The Impact Of The MPRDA Amendment Bill - Oil, Gas & Electricity

On 27 December 2012 the South African Cabinet approved the draft Mineral and Petroleum Resources Development Amendment (MPRDA) Bill, 2012. Although the Bill is still in draft form, the Department of Mineral Resources (DMR) has invited interested parties to make written submissions on the Bill by 8 February 2013.

The Draft Amendment Bill amends the MPRDA as if the Mineral and Petroleum Resources Development Amendment Act, 2008 is in force, although the Amendment Act has never been brought into effect.

It is important to note that there are many salutary aspects of the MPRDA Amendment Bill which are designed to cover drafting errors in the MPRDA and to amend certain practical issues that have arisen in the mining industry over the years since the MPRDA first came into effect on 1 May 2004.

There are however certain dramatic amendments in the Draft Amendment Bill which potentially could have a major impact on stakeholders in the mining industry. The issues around the proposed amendments have led to numerous industry players and organisations, such as the Chamber of Mines, submitting or intending to submit, extensive comments on the Draft Amendment Bill.

Werksmans have identified those issues which are most pertinent to the mining industry.

New definition of "Associated Minerals"

South African mining law, since the implementation of the MPRDA has been saddled with the difficult topic of mixed minerals which is often found in a platinum/chrome scenario, a gold / uranium scenario and an iron ore / manganese scenario. There are often different right holders or different applicants for rights for minerals occurring in the same ore body.

The Minerals Act, 50 of 1991 dealt with the situation adequately in terms of section 5(3) thereof, but there is no equivalent in the MPRDA.

The Amendment Bill now includes the definition of "associated minerals" reading as follows:

" Any mineral which occurs in mineralogical association with, and in the same core deposit as the primary mineral being mined in terms of a mining right, where it is physically impossible to mine the primary mineral without also mining the mineral associated therewith."

This definition has to be looked at in the context of the amendment to section 102(3) of the MPRDA, which now provides that a person may mine and dispose of associated minerals whilst mining a primary mineral.

This addition to the MPRDA is salutary as it allows, for example, the holder of a platinum right in a UG2 or Merensky Reef, to dispose of all minerals found in that ore body - notwithstanding the fact that such right holder does not have a right over it.

However, the issue with the way it has been structured is that it does not deal with the situation of simultaneous applications for different minerals contained in the same ore body. It also does not cater for the situation where there is an existing right in favour of a third party, such as a prospecting right for a secondary mineral occurring in the same ore deposit existing at the time that the MPRDA Amendment Bill becomes law. In other words, will the amendment have retrospective effect?

Furthermore, the new definition of "associated minerals" and section 102(3) does not cater for the situation where minerals have to be mined of necessity to get to a primary mineral even if such mineral is not necessarily in the same ore body. It also does not cater for the situation where mining two separate minerals, which are not contained in the same ore body, is logistically impossible from an environmental and/or health and safety point of view. In the latter two situations there will still potentially be a conflict of rights between the two right holders.

Beneficiation

A new definition of "beneficiation" has been inserted to mean "the transformation, value addition or downstream beneficiation of a mineral and petroleum resource (or a combination of minerals) to a higher value product, over baselines to be determined by the Minister, which can either be consumed locally or exported."

The importance of this definition arises out of the amendment to section 26 of the MPRDA which provides in terms of the Amendment Bill that the Minister shall, from time to time by notice in a Gazette, determine such percentage per mineral commodity or form of petroleum and the price in respect of such percentage of raw minerals as may be required for local beneficiation, after taking into consideration national development imperatives.

The problems identified in the definition of "beneficiation" and section 26 of the MPRDA are that:

it is not clear whether the section relates or will relate only to specific holders or specific mineral commodities in general;
there is an element of price control at the discretion of the Minister which is contrary to free-market principles;
it is not clear what constitutes a transformation or value addition. For example, is washing of coal transformation or value addition?;
it is not clear what baselines will be determined by the Minister and this leaves too much discretion in the Minister as to the implementation of section 26.

Concentration of rights

There is a new concept of "concentration of rights" as opposed to "concentration of resources". This provides for a situation where a specific applicant is already the holder of a prospecting right, mining right or mining permit. The granting of any additional prospecting right, mining right or mining permit would lead to the applicant's dominance in the mining industry, which may constitute anti competitive conduct and is contrary to the objects of the Act.

The Minister is now obliged to refuse the grant of a prospecting right or mining right if it will result in a concentration of rights as now defined. Currently it is only in prospecting right applications that the Minister can refuse an application on similar grounds, but now this has been extended to an applicant for a mining right.

The problems with this definition and the implementation thereof in terms of sections 17 and 23 of the MPRDA, are as follows:

it now applies to a mining right which could negate all of the expense and effort incurred by the holder of a prospecting right;
it is not clear what is meant by a "specific applicant";
it refers only to "rights" in the plural, whereas the intention was probably not to be so restrictive;
it will seemingly not apply where an applicant is already dominant in the mining industry;
it is not clear what is meant by "constitute anti-competitive conduct".

Amendment to definition of "Residue Stockpile"

The definition of "residue stockpile" has been amended in the MPRDA in terms of the Draft Amendment Bill to now include historic mines and old dumps created before the implementation of the MPRDA in 2004. Thus, an applicant for a prospecting right or a mining right upon grant thereof will then be responsible for all rehabilitation, safety and health aspects relating to historic old mines in the area covered by the prospecting right or mining right application, even in relation to abandoned underground operations.

Deletion of first-come first-served application procedure

Section 9 of the MPRDA has been deleted in its entirety. It is now replaced by a new section 16(2)(c) and a new section 22(2)(c) which only provide for the first come first served application process based on applications having been accepted. There is thus a lacuna in the firstcome first-served application process prior to the first applicant having been accepted, which may take 14 days. During such period, any third party could apply and demand to be accepted as well.

Section 11 of the MPRDA

Section 11(1) of the MPRDA has been substantially amended to now include any transaction relating to a part of a right which is intended to cover subdivisions of rights and which is a salutary part of the MPRDA.

However, there are other more important disturbing aspects to the amendments to section 11 of the MPRDA and these are as follows:

it is not clear exactly what is meant by "a part of the right" and the concept of subdivision should have been used instead;
it is not clear what is meant by "an interest" in a listed company or an unlisted company;
there is no distinction between a listed company and a non listed company";
the disposal of one share in a listed company on the JSE would trigger the requirement for section 11 consent;
the Minister can determine terms and conditions applicable to the consent, which vests far too much discretion with the Minister.

New section 23(2) of the MPRDA

The Minister now in granting an application for a mining right may, having regard to the nature of the mineral in question, and after taking into consideration the socio economic challenges or needs of a particular area or community, direct the holder of a mining right to address those challenges or needs. The problems in interpreting this section are as follows:

there is no reference to what area or community is relevant and the Minister has the entire discretion to determine what the holder of a mining right has to do to address challenges on these of any such unspecified area or community, once again vesting far too much discretion in the Minister upon the grant of a mining right.

Restrictions on export

A new section 26(3) has been inserted in the Amendment Bill to provide that any person who intends to export any designated minerals mined or form of petroleum extracted may only do so with the Minister's written consent subject to such conditions as the Minister may determine. Once again, this section is problematic in that:

it is not determined what is a "designated mineral";
it is not clear whether it would apply only to raw minerals mined or will it also apply to beneficiated minerals;
it seems to apply to any person not only the holder of a right;
will it apply to persons currently exporting or only persons who intend in future to export?;
the Minister has carte blanche to impose whatever conditions the Minister likes, which is undesirable;
there should be a carve out for precious metals and diamonds which are already governed by separate legislation in relation to the export thereof.

Amendment to section 43 of the MPRDA dealing with closure certificates

Section 43 of the MPRDA has been amended to provide that notwithstanding the issue of a closure certificate, the holder of a mining right remains liable forever and has to retain its pecuniary provision for rehabilitation for a period of 20 years after issue of a closure certificate. The point of a closure certificate has now been obliterated.

Offences

The fines in section 99 of the MPRDA have been amplified to include fines up to 10% of the annual turnover of the holder or 5% of the annual turnover of the holder, depending on the nature of the offence. These fines are completely out of kilter with the offences.

Conclusion

It is hoped that, with the assistance of the industry and other stakeholders, the comments of the interested parties will be taken into account by Government in ultimately producing an Amendment Bill which serves the interests of the industry and the country as a whole.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

South Africa: The Impact Of The MPRDA Amendment Bill