Mining minister Gwede Mantashe has backtracked on empowerment requirements on prospecting rights, after pushback from the industry and experts that this would hurt investment.
Mantashe last month published the draft Mineral Resources Development Bill for public comment. It proposes a number of amendments to the Mineral & Petroleum Resources Development Act 28 of 2002.
On Monday he backtracked on proposals in the department’s draft bill that would have tightened state control over the sector. In a correction notice published on Monday the minister removed the empowerment requirement for prospecting rights and the ministerial consent requirement for a change of control of listed companies.
Both proposals had elicited criticism from the industry over the past two weeks, with legal experts warning that the amendments would dampen deal-making activity and scare away foreign investment while SA is struggling to boost exploration and capital spending.
The move suggests that the industry’s woes have not fallen on deaf ears, providing a ray of hope for an otherwise disillusioned mining sector. Since its release last month, the bill has been widely criticised for not representing industry input.
Legal experts welcomed the compromise and the department’s willingness to respond to industry concerns, but warned that the draft bill still raises questions about regulatory uncertainty and ministerial control.
Cliffe Dekker Hofmeyr told Business Day: “The erratum notice simplifies obligations on prospecting rights holders by eliminating the requirement to comply with all broad-based BEE elements. Despite this improvement, references to the Broad-Based BEE Act remain in the bill, which may still present challenges.”
Webber Wentzel partner Giada Masina is optimistic about the deletion of empowerment requirement for prospecting rights, a proposal that most of the industry deemed misguided, given that prospecting carries the highest risk of any step in the mineral value chain. However, she said there were still issues with the state’s influence in private companies.
“The proposed revision still refers to ‘an interest’ in an unlisted company, suggesting that any change in shareholding in a company that holds a right will require ministerial consent,” Masina said. “The opportunity to confirm in legislation the position regarding direct versus indirect shareholding also seems to have been missed.”
Cliffe Dekker Hofmeyr previously warned that the addition of BEE mandates would make the requirements for the application of prospecting rights “significantly more onerous”, adding red tape to a sector that SA desperately needs to rejuvenate.
Weak investment in exploration remains a constraint on SA mining, with outlays on mineral exploration falling from a peak of more than R6bn in 2006 to R1bn in recent years.
Lagging behind
For the past five years, SA has lagged well behind its mineral-rich peers in terms of investment in exploration, underpinning the need to rework the regulatory environment to be more attractive to foreign investors.
The department’s other compromise, and another positive step for the industry, was the removal of ministerial consent requirements for a change of control of a listed company.
While the correction is a welcome change for SA’s public markets, the draft bill still advocates broadening the range of transactions that will require Mantashe’s stamp of approval.
For unlisted groups, “the bill retains the need for ministerial approval for any significant shareholding changes”, Cliffe Dekker Hofmeyr said.
Additionally, the draft bill’s failure to eliminate regulatory uncertainty remains a concern.
“The amendment in the erratum notice makes the new definition of ‘controlling interest’ in the bill redundant and does not address the issue of direct and indirect shareholding/control, which has been the subject of case law,” Cliffe Dekker Hofmeyr said.
The bill is likely to remain a point of contention for members of the government of national unity, with DA members rejecting the bill last month.
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