Spotlight: the legal framework and licensing regime for mining in South Africa

All questions

Legal framework

In seeking to attain transformation and empowerment objectives, South Africa's mining legislation is based on a system of state 'custodianship' of mineral resources, in which the state, acting through the Minister of Mineral Resources and Energy, issues different types of licences and rights to applicants on a 'first come, first served' basis and upon satisfactory demonstration of the applicant's ability to comply with the financial, technical, environmental, health and safety and socio-economic development requirements set out in the legislation. The most important legislation concerned is the MPRDA, which came into force on 1 May 2004. Other important legislation includes the Mine Health and Safety Act 1996, the Mining Titles Registration Act 1967, the Mineral and Petroleum Resources Royalty Act 2008, the Precious Metals Act 2005, the Diamonds Act 1986, the National Environmental Management Act, 1998 and the National Water Act 1998.

The most noteworthy licences, rights and permits relating to mining and prospecting include:

1. prospecting rights (which authorise invasive prospecting and exploration work, on an exclusive basis for the prospecting area and mineral concerned, but does not entitle the holder thereof to mine for that mineral);
2. mining rights (which authorise mining and exploration on a large scale and for an extended period, on an exclusive basis for the mining area and mineral concerned); and
3. mining permits (which authorise small-scale mining on areas less than five hectares and for short periods, on an exclusive basis).

Other mining-related authorisations include reconnaissance permissions (which authorise non-invasive exploration activities on a non-exclusive basis) and retention permits (which protect the exclusivity enjoyed by prospecting right-holders during periods when it would be uneconomical to apply for a mining right or mining permit due to, for example, adverse economic conditions).

The commencement of the MPRDA signified a radical and important departure from the preceding regulatory environment, which existed for more than 100 years prior to the MPRDA, where the right to mine was based on a system of private ownership of 'mineral rights' (being essentially limited real rights and servitudes in respect of land), which could be freely traded. To accommodate the transition, the MPRDA contains detailed provisions allowing for the conversion of 'old order rights' into prospecting rights and mining rights regulated by the MPRDA. This process seems to be largely completed, with old order rights and conversion playing a less important role in the mining industry and, indeed, legal practice. However, a small number of old order mining rights are yet to be converted into new mining rights.

In the international sphere, the most important treaties from the perspective of foreign investors would be the bilateral investment treaties concluded between South Africa and various foreign states. However, as mentioned before, the South African government has adopted the PIA and has announced that it is not renewing its bilateral investment treaties. The net effect of this development is the watering-down of protection for foreign investors in the South African mining industry.

Other noteworthy international treaties include a variety of trade agreements with various countries, the Treaty on the Non-Proliferation of Nuclear Weapons, various treaties relating to climate change and South Africa's involvement in the World Trade Organisation.

Mineral reporting requirements in South Africa are largely regulated by the rules of the JSE Limited, South Africa's premier stock exchange. In terms of the JSE rules, mineral resources and reserves are to be reported in accordance with South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves.

Mining legislation in South Africa is administered and enforced by the Department of Mineral Resources and Energy (previously the Department of Mineral Resources) (DMRE). The DMRE is further divided into five main branches, namely, mineral policy and promotion; mineral regulation; mine health and safety; corporate services; and the chief financial officer. The mineral regulation branch is primarily responsible for the processing of applications, awarding of licences and rights and enforcement of the MPRDA. The mine health and safety branch is primarily responsible for the administration and enforcement of the Mine Health and Safety Act 1996 (MHSA), including investigations into safety incidents, injuries and fatalities occurring at mines in South Africa. In both cases, there are regional offices of the DMRE in each of the nine provinces of South Africa, which are primarily responsible for the administration of the MPRDA and MHSA. However, especially in the case of mineral regulation, the ultimate decision-making, including the granting of licences and rights, consideration of internal appeals and decisions to suspend or revoke licences and rights owing to non-compliance, are taken at national level by officials in the DMRE Head Office in Pretoria.

Mining rights and required licences and permits

For all practical purposes, the state could be regarded as the 'owner' of underground minerals. However, to avoid large numbers of claims for expropriation of mineral rights as a result of the transition from the old system of private ownership, the MPRDA does not refer to the state as having 'ownership' of underground minerals. Instead, the MPRDA provides that the mineral resources are the 'common heritage' of all South Africans, and that the state is the 'custodian' thereof for the benefit of all South Africans.

The right to mine underground minerals is conferred on (private) third parties by the state, acting through the Minister of Mineral Resources and Energy (or his or her delegate), based on a 'first come, first served' application system and upon satisfactory demonstration of the applicant's ability to comply with the financial, technical, environmental, health and safety, empowerment and socio-economic development requirements set out in the legislation.

For the duration of the mining right in question, the holder of the mining right may, for all practical purposes, be regarded as the owner of the minerals. In any event, the holder of the right to mine becomes owner of the minerals upon extraction of the mineral from the land where it naturally occurred.

Once a private party holds a prospecting right or mining right, it is possible for the private party to transfer such right (or a portion thereof) to another private party, subject to the consent of the Minister of Mineral Resources and Energy in terms of Section 11 of the MPRDA. The requirement of consent for transfers also applies to the transfer of a controlling stake in the business entity that holds the right, unless such business entity is a listed company.

As mentioned in Section II, the most noteworthy licences relating to mining are prospecting rights, mining rights and mining permits.

An emphasised recognition of the tension between the rights of mineral right-holders in terms of the MPRDA and informal land right-holders (customary title holders) in terms of the Interim Protection to Informal Land Rights Act 1996 (IPILRA) has brought about an increase in recent litigation.

Mineral rights are conferred on applicants upon the satisfactory compliance of certain requirements. The MPRDA is peremptory insofar as, should all these requirements have been met, the Minister 'must' issue a mineral right. Following the High Court's recent ruling, this authority can now only be exercised upon the additional compliance with the provisions set out in the IPILRA, where applicable, that protect Historically Disadvantaged South Africans' (HDSAs) or traditional communities who hold informal land rights as a result of the previous dispensation's failure to recognise customary title of land. Due the invasive nature of mineral rights on surface rights, the High Court held that the granting of a mining right in terms of MPRDA amounts to 'deprivation' for purposes of the IPILRA as it goes beyond the normal restrictions on property use and enjoyment, and as such, triggers the requirement of 'consent' in terms of IPILRA. In other words, where land is held on a communal basis by a community that is subject to IPILRA, a mining right can only be granted if that community provides its full and informed consent thereto, through a majority decision at a meeting convened for the purpose of considering such disposal and of which they have been given sufficient notice, and in which they have had a reasonable opportunity to participate.

Despite the benevolent intentions to reconcile these contending rights, given the socio-political climate at play, this additional requirement could ultimately prove repellent for holders and investors lacking in an appetite to tolerate delays and expensive and prolonged court proceedings, if faced with ineffective or time consuming community engagements, where uncertainty reigns in relation to recognised community representatives and their decision making powers on behalf of its community.

In terms of Section 5 of the MPRDA, prospecting rights and mining rights are limited real rights in respect of the land to which they relate. In simple terms, this means that prospecting and mining rights constitute limitations on the rights of ownership of the landowner. Moreover, Section 5 of the MPRDA expressly authorises the holder of a prospecting right or mining right to enter the land in question, together with his or her employees, and to bring onto that land any plant, machinery or equipment and build, construct or lay down any surface, underground or undersea infrastructure that may be required for the purpose of prospecting, mining, exploration or production, as the case may be.

In other words, a prospecting right or mining right encompasses not only the right to exploit the minerals in question, but also the surface rights necessary for the exercise of such right.

To ensure that the landowner or lawful occupier of the land in question does not suffer undue hardship as a result of prospecting or mining activities on the land, the MPRDA provides that the holder of a prospecting right or mining right can, and which has become common practice, compensate the landowner or lawful occupier for any loss or damage suffered by the landowner or lawful occupier as a result of the prospecting or mining activities. The amount of compensation payable may be agreed contractually between the parties, or it may be determined by the court or by way of private arbitration. It has become a common practice for mining companies to enter into surface leases or 'surface use agreements' with landowners or lawful occupiers, which sets out the parties' respective rights and obligations, and fixes a compensation amount for purposes of the MPRDA. However, neither payment of compensation nor agreement between the mining right-holder and the landowner as to the quantum of compensation are prerequisites for access to land for the purposes of mining or prospecting activities.

The Constitutional Court's recent decision resulted in a power shift in favour of the landowner or lawful occupier, insofar that it held that, should the landowner or lawful occupier prevent the mineral right-holder from commencing with its prospecting or mining activities, the latter must first exhaust its internal remedies in terms of Section 54 of the MPRDA before it can commence with its mining activities on the land, which in effect means that the regional DMRE office is to be relied on to resolve such disputes. Once again, in practice, this presents the right-holder with significant obstacles to overcome in the form of delays and possible prohibitions imposed by the Regional Manager, and ultimately expensive and time-consuming court proceedings in respect of the enforcement of their rights. From a compliance perspective, the Court's attempted reconciliation of communities' and mineral right-holders' rights, has provided for a disconnect between legal precedents and mining legislation, as evidenced by the Minister taking guidance from the legal precedents in publishing for comment the Draft Mine Community Resettlement Guidelines in December 2019, which, inter alia, prohibits the commencement of mining activities until a resettlement agreement is reached on the appropriate amount of compensation as a result of resettlement. If published in their current form, the guidelines will render unenforceable should they be effected prior to making the necessary amendments to the MPRDA to give force and effect to such guidelines.

Prospecting rights and mining rights are obtained by means of an application submitted in a prescribed form to the Regional Manager of the DMRE in the province or region where the proposed mining operation is to take place. The application must be submitted online, must be accompanied by the prescribed application fee and must be motivated by means of detailed documents describing the manner in which the applicant proposes to conduct the prospecting or mining operations in question and comply with the other requirements set out in the legislation. These documents include, for example:

1. a prospecting or mining works programme containing a detailed description of the geology of the resource being mined, the method and time schedule according to which the resource will be mined and a financing plan setting out the economics of the operation and the proposed method in which it will be financed;
2. documents demonstrating how the applicant will comply with black economic empowerment requirements;
3. a social and labour plan, indicating how the mine will contribute to the sustainable socio-economic development and empowerment of its workers, surrounding communities and labour-sending areas; and
4. an application for an environmental authorisation.

On submission of the application to the DMRE, an applicant must submit the relevant environmental reports as required in terms of the National Environmental Management Act 1998 (NEMA) whereafter and on acceptance of the application, it will be required to consult in the prescribed manner with the landowner, lawful occupier and any interested and affected party and include the result thereof in the relevant environmental reports. Where an environmental impact assessment has been identified as the environmental instrument to be utilised in informing an application for an environmental authorisation, the environmental impact assessment is not submitted together with the other documents when the application is first submitted to the DMRE, but is conducted and developed over the course of the time when the mining right application is being processed.

In terms of time limits, a prospecting right may be granted for a maximum period of eight years (up to five years' initial period and one renewal for up to three years), a mining permit may be granted for up to five years (an initial period of two years and up to three renewals for one year each) and a mining right may be renewed an unlimited number of times for up to 30 years at a time. The duration of rights granted under the MPRDA depends primarily on the motivation submitted in support of a specific time period, subject to certain statutory limits. For example, if an applicant can only demonstrate a life of mine of 20 years, that applicant cannot, generally, obtain a mining right for a period of 30 years.

Prospecting rights and mining rights are generally subject to conditions that are little more than restatements of the legal principles applicable to these rights in terms of the legislation. The most important of these terms and conditions include (in the case of a mining right) the duration of the right, the payment of royalties to the state, the black economic empowerment requirements under the MPRDA, limitations on the transferability of the right and the undertakings made in terms of the mining work programme, the social and labour plan and the environmental authorisation. In some cases, statutory conditions are further circumscribed by the terms and conditions of a specific right. For example, some mining rights are subject to a limitation on the transfer of any shares (not only a controlling interest) in the holder (whereas the MPRDA only limits the transferability of a controlling interest in the holder). Many commentators believe these conditions are ultra vires and therefore invalid. However, they are seldom if ever tested in South African courts.

Mining rights are protected through various means. For example, interfering with the lawful mining activities of the holder of a valid mining right constitutes an offence under the MPRDA and may be punishable by imprisonment or the imposition of a fine or both. The DMRE further maintains a public registry of all prospecting and mining rights, so that the public is deemed to have knowledge of the existence and extent of all prospecting and mining rights. In civil law, the holder of a mining right may obtain an interdict (injunction) prohibiting all third parties, including a landowner, from hindering or interfering with its mining activities, and may enforce its rights against any third parties.

At the moment, there is no special restriction on the surface rights or mining rights that may be acquired by foreign parties, save to note that all new mining rights are subject to the requirement that HDSAs must have at least 30 per cent in the economic benefit and voting rights of the holder of a mining right.

In addition to a mining right, a party wishing to conduct mining activities requires at least the following additional permits or licences:

1. a further environmental authorisation authorising in detail the listed activities that will form part of the mining and mineral processing activities, should these listed activities incidental to the operations not be covered by the environmental authorisation forming part of a mining right;
2. a waste management licence in respect of inter alia management of tailings;
3. a water use licence in respect of use of any natural water sources, as well as to make provision for the treatment, storage and disposal of water in the mine itself and in tailings dams, etc; and
4. air quality licences, if required.

Other licences depend on the nature of the mining activities to be undertaken, or the natural, social or cultural environment where the mining activities are to take place. The most notable licences would be:

1. licences for the possession, processing and beneficiation of precious metals;
2. licences for the possession, processing and beneficiation of uncut diamonds;
3. licences for the possession, beneficiation, transportation and exporting of nuclear materials and radioactive materials;
4. licences for the destruction or relocation of archaeological sites or graves; and
5. zoning of land for mining purposes in areas subject to town planning schemes.

Depending on the circumstances, many other licences, permits or authorisations may be applicable. The above list is not exhaustive and only serves to illustrate the most important and most common licences.

In terms of Section 24 of NEMA, the holder of a prospecting right, mining right or mining permit must provide acceptable financial provision for the rehabilitation, closure and ongoing post decommissioning management of negative environmental impacts. The financial provision may take the form of a cash deposit into the DMRE's bank account, a cash deposit in a rehabilitation trust account, a bank guarantee or an approved insurance product provided by a recognised financial institution.

The manner in which rehabilitation is to be done is prescribed in terms of a closure plan, which must be developed by the mining right-holder and approved by the DMRE after the cessation of mining activities. The contents of the closure plan will be dictated by the attributes of the environment, the nature and extent of the disturbances to be rehabilitated, the likely consequences of not rehabilitating (or partially rehabilitating) the disturbances concerned, the commitments and mitigation measures set out in the environmental authorisation and a value judgment as to the acceptable level of environmental degradation, which may remain after conclusion of rehabilitation.

In theory, the MPRDA makes provision for the issuing of a closure certificate upon successful finalisation of the remedial action set out in the closure plan. The issuing of a closure certificate terminates the holder's statutory liability for rehabilitation and potential claims arising from environmental degradation remaining as a result of mining activities. Very seldomly is a closure certificate issued in practice, given that it is not in the government's interest to release mine owners from liability for environmental degradation, even if rehabilitation seems to be completed.