An Interview with Allan Reid, Head of Mining at Cliffe Dekker Hofmeyr

Allan Reid is currently the sector head of the mining and minerals sector of DLA Cliffe Dekker Hofmeyr. He has been in the industry for the past 22 years. Reid enrolled for the first ever course in Law of Prospecting and Mining at the University of Witwaterstrand as part of his postgraduate studies in 1984, and subsequently established himself in the mining and minerals industry. Here, Reid outlines more about the company and the general state of mining legislation in South Africa.

What are the important legal developments that will influence the mining sector?

A draft Bill to amend the Mineral and Petroleum Resources Development Act (MRPDA) was published on 27 December 2012. This is the most important recent legal development in the mining sector. In 2008, the MPRDA Amendment Act came into being and made extensive amendments to the original MRPDA. Although passed into law the act received much criticism and never actually became operative.

The new Bill seeks to amend the MPRDA, as amended by the 2008 MPRDA Amendment Act. This means that MPRDA Amendment Act will have to be put into operation prior to the Bill being implemented. This has complicated the drafting of the Bill and I believe there is still a long way to go in refining the content of the Bill before it is passed into law.

In my opinion, many sections of the Bill are vague, are not investor friendly and in some instances are unconstitutional. There are also aspects of the Bill which are welcomed by the industry, particularly with regard to the subdivision and transfer of portions of rights, the mining of associated minerals and the streamlining of the administrative appeal procedure.

It is of concern that the Bill seeks to amend the definition of the MPRDA to include the Codes of Good Practice, the Housing and Living Conditions Standards and the amended Mining Charter. To the extent that these documents address the same issues, their provisions are not identical in all respects.

As a result, we are going to have conflicts between different pieces of legislation, all of which are given the force of law. This gives delegated and quasi legislation the ability to usurp the functions of parliament. Even though the Bill was published during the holiday season, there will have been many industry submissions made to the Department of Mineral Resources on numerous issues relating to the Bill by the cut-off date of 26 January.

What challenges dominate the present mining environment, any solutions?

The major challenge facing the mining industry is uncertainty. We are faced with market uncertainty, labour uncertainty and uncertainty around the regulatory framework as well as political and policy uncertainty.

The reputation of South Africa as a resource investment destination of choice has been severely tarnished. Mining is highly capital intensive and it requires long-term investment.

What the sector needs is a stable, experienced workforce, a sound regulatory framework and a clear policy direction for the future.

I believe that what we require is extensive, on-going consultation and dialogue between all of the role players: the mining companies, the unions, the communities and particularly the State. The mining companies just do not have the economic ability to rectify all of the socio-economic inadequacies of the past. Unions must come to grips with the grassroots sentiments of their members and must display representative leadership.

Government must balance the requirements of mining companies and investors with the aspirations of its electorate within a clear framework which is fairly and uniformly regulated.

How does the future look for the South African mining sector?

There is no doubt that the future of mining in South Africa is going to be challenging. Although the wholesale nationalisation of mines appears to be off the table, there is no doubt that the State is going to be playing a much more active role in mining in South Africa. This will include being more proactive within the regulatory framework and the enforcement of that framework as well as being more actively involved in actual mining in South Africa through state-owned mines, through beneficiation policies and through greater control being exercised over the sale and disposal of strategic minerals.

Certain provisions of the draft Bill will extend the application of the MPRDA to dumps and tailings created prior to the implementation of the MPRDA. If these provisions are finally enacted as currently proposed, such dumps and tailings (and the minerals therein), will effectively be expropriated, exposing the State to substantial compensation claims.

The proposed 50% super tax on mining profits in excess of a 15% return on investment is obviously of great concern to mining companies because of the large investment that is required upfront and on-going exploration and development expenditure that they are required to fund in order to remain viable.

The draft MRPDA Amendment Bill also introduces, for the first time, the possibility of the State taking a share of profits derived from petroleum rights, despite it not having to contribute towards capital expenditure. The State will therefore have a free carried interest in petroleum developments. There is also a concern that the mining companies will be compelled to expend further financial resources, not only in local community development but also in labour-sending areas, which will result in greater costs being incurred by mining companies.

These issues weigh heavily on the future prospects of the mining industry. However, I believe that once all of these policy and framework issues have been addressed and clarified and once the industry knows exactly what the future holds, we will see a marked increase in mining investment in South Africa. On that basis I believe the long-term future of the mining industry is healthy.