This is a critical time for South Africa’s mining industry. The Kumba and Lonmin sagas have caused considerable collateral damage to South Africa’s reputation as a safe investment destination.

But, at the same time, Mineral Resources Minister Susan Shabangu’s August 17 commit- ment to stamping out departmental corruption and incompetence, and amend the Mineral and Petroleum Resources Develop-ment Act (MPRDA), to ensure that regulatory uncertainties are a thing of the past, has provided much-needed encouragement.

It is now up to government, and the mining industry itself, which is so often too tentative in its interactions with government, to turn adversity into opportunity.

By so doing, South Africa’s mining industry could well be placed on a new path to attract the investment that its treasure trove of mineral resources so richly deserves.

Regulatory lawyer Peter Leon – a partner and cohead of mining at law firm Webber Wentzel and the chairperson of the International Bar Association’s mining law committee – directed these words at international mining investors at the Macquarie-organised Miners from the Frontiers conference, in London, on September 1.

On the same day, Shabangu was telling Australians at the Africa Downunder conference, in Perth, that the full MPRDA review would be completed by the end of the first quarter of 2011.

Mining Weekly is also going to press at a time when Shabangu has committed her Ministry to making public the results of South Africa’s long-awaited Mining Charter review.

But, as with most things in life, the competitive juices flow; also in Australia to blow Botswana’s trumpet was that country’s Minerals, Energy and Water Resources Ministry permanent secretary Gabaake Gabaake, who told investor audiences that the country aimed to issue prospecting licences within 60 days of application, mining licences within 30 days and diamond export permits within two days.

South Africa’s Department of Mineral Resources (DMR), by contrast, says from public platforms that it requires a year to issue a mining licence and six months to issue a prospecting licence. But it often far exceeds even those uncompetitive timelines.
“The DMR’s processing of mining and prospecting rights applications takes longer than almost all of South Africa’s competitors,” says Leon.

More than 90% of mining rights applications take more than a year to process – some even up to five years.

The Botswana government, which consistently receives rave Fraser Institute reviews for its resources policies, also seems more conscientious than South Africa about providing infrastructure.

Gabaake told the Australian conference, for instance, that the company had gone into a budget deficit to bring on stream 600 MW of additional electricity to provide energy security to investors, three dams to provide water security and feasibility studies to improve the rail networks for the benefit of minerals projects.

This was despite Botswana seeing its 2009 diamond production collapse to 17,7- million carats from 32,6-million carats in 2008, and mining- sector jobs falling to 15 359 last year, 18% lower than the sector’s 18 820 jobs capacity in 2008, because of the global melt-down.

In South Africa, by contrast, the world’s largest mining company, BHP Billiton, appears to be heading for an ex-growth future at its KwaZulu-Natal aluminium smelters because of factors that include energy supply issues; rail issues are also inhibiting the growth of its manganese operations in the Northern Cape.

This is in sharp contrast with BHP Billiton’s consistent growth in Australia, where it is the largest corporate taxpaper, having paid over $29-billion to the Australian government in the last six years.

Also on a charm offensive at the same Africa Downunder conference, in Australia, was Malawi Natural Resources Minister Grain Malunga, who offered duty-free importation of exploration and mining equipment, ready access to its mineral resources database and “easily transferable” mineral rights.

“Mining in Malawi is in its infancy stage and the country is a gem that needs to be dis-covered. Large tracks of area still remain to be explored for high-value minerals, such as gold, platinum-group metals and diamonds,” Malunga added.
In sharp contrast in South Africa, overlapping mineral rights claims are ubiquitous.

First, South Africa gave Imperial Crown Trading (ICT) prospecting rights at the Sishen mine that Kumba and its predecessors have owned and operated for decades; Lonmin found itself in a tangle with Keysha; Impala Platinum found that there were overlapping mineral rights claims at Afplats; Anglo American is going to court over a duplicate coal rights award; and Mining Weekly is aware of several other over-lapping sagas that could go public if they are not unravelled soon.

As Leon pointed out to foreign investors, the events of the past six months have shown how a lack of regulatory certainty as well as question marks over security of tenure can bedevil any minerals regulatory regime.

In South Africa’s case, concerns about crony capitalism, the rule of law, threats of industrial action, as well as the ongoing debate on the nationalisation of mines have all contributed to increasing perceptions of sovereign risk.

“Although it could be argued that there exists very little precedent in the correct application of the MPRDA, a relatively new piece of legislation, the DMR has, in the unhappy Kumba/ICT and Lonmin sagas, shown a poor understanding of the rule of law.

“The rule of law is the bedrock of South Africa’s Constitution, as the Consti-tutional Court has consistently emphasised its importance in South Africa’s democracy. In the Kumba case, this led to ICT being awarded prospecting rights over an existing mine and in preference to Sishen’s application for mining rights over the same land and for the same mineral,” Leon says.

But, again in Leon’s words, the reputation of South Africa’s mining industry is “not unsalvageable”.
“The optimist in me would like to believe that it may yet regain its footing,” he adds.

While proposed amendments to the MPRDA provide hope, the proof is in the doing, and having again to wait is inappropriate.
Some believe that govern- ment should make an exception and fast-track the MPRDA amendments through Parliament instead of relying on the traditionally slow Parliamentary mill.

Failure to accelerate the process could mean that South Africa may again lose out on the strong commodity cycle.

While the global mining industry grew by nearly 5% between 2001 and 2008, the South African mining industry declined by 1%.
The mining industry, says Leon, was smaller in 2009 than at the outset of democracy in 1994, in stark contrast to the situation in the rest of the world.

Resource investors require regulatory certainty as well as effective administration. That, in turn, requires that laws and policies are clear, definitive and consistently applied, particularly in the high-risk, capital-intensive mining industry owing to the signifi-cant capital outlays required before mining operations actually start.

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