Legal company Webber Wentzel Bowens partner Peter Leon told the South African Insti-tute for Race Relations (SAIRR) that restrictive legislation could scare off prospective investors in the country’s mining industry.

Speaking at a function held by the SAIRR, Leon said that statistics have shown that

although South Africa is currently experiencing a commodity boom such as never before, investor confidence is waning in the light of the Minerals and Petroleum Resources Development Act (MPRDA), which came into effect in 2004.

Global markets are currently experiencing a commodity boom of six years, which has seen global revenues on commodities for the period reach $249-billion and net-profits of about $67-billion. In South Africa, key products, such as platinum-group metals, gold and palladium have seen price increases of 33%, 30% and 24%, respectively.

Leon explained that foreign direct investment in Africa is driven by the continent’s natural resources, and that South Africa is no exception. However, he pointed out that one of the problems with regulatory legislation is that it creates unpredictability in the security of mineral rights.

Leon used Canadian company Fraser Industries’ annual survey on leading mine companies to explain South Africa’s current situation in global investment. The survey found that South Africa has dropped 30 places since 2004. Currently, the country is placed fifty-fifth out of 65 countries, from being twenty-fifth out of 53 countries in 2004, just before the MPRDA was implemented. Leon says that the survey found that 61% of investors were deterred because of uncertain regulatory practices, while 66% felt deterred because of legislative duplication and inconsistencies.

Leon said that the total contribution to the country’s gross domestic product (GDP) dropped 1,4% since 2005. Where mining contributed 7% to the country’s GDP, it now contributes 5,6% with all indications that it would keep on dropping yearly. Leon said mining companies’ capital expenditure also declined 4,6%, while mining production has decreased 6% in the period from 2004 to 2006. Nongold minerals sales dropped 5%, while the number of employees at mining operations dropped by 22 000 from 2004 to 2006. Leon pointed out that part of the problem could be explained by the rand depreciation and the decline in gold-mining production as the country’s gold mines near the end of their life-of-mine. However, Leon also commented that the mining industry pointed to licens- ing issues and regulatory issues as culprits.

The MPRDA is specifically linked to the Mining Charter of 2002, which promotes broad-based black economic empowerment (BBBEE) in the mining industry, through a number of objectives. Leon said that the most well known of these is black ownership in mining. The MPRDA, which is due to be reviewed in 2009, aims to place 40% of the mining industry management in black hands by 2014. In the meantime, the Act also envisions a 26% black ownership of assets or equity and promotes beneficiation and employment equity.

Leon said that the Act’s entire key licensing proposition is linked to mines complying with the Act’s BEE stipulations. Especially in the granting of prospecting rights, the minister has a mandate to give preference to prospective mining companies with more advanced BEE credentials in the granting of mineral rights.

“The Act also refers to the inter-nationally accepted rights of the State to exercise minerals rights. This stipulation relies on two United Nations (UN) resolutions. The first refers to the State’s permanent sovereignty over its minerals and the second to the declaration of the establishment of a new economic order, which was unanimously voted down by Western governments when the proposition came to table before the UN,” Leon said.

He stated that the Act superficially promotes the security of tenure, but that closer scrutiny of the Act reveals that a company has to comply with vague social objectives before this security is given. Leon said that the Act has a high level of discretion insofar as the key licensing functions are concerned.

“The minister must be aware of these social objectives, which are very vague,” he commented.

Leon pointed out that the conversion of mining rights, where mining companies have to apply for a new mining licence before May 2009, leaves companies with fewer rights than what they had before. The mining industry has debated this with government, and is still negotiating the point, Leon said. One of the issues related to the new mining rights is that there is a limited time span linked to the new mining right. Where mining companies in the past had an almost unlimited time span on mining activities, the maximum time span allocated by the new mining rights is thirty years.

Another challenge, Leon said, was the fact that the new rights are conditional and encumbered in a number of ways, because the rights are under the control of the Minister. In the past, these rights were privately owned.

Leon said that the problem with the Act is that however well it was intended, it has created an unpredictable, discretionary environment that retards, rather than promotes, investment in the mining industry.

Leon concluded by saying that to create and attract foreign direct investment, government would have to create a stable and certain regulatory environment.

This, he said, could only be done once the current regulatory regime became more predictable, and started to promote, rather than hamper, the creation of such an environment.