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Speaking at the 18th Commonwealth Law Conference held in Cape Town, South Africa, which is scheduled to take place from 14 to 18 April 2013, mining law specialist Peter Leon addressed delegates from around the world focusing on the significance of transparency regarding mineral regulatory regimes.

Leon, who is well known for his opinions over regulatory regimes affecting the mining industry, especially in developing countries, touched on numerous aspects that justified his rational for the importance of governments to work with mining companies in an effort to reach amicable solutions that will benefit all stakeholders.

He pointed out that mining is a high risk, capital intensive industry, with long lead times between discovery and production and, often, a significant lack of profitability in its early stages.

Further, Leon said that profitability itself is subject to volatile cycles of supply and demand; and in many developing countries, productivity is subject to major domestic infrastructure constraints, referring to the logistics problems besetting Mozambiques coal industry in Tete province.

Mining is thus an inherently high risk and long term business. Accordingly, the structure of any mineral regulatory regime should mitigate, as far as possible, the risk undertaken by mining companies, he added.

In his presentation, Leon advised that his address highlights a number of international best practice principles for the architecture of mineral regulatory regimes in developing countries which, by mitigating the risks of mining, encourage investment in the industry.

International best practice principles

According to Leon, in order to foster investment in the extractive industry, a mineral regulatory regime should provide certainty, stability and predictability to mining investors, adding that in order to do so, the architecture of the regulatory regime should meet certain generally recognised principles, including equality before law, the rule of law, clear and unambiguous state of law as well as a clear and unambiguous legal framework governing the allocation and management of mineral rights among others.

Botswana: a mineral regulatory regime which exemplifies international best practice principles

Leon continued by highlighting that Botswana is a stand-out example among African mining jurisdictions, saying that in 1999, the government substantially revised Botswana’s Mines and Mineral Act, 1977 (the old Act), to remove uncertain and unclear provisions while encouraging investment in the mining industry.

Consequently, under the Botswana Mines and Minerals Act, 1999 (the Act), the process of licensing the grant, renewal and transfer of licences is now predictable and clear.

The Minister of Minerals, Energy and Water Resources, who grants licences and performs other functions under the Act, has little or no administrative discretion; licensing conditions that may be imposed are explicitly stated and clearly set out in the Act. This ensures that applicants are treated equally under the Acts licensing provisions.

Leon said that the Act also introduced the concept of a retention licence, an innovation which was designed to protect the security of tenure of explorers who, after discovering a mineral deposit, find that it cannot immediately be mined economically.

Under the old Act, such right holders would have lost their entitlement to the location if they were not able to bring the resource into production. The retention licence allows the explorer, subject to some qualifications, to defer development for two successive three year periods while retaining the exclusive right to mine the resource, added Leon.

Quoting James Campbell, CEO of diamond producer Rockwell Diamonds, Leon further pointed out the significant positive change brought by the newer mineral regulatory regime in Botswana. The terms for doing business in Botswana are very clearly set out and implemented. You do not have to deal with issues such as the interpretation of some of the legislation.

Leon explained that Botswanas best practice mineral regulatory framework is evident in the latest Fraser Institute Survey 2012/2013, which placed Botswana 17th out of the 96 jurisdictions assessed. The country is and always has been the highest ranking jurisdiction in Africa.

South Africa: a mineral regulatory regime struggling with international best practice principles

Leon did not shy away from suggesting that South Africa, by contrast, appears to be struggling with international best practice in its mineral regulatory regime.

The principal legislation governing the mining industry in South Africa the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) is characterised by uncertainty, vague and ambiguous provisions, and overly broad discretion which is accorded to the Minister of Mineral Resources to regulate the licensing process, asserts Leon.

He admits that this regulatory uncertainty has proved to be a deterrent to investment in the South African mining industry, which Leon points out, has been recognised by the National Planning Commission, which was appointed by President Jacob Zuma in May 2010 and is responsible for developing a vision and strategic plan for South Africa’s long-term development, in their “National Development Plan 2030”

South Africas proposed new mineral regulatory regime

Peter Leon had this to say about the recently released draft MPRDA Amendment Bill:

The recently released draft Mineral and Petroleum Resource Development Amendment Bill, 2012 (the Bill), seeks, among other things, to remove ambiguities in the current Bill and improve the regulatory system.

Unfortunately, however, the amendments it proposes only seem to distance the MPRDA further from international best practice.

In particular, vague and ambiguous provisions: a pervasive problem with the Bill is its lack of clarity on key mineral regulatory issues. The Bill is replete with instances of vague and uncertain language, and amplifies, rather than removes the uncertainty created by the MPRDA, thus ignoring the National Development Plans counsel to fix the Acts regulatory problems;

Beneficiation: the Bill requires the Minister to initiate the beneficiation of minerals and petroleum in South Africa and grants the Minister broad discretionary powers to do so. For example, the Bill allows the Minister, in her sole discretion, to set the levels required for beneficiation, the percentage per commodity and price that is required for beneficiation, as well as the percentage of raw mineral production to be offered to local beneficiators. The Bill also requires any person who intends to export “designated minerals” a term that it fails to define, to obtain the Minister’s written consent prior to doing so and to comply with any conditions the Minister may determine.

Timeframes for actions: the Bill also deletes many of the time periods currently contained in the MPRDA, and replaces these with reference to a “prescribed period” to be determined by the Minister. The lack of time periods in the Bill has the potential to create further uncertainty, as there is no guidance as to when and how the relevant periods will be determined;

Order of processing applications: the Bill deletes section 9 of the MPRDA, which deals with the order of processing of applications for mineral rights. Section 9, among other things, contains the “first-in, first assessed” principle, which South Africa has followed for over a hundred years. This important issue will now, according to the DMR, be dealt with in regulations to be published by the Minister, which will set the parameters within which the Minister must grant a right to one applicant over another. This amendment to the MPRDA consequently vests in the Minister a broad discretion to determine the order in which mineral right applications are to be processed, amplifying rather than reducing the uncertainty in the process.

Environmental provisions: the Bill provides for a fundamental change in the environmental regulatory regime that applies to mining and prospecting activities, envisaging that such environmental regulation will take place under the National Environmental Management Act, 2008 (“NEMA”), with the Minister as the responsible regulator, rather than under the MPRDA. The Bill, however, has not been developed in line with the provisions of either NEMA or the NEMA Amendment Act, 2008, particularly as regards the latter’s transitional provisions. While the NEMA Amendment Act also provides that the environmental regulation of mining and prospecting activities will be brought under the NEMA, it envisions that this will only occur incrementally over a three year transitional period with the Minister of Environmental and Water Affairs ultimately becoming the responsible regulator. Thus, the Bills proposed amendments will leave the MPRDA in direct conflict with NEMA, creating considerable uncertainty.
The DMR has indicated that it intends to produce a comprehensive set of regulations which will deal with the lack of clarity in the Bill. In particular, it is envisaged that these regulations will prescribe the timeframes for licensing and other decisions. The publication of regulations, however, is not subject to the same constitutionally-mandated public participation process required for the enactment of legislation.
In should also be noted that the Bill, as discussed, is only in draft form. Hopefully, the DMR will address the shortcomings in the Bill revealed by the public participation process before it is introduced to Parliament this year.

Conclusion

Leon said that the importance of the effective regulation of the exploitation of mineral assets cannot be overstated.

The architecture of a mineral regulatory regime is of vital importance to the success of a mining jurisdiction. If a jurisdiction’s mineral regulatory regime can by complying with the international best practice principles considered above create an environment of certainty, predictability and stability, it will promote investment and growth in the industry.

By doing so, mining jurisdictions can comply with a simple formula Paul Collier, a professor of economics and public policy at Oxford University, believes all countries and especially the poorest countries must master to effectively harness their natural resource potential: “nature + technology + regulation = prosperity”.

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