Until the election of Cyril Ramaphosa as the new leader of the ANC at its December 2017 conference, the clarion call by Government that "South Africa is open for Business" was becoming decidedly hackneyed and hollow. The election of Ramaphosa added a fresh optimism and when the same call was made at the World Economic Forum in Davos in January, it was greeted with greater interest and far less scepticism than in the past.
However, since Davos, the initial optimism has been steadily waning. This is particularly so since the announcement of the land expropriation without compensation process. One cannot merely pay lip service to the "South Africa is open for Business" refrain and expect investors to flock to the call. Positive rectifying steps and plans must be put in place and hurdles to doing business must be removed. This is particularly so in regard to the mining industry, which has been beset with problems for many years now and which is in desperate need of a fresh, pragmatic approach in order to attract development investment and stimulate mergers and acquisitions.
Without doubt, the regulatory uncertainty which persists in the mining sector is a highly negative issue. Although the 2018 Draft Mining Charter published for comment by Minister Mantashe on 15 June 2018 was an improvement on the controversial Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry published by his predecessor on 15 June 2017, it still fell far short of allaying investor fears, let alone encouraging investment. Balancing the various interests of stakeholders is an invidious task, but without viable mining projects and operations, there will be no interests for stakeholders to hold. While it remains to be seen what the final version of Mining Charter III will look like when it is published (stated to be in November 2018), it is likely that the constitutionality and legality of various provisions of Mining Charter III will be ultimately decided by the Constitutional Court, thereby perpetuating the uncertainty still further.
The 'Once Empowered, Always Empowered' principle, which relates to mining companies being able to claim recognition for previous Black Economic Empowerment transactions, notwithstanding that the BEE entities involved have since sold their interests or shares, thereby bringing such mining companies below the 26% BEE ownership threshold, was finally recognized by the High Court in its judgment of 4 April 2018. The certainty brought by this judgment has however been eroded by the Minister's decision to seek to have it overturned on appeal, thereby further perpetuating this long drawn out debate.
And what about the fate of the almost forgotten Mineral and Petroleum Resources Development Amendment Bill [B 15D – 2013] (Bill) which has been subject to legislative processes in South Africa since 2013? Recently, the Minister announced that this Bill would be scrapped and told an investor gathering in Perth on 10 September 2018 that the Bill had been withdrawn from parliament, when it had not yet been so withdrawn. The Bill contains numerous controversial proposals that are unlikely pass constitutional muster. Many specialised and experienced stakeholders within the mining sector made valuable comments and suggestions in an attempt to make the Bill more investor and industry palatable and practical. These comments and suggestions have been largely ignored.
In the interests of South Africa, it is up to government to sit with the mining industry and to thrash out what are very real problems with both the Bill (or its successor) and Mining Charter III, in a spirit of bona fide consultation and the issues being raised by the mining industry need to be recognised as cogent and pertinent and must be taken onboard.
However, it is not only the regulatory framework and the DMR that is at issue. Anyone involved in mining M&A will attest to the frustration of parties when they are told of the long-lead times in regard to obtaining Competition Commission approval as well as consent in terms of section 11 of the MPRDA. This is particularly so where there is a distressed asset involved in the transaction (as is frequently the case in the current climate) and an expedited closing of the transaction would lead to a retention of jobs or at least, a reduction in the number of retrenchments. The Competition Commission's approach to the public interest issues of black economic empowerment and the employment aspects of M&A transactions is resulting in more complex, costlier and more delayed applications for competition approval. There is significant uncertainty about how these public interest considerations fit into the broader existing policy framework. The recent Competition Amendment Bill currently before parliament unfortunately does little to address the potential for conflicting outcomes and policy incongruence on transformation and jobs. This bill introduces a new substantive ground that must be considered by the Competition Commission when deciding on a merger: "the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market". The difficulty with addressing these public interest considerations throughout the merger control process is that the Competition Commission has been imposing conditions and seeking unwarranted undertakings from parties outside of a clear and predictable policy or legal framework. In turn, the parties are hesitant to fight plainly unjustifiable conditions for risk of being seen as anti-transformation or delaying their transactions. However, ill-considered public interest conditions and undertakings invariably add to the cost of doing business and do nothing to encourage investment. Much work will have to be done in order to further the rational and proportional assessment of these important public interest considerations in mergers.
The position in regard to obtaining section 11 consent is generally even worse. In a presentation on 15 November 2017 to the Portfolio Committee on Natural Resources, the Deputy Director General: Mineral Resources conceded that the DMR's "administrative challenges were a lack of funding for the required human resource capacity to implement the Departmental mandate (and) the high number of applications received in relation to the human capacity to process within the stipulated time frames…". Albeit that the comment was made in regard to new applications for rights, the same applies to applications in terms of section 11. If there is such a lack of capacity, why then add further layers of complexity to the section 11 process. The 2008 MPRDA Amendment Act sought to amend section 11 so that it would apply to any transfer of shares in a private company covered by that section and not only to the transfer of a controlling interest in that company, as well as to any change of control in a listed company. Although the operation of this amendment was subsequently suspended, a similar provision was contained in the revised Bill and could at any time become law.
Given the lack of capacity, one can only wonder how long a period will be required to obtain section 11 consent going forward. Certainly, international investors (and South African contracting parties alike) will be unwilling to put their transactions on hold until such consent is eventually granted.
To make matters worse, the Proposed Regulations Pertaining to the Financial Provision for Prospecting, Exploration, Mining or Production Operations which were published for comment on 10 November 2017 (2017 Regulations) by the Minister of Environmental Affairs contemplate, in Regulation 10(2), that any applicant for consent under section 11 or section 102 of the MPRDA to alienate a right must also submit to the DMR a determination of the financial provision for rehabilitation, together with the plans and report referred to in Regulation 6. This not only adds to the transactional costs and delays in South African mining M&A, but adds yet further to the administrative burden being placed on the DMR.
Regulation 10(2)(b) of the proposed Financial Provision Regulations also requires that once the financial provision has been assessed in accordance with the determination submitted to the DMR, payment of the financial provision or proof of provision of a financial guarantee must be provided before the section 11 or section 102 consent can be received. This could pose a substantial financial burden on a proposed acquirer, as it will be compelled to provide financial provision before becoming the owner or holder of the right. It is an unwelcome and impractical provision as there could be a substantial delay between obtaining section 11 consent and actual closing of the transaction. In addition, the 2017 Regulations states that ‘no financial guarantee...may be used for the financial provision required for remediation of residual environmental impacts’. In other words, a financial guarantee is not considered sufficient for post-closure impacts, and provisioning in this regard must instead be paid into a bank account controlled by the minister or into a trust fund.
Then there is the SAMRAD system. The South African Mineral Resources Administrative Database (SAMRAD) was introduced to provide a reliable, transparent electronic system for the processing of prospecting and mining right applications. The Portfolio Committee on Natural Resources has noted that this system is not efficient. It is also not user-friendly and experiences considerable downtime. The Council for Scientific Research, following its assessment of the SAMRAD system, concluded that the DMR required a back-up, firewalls and servers for accessibility as an immediate intervention. Such a system is unlikely to provide investors with a sense of warm security.
Although the DMR has embarked upon a 5-year plan to integrate SAMRAD into a new integrated management information system, this process needs to be accelerated to achieve what SAMRAD was originally intended to achieve.
Is it any wonder that the number of prospecting and mining right applications has continued to decline over the years? If South Africa is going to be Open for Business, we still have a lot to do to prepare the way.