South Africa’s revised Mining Charter, black economic empowerment (BEE), the judicial system and reviewed laws are constraining mining industry development and its foreign investment, reports the international law firm White & Case South Africa.

White & Case energy, infrastructure, project and asset finance associate Imogen Harding says that the lack of certainty regarding mining regulations is making it difficult to assure investors that South Africa is a good investment hub.

“The 2010 revision to the Mining Charter combined with other regulatory uncer- tainty, recent court decisions and actions of the Department of Mineral Resources are making it hard to provide foreign investors with a sense of assurance for their investments, taking into account the large size and long duration of mining projects,” says Harding.

“The Mineral Petroleum Resources Development Act (MPRDA), which is supposed to be complemented by the Mining Charter, was relatively clear when published. However, the revisions to the Mining Charter as well as supplementary regulations and publications are impacting on the MPRDA and are removing that clarity,” she adds.

For example, the revised Mining Charter provides for the Minister of Mineral Resources to make unilateral amendments. This, says Harding, is resulting in confu- sion and concern amongst investors, as it is not clear when, how or why “Ministerial consent” could result in withholding mining rights or prospective rights in certain circumstances.

Further, the revised charter also states that noncompliance with the charter may result in a company’s mining rights being revoked. “Noncompliance is not an issue; however, it is the flowery and contradictory regulations which lack clarity on how to comply with them,” says Harding.

As advisers, White & Case states that its biggest challenge is to explain a charter that does not have clear guidelines and threatens harsh penalties if the Minister declares a company in breach of its mining rights or contract.

“A company may follow the correct procedures, only to have the mining or prospecting rights revoked because the Minister has the right to do so,” says Harding.

BEE requirements and codes, which vary depending on the different sectors, may also constrain foreign investment.

The Mining Charter states that a minimum target of 26% ownership is required to enable meaningful participation of historically disadvantaged South Africans by 2015, but the only offsetting permissible under the ownership element is against the value of beneficiation. Harding says that more clarification is needed prior to the 2015 deadline to give companies an indication of the processes’ flexibility.

A further challenge is the maintenance of a company’s mining rights and concern about BEE shareholders’ debt funding within two years.

“This is made difficult as the charter also has beneficiation aspects and other mining socioeconomic-element requirements that differ for different mines,” says Harding.

There is also a concern in the South African judicial system’s ability to deal with dispute resolutions stipulated in contracts, says Harding. Internationally, dispute resolutions take place in the courts; however, foreign investors are calling for alternative dispute resolutions, such as arbitration.

Meanwhile, changes in mining regulations are expected in the form of the MPRDA Amendment Act, BEE scorecards which are expected to be reviewed and the mine Health and Safety Act, which may see directors of mining companies liable for any fatalities.

Decreased Investment
Over the past year, foreign direct investment has decreased in Africa as a result of unclear legislation and political instability, coupled with a poor rate of return and variations in commodity prices.

Last year, the Geneva-based United Nations Conference on Trade and Devel- opment reported that in Africa there had been a fall of about 36% of foreign development investment (FDI) flows. This was after the peak year of 2008 for Africa. Such a decline is a matter of concern for the international community as the organisation has seen that overall FDI accounts for 29% of the total capital formation for the African continent.

However, Harding says that, given South Africa’s mining history, which is underpinned by many major mining companies operating in the country, it remains a country that will always be attractive to investors.
There is also increased investment from China in Africa, with countries such as China and India competing with the West for Africa’s resources. “Chinese entities have formed South African companies through joint ventures with South African counterparties,” Harding notes.

Joining the Brazil, Russia, India and China (Bric) countries could be a huge stimulus for establishing mines, processing plants and socioeconomic infrastructure, as relationships with these countries will improve and restrictions between these specific countries will be loosened, allowing more investment to take place, she says.

The invitation to join Bric is also a good indicator that South Africa is seen as a long-term investment destination and points to the country’s commodities being in demand and South Africa being seen as a place to trade locally and make money, concludes Harding.

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