However, the reasoning as to why it is considered that the application will result in the concentration of the mineral resources is generally not given.
“There are no guidelines, either in the act, its regulations or elsewhere, defining concentration. This is problematic as there is no framework provided for the Department of Minerals and Energy (DME) on which to base its decision,” he adds. However, the application of this sub-section and the determination of unacceptable concentration is no simple matter. He suggests that the reason that the Minister must refuse to grant a prospecting right where granting the right will result in concentration may be based on the objective of the MPRDA to “promote equitable access to the nation’s mineral and petroleum resources to all the people of South Africa”.
With this in mind, the legislature could have taken the view that it would not be equitable should the rights of a particular mineral become too concentrated in the hands of any one holder.
However, when read in context, it seems that the inclusion of the requirement that applications be declined where they result in concentration of the mineral resource under the mineral applicant appears to be clearly motivated by matters of competition as opposed to equity and access to resources.
This is evident in the accompanying subsections, which prohibit the Minister from granting prospecting rights where the granting of the right will prevent fair competition or will result in an ‘exclusionary act’.
This term is commonly used in competition law and is defined in the MPRDA as “any act or practice which impedes or prevents any person from entering the mineral and mining industry, or from entering any market connected with that industry, or from making progress within such industry or market”. Smith notes that this imposes an onerous obligation on the Minister or the official delegated by the Minister to make the decision.
As the decision is an administrative decision, it is subject to both common law and constitutional safeguards. Smith emphasises that decisions need to be taken in a procedurally fair manner.
“Regard must be had to the principles of competition law and economics when considering whether or not to refuse an application.
“The subsection cannot be used as a catch-all to prohibit any application which does not find favour with the department for whatever reason,” he says. He notes that the implementation of competition law is most often the responsibility of the Competition Commission and the Competition Tribunal.
These bodies deal with issues such as market concentration on a daily basis and have developed considerable expertise.
“Requires that the officials in the DME tasked with implementing the MPRDA incidentally develop the knowledge and expertise necessary to determine the impact of concentration of granting a prospecting right is certainly a tall order,” says Smith. The concept of concentration is quite commonly used in competition or antitrust law, particularly in the consideration of mergers.
Smith refers to the “structure-conduct-performace” model of competition law to explain why high concentration is considered undesirable.
Bishop and Walker express this in ‘Economics of Competition Law’: “The model holds that the more concentrated the market structure, the less competitively firms behave, which in turn leads to both higher prices and higher profits than under more competitive conditions.” Unlike the requirements in the MPRDA, the competition authorities are not limited to considering only ‘concentration’. In determining the impact on competition of a merger, the authorities must consider any factor relevant to the market, such as, for example, imports or ease of entry into the market.
If it appears that the merger will substantially prevent or lessen competition, the authority then considers whether there is some technological, efficiency or other procompetitive gain that may result from the merger which is greater than or may off-set the lessening of competition.
Smith notes that there is no equiva- lent provision providing for this type of balancing of interests in the MPRDA. He feels a necessary preliminary step in calculating concentration in a market is to define the market itself.
This usually includes a product market and a geographic market. However, the MPRDA specifically requires that the Minister consider the concentration of the mineral resources in question under the control of the applicant.
Therefore, as far as the product market is concerned, the MPRDA simply requires that this be determined with reference to the mineral to which the prospecting right relates.
Smith cites the example of determining concentration in an application for the prospecting of gold. The appropriate geographic market to consider may be the global rather than the domestic market. This is consistent with decisions made by the Competition Tribunal relating to the sale of mineral rights relating to gold. Accordingly, in order to determine whether or not the granting of a mineral right might result in market concentration, it would be necessary to determine the extent of global resources held by the applicant relative to the total global resources available. Bishop and Walker caution that “serious problems arise with using market shares to make inferences about competition when the definition of the market from which market shares are calculated is inappropriate”. If the relevant geographic area is not properly determined then a prospecting right which might, in fact, decrease concentration might be incorrectly declined. The MPRDA and its regulations do not provide any guidelines regarding when concentration of the mineral resources becomes unaccept- able. Smith notes that, alternately, in competition law, the common measure of market concentration is the Herfindhal-Hirschmann Index or HHI. Other measures sometimes used are ‘concentration ratios’, such as the CR4. The US Department of Justice has prescribed merger guidelines indicating the manner and levels at which the HHI ratio can be used to determine high market concentration as well as unacceptable increases in market concentration. These guidelines are sometimes also referred to and applied by the South African competition authorities. Smith states, “There is clearly a considerable amount of information which a decision maker requires at its disposal in order to make a decision regarding whether or not the granting of a prospecting right will result in the concentration of that mineral resource. For example, in order to determine the HHI, it is necessary to know the market share of at least the major competitors in that market.” He explains that an application for a prospecting right currently requires that the applicant submit a table listing existing rights and permits held by the applicant and indicating the region, the location with regard to the land name and the existing right or permit number for each mineral. An application does not require any other information regarding the extent of concentration of the mineral resource or the possible impact of the application on that concentration. Unless the information requested in the application form is supplemented with considerable data from within the Department of Minerals and Energy regarding, for example, distribution of the mineral resource concerned, then it would simply not be possible for the Minister to properly make a determination. Smith states that a final issue which should be considered is whether the requirement in the MPRDA is simply misplaced. He notes that, in essence, a prospecting right merely grants the holder a limited real right to search for the mineral which is subject to the prospecting right. As the extent of the increase of mineral resources controlled by the applicant is unknown at the time of application, there is insufficient information available to determine any impact on concentration. Another consideration is that, in the event that the prospecting is successful, this increases the mineral resource available. Therefore, with the exception of prospecting by the largest existing controller of mineral resources or its near competitors, prospecting will inevitably decrease market concentration. Smith concludes that a decision regarding whether or not to decline a prospecting application where it results in the concentration of that mineral resource under the control of the applicant is not subjective. The decision cannot be made on the basis of existing mineral rights held by the applicant alone and requires a consideration of economic and competition law principles as well as a determination of at least the relevant geographic boundary as well as the pre- and postprospecting concentrations. “Not only is it necessary for the DME to develop policies, guidelines and procedures to ensure the fair application of the ‘concentration’ requirement in the MPRDA, but the requirement itself may need to be assessed in order to determine whether or not, in fact, it achieves the objectives of the MPRDA,” Smith concludes.