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PROSPECTORS AND DEVELOPERS ASSOCIATION OF CANADA COMMENTARY PREPARED FOR
PORTFOLIO COMMITTEE ON MINERALS AND ENERGY
AND THE
SELECT COMMITTEE ON ECONOMIC AFFAIRS
ON SOUTH AFRICA’S
MINERAL AND PETROLEUM RESOURCES DEVELOPMENT BILL B15-2002

On April 19, 2002, the South African government published the Mineral and Petroleum Resources Development Bill, which will fundamentally change mining rights in South Africa. The Ministry originally invited submissions on the Bill until May 19, 2002, but has extended the deadline until May 27, with public hearings to commence June 5. The following commentary consists of an overview of the new framework, followed by a critical analysis.

Overview

This Bill is the long-awaited revision to the Mineral Development Draft Bill that the South African government released in December 2000. The previous Bill generated an extensive amount of commentary, partly because like Botswana South Africa iwas perceived to be creating a legislative template for other African nations to follow and partly because the previous Bill departed radically from the familiar model of tenured and transferable property rights. The many submissions included a substantial commentary from the Prospectors & Developers Association of Canada (PDAC). The PDAC commentary appears to have influenced the South African government, which subsequently distributed it with Ministry publications, in part, to perhaps signal to the mining community the direction in which the revised Bill would proceed. The Mineral and Petroleum Resources Development Bill is a remarkable improvement from the previous Bill and the Minister should be heartily congratulated for her pragmatic responsiveness.

The overall objective of both the new Bill and the previous Bill is to foster development of mining in a way that expands opportunities for “historically disadvantaged persons” in South Africa, in a way that is consistent with environmental responsibility. The previous Bill, however, sought to do so by making the granting, transferring and cancellation of prospecting and mining rights matters entirely within the discretion of the Minister and mandating that the Minister must give preference to historically disadvantaged persons. The PDAC commentary accepted as immutable the objectives that South Africa would convert common law property rights (the “old order regime”) into a system where the government held all title and licensed prospecting and mining rights and that this would have to be done in a way that promotes historically disadvantaged people. The PDAC commentary argued that affirmative action could not be built into the property right itself, as this would undermine bankability, which in turn would hinder efforts by junior companies run by historically disadvantaged persons. The revised Bill implements the thrust of the PDAC recommendations.

Government Custodianship of Minerals. Under the new Bill, the South African government assumes “custodianship” of all mineral title and becomes the grantor of prospecting rights and mining rights. A schedule to the Bill provides a process for holders of old-order rights to apply for and obtain rights in the new regime. Holders of old-order prospecting rights will have two years to apply and holders of old-order mining rights will have five years to apply.

Designated Minerals. Prospecting rights and mining rights give the holder the exclusive right to prospect for and mine for a mineral in a designated area, except for possible information-gathering activity the Minister can initiate with respect to a mineral or geological formation. The Bill implies that a prospecting right or mining right only extends to the designated mineral, and not all minerals. Based on meetings with Ministry officials, we understand that the government was concerned about past hoarding and that it viewed mineral-specific rights as an important means to curb abuse. This raises obvious issues for exploration companies which subsequently identify minerals which are not designated in their property right. and leaves legitimate holders vulnerable to hostile action by third parties over claims of infringement or purported damages irrespective of the quantities of other elements and/or minerals present. The PDAC believes in the encouragement of better business to business relationships, including the signing off on respective environmental and labour responsibilities, which could result in the utilization of elements and minerals which are peripheral to the core business of the primary title holder.

Initial Application for Prospecting Rights. The application for a prospecting right is first-come, first-served. However, if more than one application is received on the same day, the minister must give preference to historically disadvantaged persons. The application must be made to the appropriate Regional Manager in prescribed form with a prescribed application fee. No draft regulations have been provided in this regard. The Bill provides that the Regional Manager “must accept” an application if these requirements are met.

Within 14 days of receiving the application, the appropriate Regional Manager must either notify the applicant in writing that the application does not comply with the requirements, or notify the applicant to submit an “initial environmental impact assessment” within 30 days and to consult with any interested and affected persons. Although the details of these requirements are not provided and we have continuing concerns (discussed below)we have concerns over timing issues, the new procedure is a substantial improvement over the previous Bill, which contemplated lengthy public hearings as part of the initial application process.

Requirements for a Prospecting Right. The Minister “must grant” a prospecting right if, inter alia, the applicant has the technical and financial capacity to conduct the proposed prospecting programme, the programme will not result in irreparable environmental impact, the applicant is not in contravention of other “relevant” provisions of the Act and the granting of such right “will further” the objects referred to in sections 2(d) and (f). Sections 2(d) and (f) state the objectives to expand opportunities for historically disadvantaged persons to enter the mineral industry and to benefit from the exploitation of the nation’s mineral resources, and to promote employment and advance the social and economic welfare of all South Africans. The Minister “must refuse” a prospecting right if the application does not meet all the requirements. If the Minister refuses, written reasons must be provided within 30 days. The Bill establishes a general internal appeal process and contemplates possible judicial review after exhausting internal appeal. While this leaves some uncertainty, it is at least some comfort that the right to appeal is better specified than in the previous Bill.

The Effect of a Prospecting Right. The prospecting right becomes effective upon the date the environmental management programme is approved. The prospecting right is effective for the period specified in the right (which appears to be determined at the discretion of the Minister), which period may not exceed five years.

Prospecting activities must be commenced within 90 days from the date on which it becomes effective and the holder must “continuously and actively” conduct prospecting operations, in addition to paying fees and other requirements. A holder may apply once for a renewal for a period not exceeding three years. A renewal application requires a detailed report of activities, a prescribed application form and prescribed fee and state the period for which a renewal is required. The Minister must grant the renewal if the application is in order and the applicant has complied with the Act and prospecting programme.

Information. The holders of prospecting rights and mining rights must keep records of results within South Africa and submit progress reports. No one may destroy records or bore-hole data without the written direction of the relevant Regional Manager. In order to achieve the objectives of the Act, the Minister may direct that specified information or data be provided by applicants or holders. The Minister may use data and communicate data to any person to achieve the objectives in sections 2(c), (d) or (e)-equitable access, expanded opportunities for historically disadvantaged people and “to promote economic growth in the Republic”-subject to restrictions on disclosing trade secrets or competitively sensitive information.

Transfer of Rights. A prospecting right or mining right may not be transferred in any way without the written consent of the Minister. The Minister must grant consent if the proposed transferee is capable of compliance (with the Act, the terms and conditions of the right, the social plan in the case of a mining right, and the environmental obligations) and satisfies the requirements of an initial applicant for the grant of a prospecting right or mining right as the case may be. In particular, the choice of transferee must further the objects in sections 2(d) and (f) (see above).

To promote bankability, financial institutions recognized by the Republic may take security upon providing an undertaking that any sale pursuant to foreclosure would require the consent of the Minister as set out above.

Cancellation of Rights. The Minister has broad power to cancel or suspend rights if the holder is delinquent. The grounds include conducting any prospecting or mining operation in contravention of the Act, breaching any material term or condition of the right, not prospecting for or mining the mineral resource “optimally” in accordance with the programme, contravening the environmental management programme or submitting inaccurate, incorrect or misleading information in connection with any matter required to be submitted under the Act. Before suspending or canceling a right, the Minister must give written notice with reasons and afford the holder a reasonable opportunity to show why the right should not be canceled or suspended. The Minister may direct the holder to take specified measures to remedy any such delinquency.

Initial Application for Mining Rights. The holder of a prospecting right for a mineral in an area has the exclusive right to apply for a mining right. The application must be made to the appropriate Regional Manager in prescribed form with a prescribed application fee. The Regional Manager “must accept” an application if these requirements are met. Within 14 days of receiving the application, the appropriate Regional Manager must either notify the applicant in writing that the application does not comply with the requirements, or notify the applicant to submit an “initial environmental impact assessment” within 30 days.

Requirements for a Mining Right. The Minister “must grant” a mining right if the listed requirements are met. These include the following: the mineral can be mined “optimally” in accordance with the mining work program (optimally is undefined); the applicant has the technical and financial capacity; the mining will not result in irreparable environmental impact; the applicant has provided the “prescribed social plan”; the applicant is not in contravention of any provision of the Act; and the granting of such right will further the objectives in sections 2(d) and (f) (see above). The Minister “must refuse” a mining right if the application does not meet all the requirements. If the Minister refuses, written reasons must be provided within 30 days. Again, there is internal appeal and possible judicial review after exhausting internal appeal.

The Effect of a Mining Right. The mining right becomes effective upon the date the environmental management program is approved. The mining right is effective for the period specified in the right (which appears to be determined in the discretion of the Minister), which period may not exceed thirty years. The renewal process is similar to the renewal process for a prospecting right; however, the mining right may be renewed for periods up to thirty years and may be renewed more than once.

The holder of a mining right must commence mining operations within one year from the date the right becomes effective and must “actively” conduct mining in accordance with the mining work program. The Act imposes a vague requirement that any person who intends to beneficiate any minerals mined in South Africa outside the Republic must obtain the written permission of the Minister. The term “beneficiate” is undefined and therefore it is not clear precisely which activities would be caught. For example what about further refinement of minute amounts for medical research or space applications, metal fabrication close to end users outside of South Africa and activities by third party purchasers?

Optimal Mining and Profitability. The Minerals and Mining Development Board may recommend to the Minister to direct the holder of a mining right to take corrective measures if the Board establishes that minerals are not being mined “optimally” and that continuation of such practice will detrimentally affect the objects referred to in section 2(f)- to promote employment and advance the social and economic welfare of all South Africans. The Board is to consider the technical and financial resources of the holder and the prevailing market conditions. If the Minister agrees, she must notify the holder in writing of required corrective measures. The holder has 60 days to make representations in respect of the notice. The Minister may, on the recommendation of the Board, suspend or cancel a mining right for noncompliance.

The holder of a mining right must also notify the Board where prevailing market conditions cause the profit-to-revenue ratio of the mine to be less than six percent on average for a continuous period of 12 months, or if any mining operation is to be scaled down with the possible effect that 10 percent or more of the labour force, or more than 500 employees, are likely to be retrenched in any 12-month period. The parameters of the “profit to revenue” ratio are not defined and this of itself creates some uncertainty. The Board must investigate the socio-economic and labour implications of this and make recommendations to the Minister. The Minister may, on the recommendation of the Board and after consultation with the Minister of Labour, order “corrective measures.”

Retention Permit. The Minister “may grant” the holder of a prospecting right a retention permit of up to three years where the property has been prospected, a feasibility study has been completed and there are mineral reserves with mining potential, but mining would be uneconomical due to prevailing market conditions. The Minister “may refuse” to issue a retention permit if (based on research conducted by the Minerals and Mining Development Board) it is established that the mineral resource can be mined profitably, or if the applicant has not completed the prospecting programme and feasibility study, or if the issuing of such permit would result in an “exclusionary act,” prevent fair competition, or result in the concentration of mineral resources in the hands of the applicant. “Exclusionary act” is defined to mean any act or practice that 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.

The holder of a retention permit must make reports every six months indicating prevailing market conditions and efforts undertaken to ensure that mining operations will commence before the expiry of the retention permit. A retention permit may be renewed once if the same conditions prevail, for a period of up to two years.

A retention permit may not be transferred in any way whatsoever. The Minister is not given discretion to approve transfers of retention permits.

The short term of prospecting rights, the continuous activity requirements, the optimal mining requirement and the strict retention permit requirements make it plain that the South African government is serious about implementing a use-it-or-lose-it system. The South African government has moved some distance in removing discretion to favour historically disadvantaged persons and the apparent quid pro quo is that mineral rights have been designed to become available quite quickly compared to other regimes.

Critical Analysis

Although the Bill has been improved substantially from the previous version, numerous problems remain in the drafting. Many of these are technical in nature. This commentary will focus on issues we see as affecting the following principles of fundamental concern to investors: (1) first-come first-served prospecting rights that elevate into mining rights; (2) confidential process; (3) bankable rights; (4) clarity of duration; (5) transferability; and (6) potential to unwittingly commit criminal offenses. The Bill still requires frequent, discretionary interventions by the Ministry concerning the application, transfer and continuation of each prospecting and mining right. Apart from the substantive uncertainty of vagueness, investors will have additional concerns: (1) the capacity of the Ministry staff to process matters before rights expire; (2) increased opportunities for interest groups to intervene repeatedly in the process or to exercise political pressure on the Minister; (3) exposure of the Ministry to embarrassment, which promotes delay and indecision.

Based on these priorities, the following aspects of the Bill remain causes for concern.

Developing a Viable Target Model or Prospect. The Bill is silent or restricts the field testing of geotechnical hypotheses by preventing the removal of data, soil or mineral samples which could help to satisfy in whole or in part the applicability of certain intellectual properties belonging to the potential applicant. The inability to legally complete a quick field reconnaissance of an area adds to shareholder risk and is counterproductive to the aims of the government.

Designated Minerals. Prospecting rights and mining rights give the holder the exclusive right to prospect for and mine for a designated mineral and not all minerals.

The Bill does not attempt to address how multiple holders would manage within the same area. A holder mining a mineral in an area could encounter crippling third party claims of infringement or for damages regarding rights to another mineral in the same area, irrespective of the quantities of other elements or minerals present. The PDAC encourages cooperative business-to-business relationships, including allocation of respective environmental and labour responsibilities. Title holders often mine elements or minerals that are peripheral to their core business in conjunction with another business. Nonetheless, where different persons may hold rights to different minerals in the same area, some legislated mechanism may be required so that one holder can mine other elements and minerals for the benefit of another holder on reasonable terms.

The Bill also makes no provision for extending a right to other minerals in response to the results of prospecting work.

Developing a Viable Target Model or Prospect. The Bill prohibits any removal of data, soil or mineral samples, regardless of how little sample is removed or how trivial the disturbance. A potential applicant often requires at least some minimal surface sampling to apply proprietary prospect evaluation techniques. The inability to do quick field reconnaissance of an area increases shareholder risk significantly. Given the insignificant impact of such reconnaissance work, an absolute prohibition is counterproductive to the aims of the government.

Initial Application for Prospecting Rights. The initial application for a prospecting right is essentially first-come, first-served. However, if more than one application is received on the same day, the Minister must give preference to historically disadvantaged persons.

Unless there is just one historically disadvantaged applicant and one who is not, the matter appears entirely within the discretion of the Minister.

The application must be made to the appropriate Regional Manager in prescribed form with a prescribed application fee.

No draft regulations have been provided in this regard. Without reviewing the regulation, it remains uncertain whether the process can realistically be described as first-come first-served.

Within 14 days of receiving the application, the appropriate Regional Manager must either notify the applicant in writing that the application does not comply with the requirements, or notify the applicant to submit an “initial environmental impact assessment” within 30 days and to consult with any interested and affected persons. By what means are potential interested parties to be notified and if third parties have 30 days to respond how can the applicants respond within the same 30 day period? Also within 14 days of receiving the application, the appropriate Regional Manager must in the prescribed manner make known that an application has been received and call on interested and affected persons to submit comments within 30 days.

The Bill does not define the status of the application in the event of noncompliance. Does the applicant get a chance to fix an oversight in completing the prescribed form, or is the non-compliant applicant thrust back to the end of the queue?

The Bill is unclear what becomes of objections by affected persons. The Regional Mining Development and Environmental Committee is to consider any objections and advise the Minister. Presumably the Minister will consider such advice when deciding whether to grant the prospecting right, particularly in assessing vague requirements such as whether the application would sufficiently further the objects of sections 2(d) and (f) (discussed below). Depending on how this is administered, this could create significant uncertainty that undermines the first-come first-served principle.

The method for notifying third parties is unspecified. The notification to interested and affected persons, depending on what is prescribed, could contain information that attracts other applicants and motivates the Minister to exercise discretion in their favour. It is unclear how long the applicant has to respond to issues raised and whether this has to be reflected in the environmental assessment, which is also due within 30 days.

The successful applicant has just 30 days to submit an environmental assessment, but the Bill gives no guidance as to the scope of this document. This imposes an unusual and significant cost before any rights have been granted.

Requirements for a Prospecting Right. The Minister “must grant” a prospecting right if the listed criteria are met.

The requirement that the granting of such right “will further” the objects referred to in sections 2(d)-black empowerment in the mineral industry-and 2(f)-advance employment and socioeconomic welfare of all South Africans-are at best vague and at worst entirely within the discretion of the Minister. The Minister, for example, might decide that it would not further the socioeconomic welfare of all South Africans to permit a union-blacklisted corporation to acquire further rights in South Africa. (This and other provisions of the Bill indicate that organized labour is to have substantial control over the granting, transfer and manner of exploitation of mineral rights.) The high degree of uncertainty concerning this criterion (which also applies to the granting of a mining right or the transfer of any right) is the most serious shortcoming in the Bill with respect the fundamental principles listed at the beginning of this commentary.

The applicant must submit the proposed prospecting programme and demonstrate financial capability to conduct the programme optimally. Given the later provisions requiring continuous and active adherence to the programme, backed by possible sanction of cancellation, it will be difficult to commit to a programme at the application stage. Presumably an applicant could demonstrate access to financial resources with financing conditional on the grant of the prospecting right, although this is not clear.

The Minister “must refuse” a prospecting right if the application does not meet all the requirements. If the Minister refuses, written reasons must be provided within 30 days.

The Bill does not address the status of an application pending notification and any appeal process. There is no certainty of tenure within the application process itself to justify the risk of making outlays to produce an initial environmental assessment, consult with interested and affected parties, prepare a prospecting programme, arrange demonstrable financial capacity and prepare submissions to persuade the Minister that black empowerment and labour objectives would be sufficiently advanced and that the prospecting would not result in irreparable ecological degradation or environmental damage.

An applicant has no advance indication as to the minimum duration of a prospecting right, which makes it difficult to assess whether the onerous application costs will be justified.

Prospecting activities must be commenced within 90 days from the date on which the prospecting right becomes effective and the holder must “continuously and actively” conduct prospecting operations, in addition to paying fees and other requirements.

The prospecting fees are to be prescribed. The basis of fee setting is undetermined.

The application process and the 90-day start-up requirement imply that an application would be pointless before the applicant was ready to formulate a prospecting programme. Murray, please clarify, uncertain as to meaning? The process does not contemplate the gathering of preliminary prospecting data for the purpose of developing the full prospecting programme. There is no provision for amendment of the prospecting programme.

The holder must comply with the terms and conditions of the right but the terms and conditions are nowhere specified in the Bill.

A holder may apply once for a renewal for a period not exceeding three years. A renewal application requires a detailed report of activities, a prescribed application form and a statement of the period for which a renewal is required. The Minister must grant the renewal if the application is in order and the applicant has complied with the Act and prospecting programme.

A maximum period of eight years is short by international standards. The availability of a retention permit alleviates this somewhat, but the conditions for a retention permit are onerous and retention permits are absolutely non-transferable.

The requirement to satisfy the requirements of an initial grant, as noted above, re-introduces the fundamental problem of Ministerial discretion concerning empowerment of blacks in the mining industry and advancing employment and socioeconomic welfare of all South Africans.

Further, the repetition of the initial grant process for every transfer, lease, or mortgage of any right could overwhelm the Ministry staff and result in substantial delays in getting transactions approved. The delays would be exacerbated by the opportunity for interest groups to pressure the Minister regarding discretionary criteria. The Bill makes no provision for extension of rights in the event of delays by the Ministry.

The shortcomings mentioned above might undermine bankability because restrictions on transferability and probable delays could render foreclosure an ineffective remedy for banks.

Initial Application for Mining Rights. The holder of a prospecting right for a mineral in an area has the exclusive right to apply for a mining right. The process is similar to the process for prospecting rights, including the notification of interested and affected parties, who have 30 days to make submissions.

As noted above with respect to applications for prospecting rights, the Bill is unclear what becomes of objections by affected persons. The Regional Mining Development and Environmental Committee is to consider any objections and advise the Minister. What about frivolous objections given the time value of money and the one time only renewals? Presumably the Minister will consider such advice when deciding whether to grant the mining right, particularly in assessing vague requirements such as whether the application would sufficiently further the objects of sections 2(d) and (f). It is unclear how long this could delay the application process and whether insubstantial objections could increase costs due to the time value of money expended in the prospecting work.

The successful applicant has just 30 days to submit an environmental assessment, but the Bill gives no guidance as to the scope of this document.

Requirements for a Mining Right. The Minister “must grant” a mining right if the listed requirements are met.

Again, the fundamental concern is the requirement that the granting of such right “will further” the objects referred to in sections 2(d)-black empowerment in the mineral industry-and 2(f)-advance employment and socioeconomic welfare of all South Africans.

The applicant must provide the “prescribed social plan.” Without regulations to define the scope of a social plan, this requirement is uncertain as to cost and potentially unsatisfiable by disfavored applicants.

The applicant must have a proposed mining work programme. It is uncertain what it is required to show that the mineral resource sought can be mined “optimally” in accordance with the mining work programme. Based on the later provisions on optimal mining and profitability (discussed below), we infer that “optimally” means in manner consistent with the demands of organized labour rather than the more globally accepted understanding of optimal mining equating withbased on productivity.

It is uncertain what is required to establish there will be no irreparable ecological degradation or environmental damage.

The Minister “must refuse” a mining right if the application does not meet all the requirements. If the Minister refuses, written reasons must be provided within 30 days. Again, there is internal appeal and possible judicial review after exhausting internal appeal.

The Bill does not address the status of a prospecting right (or retention permit) pending notification and any appeal process. Given the likely delays in a system that requires ministerial consideration for so many steps, a prospecting right might well expire during the mining right application process. The Bill does not address this.

An applicant has no advance indication as to the minimum duration of a mining right.

The prospecting fees are to be prescribed. The basis of fee setting is undetermined.

The holder must comply with the terms and conditions of the right but the terms and conditions are nowhere specified in the Bill. Presumably the terms and conditions include the basis upon which royalties are paid.

There is no provision for revision of the mining work programme.

Any person who intends to beneficiate any minerals mined in South Africa outside the Republic must obtain the written permission of the Minister.

The implications of this requirement are uncertain. The term “beneficiate” is undefined and therefore it is not clear precisely which activities would be caught. It is unclear, for example, whether a holder who sold a mineral to a third party in South Africa would become responsible if the third party exported the mineral without beneficiation. It is also unclear whether this would prohibit further, specialized refinement of small quantities of minerals for medical or space applications. Would it apply to third parties and highly sophisticated utilizations involving small quantities? This might also prevent metal fabrication close to end users outside of South Africa.

This provision would presumably be applied in a manner consistent with South Africa’s commitments under the 1994 Marrakech agreement establishing the World Trade Organization.

Optimal Mining and Profitability. The Minerals and Mining Development Board may recommend to the Minister to direct the holder of a mining right to take corrective measures if the Board establishes that minerals are not being mined “optimally” and that continuation of such practice will detrimentally affect the objects referred to in section 2(f)- to promote employment and advance the social and economic welfare of all South Africans. The Board is to consider the technical and financial resources of the holder and the prevailing market conditions. If the Minister agrees, she must notify the holder in writing of required “corrective measures.” The holder has 60 days to make representations in respect of the notice. The Minister may, on the recommendation of the Board, suspend or cancel a mining right for noncompliance.

The holder of a mining right must also warn the Board where prevailing market conditions cause the profit-to-revenue ratio of the mine to be less than six percent on average for a continuous period of 12 months, or if any mining operation is to be scaled down with the possible effect that 10 percent or more of the labour force, or more than 500 employees, are likely to be retrenched in any 12-month period. The parameters of the “profit to revenue” ratio are not defined and this of itself creates some uncertainty. The Board must investigate the socio-economic and labour implications of this and make recommendations to the Minister. The Minister may, on the recommendation of the Board and after consultation with the Minister of Labour, order “corrective measures.”

The term “optimal” is critical to these provisions (and in others discussed above) but is undefined. Given that a mine is a depleting resource, it would not be economically "optimal" to produce fully while there is oversupply in the market, as this could aggravate the oversupply and further weaken prices. However, we infer from its linkage to section 2(f) and the reference to the Minister of Labour, that “optimal” means in a manner consistent with the demands of organized labour. The Minister is to have the power to force mining decisions uneconomical to the holder, such as sinking a new shaft instead of a mine closing to await favourable prices. Murray How about …mining a depleting resource, which further aggravates oversupply and weakens prices instead of allowing closure of the mine and saving the resource until more favourble prices are sustainable?

The Board is to have 14 to 16 members. The composition is almost entirely unspecialized in mining. Up to 12 are to represent “any relevant department of State, organised labour, organised business, any relevant non-governmental organisation and any relevant community based organisation.” No more than four members will be other persons with appropriate experience, expertise or skill to enhance the Board’s capacity to perform its functions properly. The Board may be too unwieldy and lacking in expertise to formulate the recommendations required, except as technically simplified political injunctions.

The requirement to give “early warning” will be unattractive to publicly traded corporations, as this may send unwanted signals to the market. This requirement appears intended to alert unions so they can prevail upon the Board to recommend corrective measures.

There is no apparent limit on the nature of corrective measures that can be ordered.

Failure to implement a corrective measure is an offence. This is unsettling in view of the uncertainty about what kinds of corrective measures could be ordered. A holder should at least be permitted to forfeit its mining right rather than face criminal conviction for failing to implement corrective measures that are unacceptable.

Cancellation of Rights. The Minister has broad power to cancel or suspend rights if the holder is delinquent on any of several listed criteria.

Security of tenure is illusory to the extent the criteria for cancellation are uncertain. We observe that the need to attract business will limit the ability of the Minister to deny applications and impose restrictions; however, once a mine is operational, the incentive will be to favour short-term employment over long-term investment.

A holder must prospect or mine “optimally” or risk cancellation. As discussed above, this effectively gives unions substantial control over operational and economic decisions.

Before suspending or cancelling a right, the Minister must give written notice with reasons and afford the holder a reasonable opportunity to show why the right should not be cancelled or suspended. The Minister may direct the holder to take specified measures to rectify any such delinquency.

The cancellation provisions say nothing about the severity of breach required.

Failure to mine or to prospect according to the programme submitted upon application is a ground for cancellation, but there is no provision to apply for amendment of the programme.

The provision of inaccurate information is a ground for cancellation, without any requirement that the error was willful or material.

The process does not require that the holder must be given an opportunity to rectify the delinquency that gave rise to the Minister’s decision. The Minister “may” direct specified measures to rectify any delinquency.

A retention permit may not be transferred in any way whatsoever. The Minister is not given discretion to approve transfers of retention permits.

The retention permit system is entirely at the discretion of the Minister. Essentially, the Minister may deny retention permits if it would make the rights available to promote black empowerment in the mineral industry.

The retention permit system is too uncertain to alleviate any concerns about the short duration of prospecting rights. The holder must essentially be ready to commence mining.

The absolute inability to transfer retention rights is a serious impairment to bankability.

The time frames contemplated are too short and the one time issuances are unrealistic gGiven local conditions of access, rock mechanics as they apply to potentially unsafe ground conditions, work stoppages (unrelated or related) and financing conditions in a global market, there should be some ability to acquire retention permits to suspend mining activity during the course of the mining right.

Concluding Remarks

This Bill is plainly a significant improvement. However, the granting of rights, the transfer of rights and even the continuation of rights still depend on criteria that are extremely vague and leave too much discretion to the Ministry. This may be a discouragement to foreign investment because the rights are distinctlymarkedly different from many of South Africa’s main competitors and are likely to be viewed as insufficiently bankable. The PDAC remains concerned about the restrictions placed on the very earliest stages to confirm a geotechnical hypothesis for an area before applying for prospecting title, and once granted the rights remain insufficiently bankable and the Ministry will be too overwhelmed with workload and political pressure to sustain a workable system.

Accordingly, the most pressing submission for the Ministry would be to articulate much more precisely the application of black empowerment, labour and social plan objectives with respect to the granting and continuation of prospecting and mining rights. This would enhance bankability and reduce future demands on the Ministry itself.