Industry participants and investors have been perplexed by recent developments relating to the proposed changes to South Africa’s mining legislation. Many argue that this has resulted in confusion and uncertainty at a time when the South African mining industry can least afford to be confronted with additional challenges. It is worth delving into the background to obtain a clearer understanding as to why the proposed changes to South Africa’s mining legislation have triggered such controversy.

The law governing mining and petroleum exploration and production in South Africa changed fundamentally with effect from 1 May 2004 with the entry into force of the Mineral and Petroleum Resources Development Act, 2004, (“MPRDA”) which placed all minerals under State custodianship, eliminated all common law mineral rights, and replaced them with a system under which the Minister of Mineral Resources is exclusively authorised to grant rights to prospect and mine for minerals and explore for and produce petroleum.

The driving force behind the MPRDA was to redress historical imbalances in the allocation of South Africa's mineral and petroleum resources which arose as a result of the racially discriminatory policies of apartheid. One of its core requirements was a divestiture of 15% (by 2009) and 26% (by 2014) equity in all mining companies to "Historically Disadvantaged Persons". The result of this requirement was a flurry of deal activity in South Africa between 2004 and 2009, which was the period afforded to mining companies to convert their "old order' mining rights into "new order" ones.

In 2008, an Amendment Bill ("2008 Amendment Bill") was introduced into parliament, which proposed to make substantial changes to the MPRDA, some of the most important of which were further and wider restrictions on the transferability of prospecting and mining rights and interests in companies which hold them without government consent, as well as changes which purported to subject historical mine dumps to the provisions of the MPRDA, and changes to make the MPRDA more inclusive of traditional communities in mining and prospecting operations. Another proposed change was to prohibit the amendment of MPRDA rights to include new areas or minerals – a practice which had become commonplace under the new order. Some of the proposed changes were hard to swallow for mining companies, who were only just getting used to the sweeping changes introduced by the MPRDA. The Chamber of Mines, representing most of the South African majors, made some fairly hard-hitting comments in relation to the proposed amendments.

A further proposal in the 2008 Amendment Bill was to subject all mining and prospecting operations to the provisions of South Africa's environmental legislation (the MPRDA as originally enacted provided for a separate environmental regime, overseen by the Department of Mineral Resources). It was primarily this proposed amendment (together with the industry's negative response to the other provisions of the 2008 Amendment Bill) which caused it to wend a somewhat tortuously slow path through the parliamentary process. The environmental proposal in the Bill apparently caused something of a turf war between the Department of Mineral Resources on the one hand and the Department of Environmental Affairs and Tourism (as it then was) on the other. While the Bill was eventually signed by the President, and became an Amendment Act, it was, however, never proclaimed, so it did not come into force. Years went by and conventional wisdom held that the 2008 Amendment Bill, as enacted, had been shelved.

Then, in 2012 the Department of Mineral Resources published proposed amendments to the MPRDA which would amend the MPRDA as it would have been amended by the 2008 Amendment Bill (had it come into force), giving rise to suspicions that the 2008 Amendment Bill was perhaps not quite as dead as had been assumed. The proposed 2012 Amendments were fraught with issues, one of the most important of which was that they contained an outright prohibition on the disposal of any interest in a company, including listed companies, which held an MPRDA right or an interest in one, without the prior written consent of the Minister.. The obvious effect of this would be that the JSE would grind to a halt, as the disposal or acquisition of a single share in a major listed mining company without prior consent of the Minister of Mineral Resources would be a criminal offence (and void). Again, the industry commented fairly vociferously in response to the Bill and the Department of Mineral Resources held a workshop during which comments by several industry players were noted.

In 2013, it was announced in the Government Gazette that the 2012 amendments had been introduced into parliament in the form of the Mineral and Petroleum Resources Development Act Amendment Bill, 2013 without making clear what form the 2013 Amendment Bill takes and in particular whether any of the comments and criticisms made in response to what the Department had published the previous year had been taken into account.

The industry was subsequently caught off guard when a notice was promulgated in the Government Gazette on 31 May 2013, proclaiming that the 2008 Amendment Act would come into force one week later (on 7 June 2013). One of its most immediate impacts would be to jeopardise several pending transactions which were predicated on the amendment of a transferee's existing MPRDA right to include a portion of a transferor's right. Such an amendment was prohibited outright under the 2008 Amendment Act This method of transferring only a portion of an MPRDA right (as opposed to all of such a right) had, rightly or wrongly, become a widespread practice within the industry, and was sanctioned by the Department of Mineral Resources.

As a result of the 31 May proclamation, the industry first panicked, and then rallied once more and urgent communications seem to have flown backwards and forwards between senior representatives of industry and government. This culminated in a further last-minute notice being published in the Government Gazette on 6 June 2013 (one day before the 2008 amendments would come into force) proclaiming that certain of the 2008 Amendments would not come into effect, particularly those relating to the further restrictions on transferability of MPRDA rights and the new provision prohibiting amendments to MPRDA rights to include further areas of land or additional minerals. While nobody said it outright, it seemed that the proclamation of the 2008 Amendment Act may well have been an error – apparently it was only supposed to be proclaimed just before the amendments to be effected by the 2013 Amendment Bill (which to date nobody has seen other than in draft form, and which has a long path to follow through parliament before it becomes law).

As participants, whose job it is to advise clients what the law is and to complete transactions on their behalf, this series of proposed amendments and the way which these amendments have been addressed is of concern. A calm rational approach is needed so that the industry can make its decisions in a certain and predictable legislative framework against the background of all the other challenges facing the mining industry such as wide-scale wildcat strikes, the fires of which the Marikana disaster only appear to have fanned. We hope that the amendments to be introduced into parliament shortly take this need into account.

Update: on 24 June 2013, the 2013 Amendment Bill to the MPRDA was introduced into parliament. While it cures some of the more obvious defects in the 2012 version published by the department (most notably introducing a requirement for consent in respect of controlling interests in listed companies which hold prospecting or mining rights, and not any interest as was previously the case), the proposed amendments are far reaching and we sense that the 2013 Bill may well have as difficult a passage through the parliamentary process as did the 2008 Amendment.