Publications | Without Prejudice | February 2017
Local beneficiation
According to the PWC Mine 2016 annual report, 2016 was the first year in which the top 40 mining companies experienced a collective net loss and there was a continuous deterioration in their viability. Needless to say, 2016 was another arduous year for the mining industry.
In the 2015 State of the Nation Address, President Jacob Zuma announced a nine-point plan to boost the South African economy. One point in the plan was to advance local beneficiation and to add further value to the struggling mining industry. Amendments envisaged in the Mineral and Petroleum Resources Development Bill support President Zuma's call to increase beneficiation in South Africa but it has not been without controversy.
The Bill introduces a new definition of "designated minerals" - minerals declared by the Minister which constitute input into local beneficiation programmes. In terms of section 26(2), the Minister is obliged to designate minerals for local beneficiation after considering inter alia national developmental imperatives. Accordingly, the Minister of Mineral Resources is provided with a wide discretion to declare certain minerals as designated minerals. Such a decision by the Minister will undoubtedly have considerable ramifications for the mining industry.
Section 26(2B) of the Bill provides that every producer of designated minerals must offer a prescribed percentage of its production to local beneficiaries in prescribed qualities, quantities and timelines, and at a specified price. While this clearly endorses the nine-point plan and has worthy objectives, it will in all likelihood increase investor uncertainty in the mining industry. Should a mineral be declared a designated mineral, a certain percentage of raw minerals will need to be beneficiated locally at designated prices, quantities and qualities. Investors will likely be resistant to such restrictive provisions and this will no doubt hinder the trade of minerals from South Africa. Until there is certainty as to the "status" of a mineral, investors will have to hedge their investments against the possibility of a mineral being so designated.
In addition, section 26(3) states that no person (other than a producer who has complied with section 26(2B)) may export designated minerals or mineral products without the prior, written consent of the Minister of Mineral Resources. Again, this affords the Minister a wide discretion whether or not to provide the consent. In addition, the Bill does not prescribe timeframes within which consent should be provided, and the Bill is silent on what factors the Minister should consider when providing such consent. This additional uncertainty may very well defer and possibly even permanently deflect foreign investment due to the intensive yet unclear provisions of the Bill.
Given the fact that the declaration of a mineral as a designated mineral has such enormous consequences, there has been some criticism of the wide discretion granted to the Minister. Despite aiming to boost the economy by supporting local benefication, the Bill may deter foreign investors and have the opposite effect of impeding our already struggling mining industry. What it has done in our view, is to introduce a further layer of uncertainty in the regulatory framework governing the mining industry. The passing of the Bill itself has been contentious, delayed and eventful. On 16 January 2015, the Bill was referred back to parliament following certain reservations by President Zuma. One such reservation was that the proposed amendments to section 26(2B) and section 26(3) appeared to be inconsistent with South Africa's obligations under the General Agreement on Trade and Tariffs (GATT) and the Trade, Development and Cooperation Agreement (TDCA) by imposing quantitative restrictions on exports. There were concerns that such restrictions may result in South Africa being vulnerable to international challenges.
On 19 October 2016, after having considered President Zuma's reservations, the Portfolio Committee on Mineral Resources reported that South Africa's ratification of TDCA and GATT did not create constitutional obligations and thus the proposed amendments should pass constitutional muster. Subsequently, the National Assembly passed the Bill on 1 November 2016, with 198 votes in favour versus 81 votes against, and referred it to the National Council of Provinces for further processing and concurrence.
Notwithstanding the Portfolio Committees findings, the Bill may still be challenged in the Constitutional Court.
In a media statement on 1 November 2016, Minister of Mineral Resources, Mosebenzi Joseph Zwane, welcomed the processing of the Bill, saying that it was a positive step in entrenching certainty for investors in the mining industry. Furthermore he acknowledged President Zuma's concerns as being genuine but reiterated that legislators are convinced that the Bill would pass constitutional muster.
Despite the Portfolio Committee on Mineral Resources, and Minister Zwane's unwavering confidence, only time will tell how the provisions of the Bill, once enacted, will impact the mining industry and, in particular, foreign investment and local beneficiation. However, of one thing we can all be certain - the Bill will be scrutinised every step of the way.
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