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Zwane’s move will have dire effects

Jul 23 2017 06:40
Dewald van Rensburg and Lesetja Malope

Johannesburg - Small companies at the fringes of the mining industry, along with empowerment transactions, will take the biggest immediate hit from Mineral Resources Minister Mosebenzi Zwane’s planned moratorium on all forms of mineral licensing.

Zwane invited public comment this week about his “intention” to stop entertaining all new applications for prospecting and mining rights or permits.

More importantly, in the short term, he also plans to stop entertaining so-called section 11 applications – the approval needed for any change in ownership of a mining right.

This is the part of his plan that is most likely to be unlawful, according to the Chamber of Mines.

The Mineral and Petroleum Resources Development Act (MPRDA) does permit restrictions on most forms of licensing, but not expressly section 11, which governs the transfer of mining rights.

READ: Zwane on Ramatlhodi's Gupta claims: Revolutionaries can't be 'pressured'

According to Warren Beech, head of mining at law firm Hogan Lovells, his team does about eight to 10 section 11 applications per month.

The volume of deals requiring ownership change can vary sharply, but at this one law firm alone it represents transactions worth anything from R100 million to R300 million a month.

Depending on how long Zwane intends his moratorium to last, this could quickly affect billions of rands’ worth of deals.

Beech said the bulk of this deal flow came from medium-sized mining companies, not the giants and their occasional large divestment or merger.

“A lot of these – 70% to 80% – are empowerment transactions,” said Beech, adding that 90% of them require section 11 approvals.

“Section 11s used to be processed in three to five months. It takes nine to 12 months now,” he added.

Getting your section 11 from the department of mineral resources is a standard procedure in most mining deals – meaning the deal cannot otherwise go through.

Neva Makgetla, senior economist at Trade and Industrial Policy Strategies, said the effect of the decision would depend on how it was implemented and the length of the moratorium, but the constant change in policy certainly did not bode well for trust between industry and the state.

“Mining is a long-term commitment. The trust will definitely be affected. Even if the intention is right, the way in which it is being done is wrong. You cannot just spring such decisions on your partners,” she said.

Dennis Dykes, Nedbank’s chief economist, said the decision was “very bad” and would create reluctance among investors to pump money in the mining industry. “It makes it difficult for mines to take long-term decisions.”


“People will try to work around it,” Beech said.

Companies affected by the promised moratorium would be advised to structure deals in such a way as not to trigger section 11, he explained.

The problem with this, apart from being a potentially unethical form of regulatory evasion, is that it would likely be costly to the companies as well.

Section 11 does not get triggered if ownership changes through sufficient levels of indirect ownership.

Listed mining companies, for instance, do not need to get approval every time their shares are traded.

Likewise, you can avoid triggering section 11 if you sell or buy an interest in a mining right through three layers of indirect ownership.

This would be a company that buys shares in a company which, in turn, has shares in the company that owns the right.


While stopping section 11s will have an immediate effect, the planned freeze on new prospecting and mining rights will have more delayed consequences.

“The burning issue is prospecting rights. The impact on mining rights will be felt two years or so later,” said Beech.

READ: Zwane vows new Mining Charter will be most revolutionary

Prospecting rights are popularly associated with new and speculative ventures, but in reality, existing mines that expand need to make prospecting rights applications all the time.

These are a prerequisite for getting a mining right for expansions that the industry calls brownfields.

According to the chamber, another immediate impact will be on the special mining permits for small-scale mines, which are different from fully fledged mining rights.

These permits last for only two years and can only cover 5 hectares of land.

Thus, they get applied for on a shorter-term basis, and more frequently.

That means the moratorium will stop activity in this part of the industry, inhabited by smaller companies, more quickly.

The chamber said the moratorium would probably also lead to marginal mines getting closed or put on care and maintenance instead of being sold, if that was an option.

“This is because potential buyers would not easily take the risk of not getting approvals for application.”


Zwane’s notice is to be challenged in court by the Chamber of Mines, making it the third concurrent court case about the new Mining Charter.

The crux of the challenge is that Zwane is using section 49(1) of the MPRDA, which gives him power to restrict new rights – but that his plan affects many existing rights, especially through section 11.

“The minister’s notice is wrong in law, as existing rights cannot be dealt with in terms of section 49(1).

"He can therefore not refuse to deal with applications for renewals by relying on section 49(1),” said the chamber via email.

The notice, which appeared in the Government Gazette this week, dramatically escalates the standoff between the minister and the chamber.

READ: Zwane reveals final Mining Charter, despite mining boycott

Zwane’s intention is evidently to freeze the issuing of mineral rights until it is clear which Mining Charter conditions will apply to it.

The public was given two weeks to comment on the move, which comes straight after the Chamber of Mines last week celebrated a small victory against the minister.

The chamber had gotten Zwane’s department to voluntarily suspend the new charter until the court case against it is heard in September.


Beech admits that Zwane’s strategy makes sense from the minister’s perspective.

“It is logical if you take the emotion out of it,” he said.

Specifically, the minister would presume he has a chance of successfully defending his charter in court.

This means he wants to close the window that exists for companies to lodge all their foreseeable applications immediately – before the court potentially affirms the new charter.

Potentially, this could let them escape the new charter’s infinitely more onerous conditions and apply those of the preceding charters of 2004 and 2010, despite the new charter coming into effect.

This helps explain why the mineral resources department included a freeze on mining right renewals.

This would be practically inconsequential for a long time as South African mining rights last for 30 years and rights under the current mineral regime only started getting issued in 2004.

Including these in a potential moratorium could, however, be a way to ensure that no one lodges massively premature applications now to avoid the new charter’s prescriptions.

But, adds Beech, the minister’s decision simply goes too far.

“Why go as far as the section 11s? It does not make sense. When the charter was suspended last week, there was a positive response.”

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