or lawful occupier is using the land in question at the time when From the perspective of the holder of the prospecting or mining right, the prospecting or mining operations commence, and the nature and extent of only crucial elements of these negotiations are: prospecting or mining operations being pursued, the damage caused, the • ensuring that the amount payable to the landowner is reasonable; compensation legally payable by the holder might range from negligible to • ensuring that the amount payable to the landowner is in full and final set- very significant. For example, limited prospecting activities by means of dia- tlement of any claim(s) for loss or damages under s54 of the MPRDA; mond drilling on an otherwise unutilised parcel of dry land might cause zero and damage, and hence not give rise to any obligation to pay compensation, • ensuring that the agreement does not, expressly or by implication, place whereas open-cast mining operations on prime irrigable land with expensive unreasonable limitations on the rights and competencies of the holder in infrastructure would cause significant damages in the form of a significant re- terms of s5 of the MPRDA. • duction in land value, loss of income and damage to (or destruction) of build- ings and infrastructure. Bester and Smit are Directors with Falcon & Hume. CAN THE TRUST BE TRUSTED? MARC YUDAKEN, JANINE HOWARD AND KIMBERLEY BARKER In 2017, the Broad Based Economic Empowerment Commission (BEE Commis- The BEE Commission and Trusts sion) announced that more than 50% of BEE trusts registered are not compliant The BEE Commission has made it clear, in written opinions and other with the BEE regulatory framework. In addition, the BEE Commission stated that forums, that the use of BEE trusts in order to score BEE ownership points it had initiated approximately 17 investigations into possible contraventions of is considered, in certain instances, not to be "true ownership" and is more the Broad Based Economic Empowerment Act (53 of 2003) (BEE Act). Six inves- akin to socio-economic contributions. This is due to the perceptions that, tigations allegedly involve the use of a trust in BEE structures. It is interesting to inter alia: note that the BEE Commission's approach contrasts with the approach taken in (a) trusts are "passive" without specific Black People (as defined in the BEE the Broad Based Socio-Economic Empowerment Charter for the South African Act) and/or participants who can drive transformation in the company; Mining and Minerals Industry, 2017 (the New Charter) which requires mining (b) Black People who are beneficiaries of the trust do not own shares in companies to have a community trust as part of their Black Ownership (Black their personal names; Ownership as defined in the BEE Act and applicable BEE regulatory framework). (c) Black People as beneficiaries of a trust will not have a real opportunity This article explores the disconnect between the BEE Commission and the to participate in company decisions; and Department of Mineral Resources (DMR) and its impact on companies doing (d) beneficiaries of BEE trusts are often not specifically defined with regard business in South Africa, and offers suggestions as to how the DMR could ad- to particular natural persons and therefore may have vaguely defined dress the BEE Commission's concerns in the future. groups as their beneficiaries.
2018
MINING FEATURE 13
The BEE Commission's concerns with BEE trusts being used in BEE owner- a viable tool for achieving Black Ownership. It is also worth noting that the inclu-
ship structures has caused companies to adopt a cautious approach when sion of the Community Trust Obligation is a break from the Black Ownership re-
selecting beneficiaries and implementing a BEE trust structure. quirements under the Broad-Based Socio Economic Empowerment Charter for
the South African Mining and Minerals Industry (2010) (the Current Charter). The
The New Charter and BEE trusts Current Charter does not make provision for the Community Trust Obligation. In-
The BEE Commission’s views are in contrast to the approach taken in the stead, under the Current Charter, mining right holders are free to determine how
New Charter which came into force in the latter part of June 2017 but was Black Ownership is distributed within the BEE Structure. This may, therefore, in-
subsequently suspended, pending the outcome of litigation which is said to clude a BEE trust but it is not mandatory. Nevertheless, should the New Charter
Yudaken Howard Barker
be heard on 19 and 20 February. The New Charter obliges mining companies come into operation in its present form, it is clear from the wording of s2.1 that
to make use of the community trust as a tool for achieving Black Ownership. the community trust structure is a required Black Ownership structure through
Section 2.1. of the New Charter, requires that: which the 30% requisite BEE shareholding must be (in part) distributed.
"the 30% Black Person shareholding must be distributed in the following man-
ner…a minimum of 8% of the total issued shares of the Holder shall be issued to The disconnect between the BEE Commission and the New Charter
the Mine Communities (in the form of a community trust)…" (s2.1 of the Broad Through the DMR including the community trust as a structure for ensuring
Based Black Socio-Economic Empowerment for the South African Mining and Min- Black Ownership, the inference can be made that the DMR is endorsing the
erals Industry, 2017.) [our emphasis added] (The Community Trust Obligation). BEE trust structure as a viable structure for giving effect to Meaningful Eco-
Notwithstanding the BEE Commission's concerns relating to the implementa- nomic Participation (meaningful Economic Participation is defined in the Cur-
tion of the BEE trust in an ownership structure, the inclusion of the Community rent Charter under the definition of "Meaningful Economic Participation") and
Trust Obligation in the New Charter indicates that the DMR still views the trust as BEE ownership. This is in line with other BEE legislation, in that the trust struc-
http://today.moneyweb.co.za/14 MINING FEATURE 2018
ture can, if properly implemented in accordance with the applicable laws, be a is an acceptable and secure BEE ownership structure, and to ask the ques-
viable mechanism to achieve the desired object of Black Ownership. tion - can the trust be trusted within the BEE Ownership space?
However, the criticism levelled by the BEE Commission against BEE trusts
goes to the implementation and potential abuse of BEE trusts as vehicles for Impact of the disconnect between the BEE Commission and the
Black Ownership. This is exasperated by the fact that the New Charter pro- New Charter
vides no further guidance in relation to the required community trusts or Although the New Charter is currently suspended, the disconnect – between
how such trusts will be governed or distribute benefits to beneficiaries. the BEE Commissioner's critique of the BEE trust structure on the one hand
Moreover, the concept of community trusts, and the definition of a Mining and the DMR's mandate for mining companies to register community trusts
Community in the New Charter, is inherently vague as it does not stipulate, on the other – is somewhat perplexing for both mining and other companies.
in contrast to the required Employee Share Ownership Plans, that all benefi- Taking cognisance of the BEE Commission's stance on BEE trusts, it may
ciaries must be Black community members. To this end, depending on the accordingly be advisable for the DMR to issue more stringent guidelines for
demographics of a particular Mining Community, there may be a dilution of mining companies on how to implement the Community Trust Obligation to
Black Ownership. ensure the problems highlighted by the BEE Commission are avoided in the
Further, given that to date the DMR has not provided additional guidelines mining space in the future. •
for community trust implementation criteria, the community trust is exposed
to the risk of committing the same errors in relation to the implementation Yudaken is a Partner, Howard an
and abuse of the trust in the BEE structure as already highlighted by the BEE Associate and Barker a Candidate Attorney
Commission. This ambiguity leaves companies uncertain whether a BEE trust with Baker McKenzie (South Africa).
CSR IN MINING:
COLLABORATION THE KEY TO SUCCESS
GEORG KAHLE AND NICK GORDON
Corporate Social Responsibility (CSR) appears to be in the spotlight in the in the mining industry. The panel comprised representatives from various
mining sector in South Africa, more so than ever before. It is an issue which stakeholders within the industry. The event provided a platform for an open
mining companies will ignore at their peril. South Africa has taken significant and frank discussion on the failings and successes of CSR in South Africa
steps towards ensuring that the benefits of the coun- and allowed for the workshopping of potential solutions.
try’s resources are shared more equally, although
there is no doubt that there is still much work to be Collaboration
done. Norton Rose Fulbright, together with the The overwhelming sentiment from the discussions which took place was the
High Commission of Canada and advisory need for greater collaboration in the CSR space and an emphasis on the need
firm Eunomix recently hosted a panel to build trust and transparency. South Africa is not alone in its struggle to
discussion focusing on CSR define and implement appropriate CSR programmes. Reconcil-
ing the often competing needs of local gov-
ernments, local communities,
employees and regulators while, at
the same time, delivering re-
turn on shareholder invest-
ment, has become a
challenging balancing act.
Value must be created for
all stakeholders, and ob-
taining and maintaining the
social licence to operate is now
recognised as a means of mitigating
political, social and economic risk.You can also read
