Imagine a Mining Indaba where business as usual is shattered by the clang of action, not polite applause.
This year marks the 20th anniversary of the implementation of the Mineral and Petroleum Resources Development Act, 2002 (the MPRDA), the keystone legislation governing mining in South Africa. Despite the promise of transformation, increased investment, growth of subsidiary industries and wider exploration, poor implementation of the MPRDA and policy uncertainty over the last two decades have resulted in a gradual tapering off of investment into the mining industry in South Africa. Mining’s contribution to GDP has accordingly fallen dramatically, with concomitant negative consequences for, among others, the growth of the economy, the fiscus and employment opportunities. Investors are withholding their investments for exploration, mine expansions and the development of new mines.
Webber Wentzel’s mining experts stress the need for a clear and action-orientated plan that practically addresses critical yet fundamental issues. As the mining industry faces increasing headwinds, investors require the Minister of the Department of Mineral Resources and Energy (DMRE), Gwede Mantashe, to address key areas of concern in his opening speech.
Consequence of poor policy implementation
While noting some recent positive changes to the mining environmental laws, a perpetual problem we see is inconsistent policy implementation. Over the last three years, numerous policy statements have been made but not implemented. These include the critical exploration policy and the much-anticipated mining cadastre system lauded by the Minister. President Cyril Ramaphosa reiterated the matter in his address at last year’s Mining Indaba. However, 12 months later, nothing appears to have been done about the required administrative changes within the DMRE.
According to the Minister, the implementation of the new cadastre system has been imminent for months, and yet the industry continues to wait in anticipation. Action and proper implementation of this is now key. At a minimum, if the Minister could roll out a reliable and efficient licencing system, major issues would be resolved. This lack of delivery and inconsistent policy application is certainly a risk factor in the mind of the investor.
While the Minister has responded to concerns around the DMRE’s lack of capacity by saying that hundreds of applications have been processed for mining permits and so on, there is little evidence of progress in addressing the administrative challenges, which is concerning for the development of new mines. There is minimal progress, but also no discernible coordination within the Presidency, the DMRE and the Department of Trade, Industry and Competition (DTIC), something that urgently needs to be addressed. It would be encouraging to hear of (and to witness in action) plans for the capacitation of the DMRE health and safety inspectorate, particularly in matters relating to full and proper investigations into work-related fatalities, which sorely require clear and consistent procedural processes, timelines, and delivery on outcomes. This approach will not only drive real learning from accidents across the industry, but also enable the fair and just accountability of responsible persons.
However, there does seem to be movement around the Mineral and Petroleum Resources Development Act (MPRDA) with plans to introduce a bill this year with proposed changes to the Act. Yet with parliament set to be dissolved with the upcoming elections, it is unlikely to result in a substantive amendment as legislation generally does not go through in an election year. Additionally, there are real concerns about whether amendments will be business-friendly or just create more red tape and difficulty for the industry thus creating a hostile environment for foreign direct investment. There has also been very little movement on the finalisation of the amendments to the Mine Health and Safety Act (MHSA) since the closure of the period for public comments in July 2022.
Image By: Baba Jiyane
Ultimately, we cannot still stick to the old ways of doing things. To encourage exploration, it’s essential to create a more accessible system that invites investment in South Africa. This can be achieved by providing certainty on South Africa’s future mining legislation.
Poor policy implementation has a direct impact on the investability of a jurisdiction. As our neighbouring countries become increasingly attractive for investment, particularly with the rising demand for critical minerals, South Africa must swiftly address its shortcomings. As a start, it is imperative that we review our regulatory environment and enact market-leading legislation that will encourage investment in this country.
Increased investment will quickly drive growth in South Africa’s GDP, financial flows to the fiscus, employment opportunities, SMME growth and development and numerous other multipliers empowering the Government to pursue its transformational agenda. Stifling the industry with ever more onerous regulation and inconsistent policy implementation renders the South African mining industry un-investible. The money, as it has been doing for many years now, will simply flow elsewhere, no matter how attractive we believe our mineral endowment to be.
South Africa cannot afford to persist with a system that clearly negatively impacts investment in the industry and the country. If we are going to get this country back on a positive trajectory and increase GDP, we need to do whatever we can to get the mining industry back on its feet. It’s the low-hanging fruit, the one place where we can increase foreign investment and earnings, and quickly increase employment opportunities.
A high-functioning mining industry, as opposed to a fiscally stretched and regulatory-burdened industry, can work collaboratively with the government to create an environment in which all elements of our society benefit.
Energy
The DMRE is to be commended for its 2021 amendment of the Electricity Regulation Act, which exempts electricity generators of any size that sell electricity to mines and other private sector off-takers from the need to obtain a generation licence from the National Energy Regulator of South Africa. This has enabled the mining industry to procure electricity on a large scale from independent power producers where Eskom can no longer be relied upon.
The DMRE has also promulgated legislation enabling a proliferation of new electricity traders to enter the South African market, allowing for increasingly flexible energy solutions for the mining industry.
However, it is a big drain on investment in the mining industry in this country that mining companies have to source their own power, necessitating the diversion of hundreds of millions (if not billions of rand) from mining expansions, mine growth and so on.
South Africa’s constrained transmission grid and a lack of coordinated municipal policies and rules for wheeling electricity through municipal distribution systems are a major stumbling block. The DMRE has announced its intention to procure private sector investment in our transmission and distribution grid, and this needs to be urgently prioritised. The DMRE also needs to expedite the finalisation and implementation of clear rules on grid allocation and curtailment of electricity generation to create grid capacity in the most grid-constrained parts of South Africa.
The formulation of the Integrated Resource Plan for electricity generation in South Africa (IRP2023) has been controversial and, in finalising this plan, the Minister should opt for a cost-effective, sustainable solution for the country’s electricity needs.
Rail
In the context of rail and particular freight rail, the Government has done well in formulating a detailed and coherent new rail policy, the first critical step to a liberalised rail sector. This is characterised by open/third-party access, the introduction of private train operating companies on the network and independent economic regulation – all key ingredients to a vibrant and productive freight rail sector.
Critical right now is execution and implementation. Good policy is of little value unless properly implemented. Time is of the essence. We have already witnessed a failed and unsuccessful slot sales pilot project. The time is now for bold leadership to implement open/third-party access and deliver on the objectives of the new rail policy.
Employment
Given the current platinum group metal prices and outlook, the already stagnant employment opportunities may become more limited, or even reduced, with many employers tightening the belt further. The Minister should prioritise job loss prevention, specifically in an election year.
The Minister needs to proactively engage with employers and assist them to attain this goal.
Reactive punitive measures will only aggravate the already difficult situation. Given the general strain on the economy, employee dissatisfaction will continue to relate to cash in hand, and we may see more work stoppages relating to share scheme payouts and salary increases. A trend of underground sit-ins has developed, with trade unions losing control of their members’ conduct in such situations. This year will require proactive cooperation between employers, trade unions and the Minister to prevent job losses.
Tax
The overall impact of loadshedding and failing infrastructure continues to hamper the collection of tax revenue from commodity sources, including income tax, mining royalties, and value-added and export taxes. Ultimately, the fiscal loss South Africa sustained by being unable to export coal at a sufficiently rapid rate reduced the fiscal pot by billions.
While this has been well documented, the losses continue to be sustained as a result of poor and failing infrastructure that hamper meaningful participation in commodity booms. Improving the infrastructure to allow for efficient and effective exports would greatly reduce the sustained losses suffered by our state coffers.
Mining is also a highly specialised area of mining and with the erosion of capacity from within the ranks of the South African Revenue Service much of the up-and-coming commercial and legal mining knowledge was also lost from the ranks of SARS. It would be great to have collaborative training and support from the Minister to SARS to reinstall some of the mining knowledge.
Minister Mantashe, urgent action is required!
This ranges from regulatory consistency to preparing the DMRE health and safety inspectorate. The challenges surrounding the economy, energy, rail, employment, and taxation underscore the need for transformative initiatives. The Mining Indaba is an essential forum for announcing reforms that will revitalise the industry and lead South Africa to fiscal stability and economic expansion. Rhetoric is no longer acceptable; real, significant change is required.
