Whither the South African Mining Industry?

The South African mining industry, a mainstay of the country’s US$357bn economy,  the biggest in Africa as well as the basis of the country’s industrialisation, is at  a crossroads. Despite having the world’s largest mineral reserves (estimated at  US$2.5tn), mineral production in Q3 2011 contracted by 12 per cent while South  Africa’s policy potential, according to the 2011 Fraser Institute survey of the  world’s major mining jurisdictions, ranked 67 out of 79 countries reviewed. By  contrast, other mining jurisdictions, such as Chile, showed a 12 per cent increase in the value added by mining to gross domestic product (GDP). A significant cause  of the industry’s decline lies in the regulatory uncertainty engendered by the  implementation of the Mineral and Petroleum Resources Development Act 2002  (MPRDA), which came into force in 2004.

The MPRDA replaced private ownership  of mineral rights with one of state custodianship and conditional state licences.  In addition, key provisions of the Act are linked to the MPRDA’s socio-economic  objectives, in particular black economic empowerment (BEE). These provisions, in  turn, are linked to wide ministerial discretion. A combination of an entirely new  regulatory regime, combined with the MPRDA’s vague and ambiguous provisions,  has led to critical licensing delays, well in excess of South Africa’s peers. At the same  time, the promotion of BEE has been flawed, by promoting narrow rather than  broad-based black ownership of the mining industry. This, in turn, has become the  catalyst behind calls from the African National Congress (ANC)’s youth league for  the nationalisation of the industry itself. While this has not been supported by the  ANC-led government, the state itself has become more interventionist in the industry.

This has led to the revival of the state-owned mining company and the opening of its  first coal mine. An ANC research committee has investigated the feasibility of mine  nationalisation, but its report is yet to be made public. A final decision on the issue  is expected by December 2012, at the ANC’s quinquennial elective conference. At  the same time, the Minister of Mineral Resources has announced or implemented  a number of regulatory initiatives to address the industry’s problems, including  proposed amendments to the MPRDA itself.

* Peter Leon is a Partner at law firm Webber Wentzel, Co-head of the Mining, Energy and Natural Resources Practice Group

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