Minister’s speech still offers optimism

CAPE TOWN – There has been muted reaction to the keynote address delivered by the Minister of Mineral Resources Mosebenzi Zwane at the 2016 Investing in African Mining Indaba. While the speech touched on a number of areas of concern to the industry, it gave very little by way of specifics.

Jonathan Veeran, partner in the Africa Mining and Energy Projects Practice at Webber Wentzel, called the speech “positive but neutral”.

“He mentioned the right themes but gave no specificity regarding timelines to implement the changes he mentioned or what those changes might entail,” Veeran said. “Overall, we are doing the right things, but there is just no detail to give the industry high levels of confidence.”

One of the specific questions industry participants might have liked more clarity on is the state of the Mineral and Petroleum Resources Development Act (MRPDA). The legislation was referred back to parliament by the president due to constitutional concerns in January last year, but there has since been little clarity on its progress.

Veeran suggested one of the difficulties with the bill is that it has to go through the parliamentary portfolio committee, but the members of that committee have changed from when the legislation was first promulgated in 2012. This is one of the reasons it is being delayed, but the minister did indicate in the press conference following his speech that he was trying to encourage more urgency.

“The minster indicated that he is engaging with the speaker and the portfolio committee to get it done,” Veeran said. “There is an appreciation that something needs to be done and quickly, but that said, he didn’t give any timelines.”

Head of the mining sector group at Bowman Gilfillan Charles Young was not, however, optimistic about a quick resolution.

“The minister gave the right message that regulatory uncertainty is a key concern, and they are dealing with it as a matter of priority,” said Young. “But from my perspective we still have a long way to go and it’s not going to be resolved any time soon.”

He added even though having the legislation finally enacted would end some uncertainty, it is not a panacea.

“It will fix some uncertainties but also create new ones,” Young said. “Section 11 is a clear example, as it raises questions around a number of things, such as whether you will need government approval for the disposal of any share in a private company or only in the case of a change of control. From a practical perspective, that is very material. So it’s going to be interesting to see whether that section is revisited.”

One issue that Zwane only mentioned obliquely was the State-owned mining company, or ‘champion’, as it has come to be referred to. This was a major part of the speech delivered by the former minister Ngoako Ramatlhodi at last year’s event.

The major development in this regard is the draft African Exploration Mining and Finance Corporation bill was published for public comment at the end of January. It outlines how the State-owned company will acquire and develop mining permits, mining rights and mining interests granted to it on behalf of the state.

There have been a lot of questions around how this would work, but there is also a sense that there could be a place for it.

“A lot of corporate and M&A activity at the moment is being driven by decisions around companies restructuring or selling non-core assets,” said Young. “And I suppose as part of that mix, the State-owned mining champion could be a potential purchaser or consortium member. For government it’s better from a socio-economic and employment perspective for a mine to continue than to close its doors.”

Claire Tucker, head of public law and regulatory at Bowman Gilfillan, added that discussions around a State-owned mining champion also need to be considered in the context of discussions around the Mining Charter.

“The big thing on the cards this year in South Africa is going to be the Mining Charter,” said Tucker. “It is going to be a year of further soul searching on the issue of empowerment.”

She indicated that the question of once empowered, always empowered needs to find a solution.

“Evergreen empowerment transactions where investors can never cash out seem just to be a kind of self-perpetuating problem,” she said. “One of the things that has been mooted is that there could be a stage at which the State mining company buys that stake and holds a portion of the black equity as a way to create a more sustainable solution which will also allow your empowered shareholders to exit and realise some value.”

The biggest question around the state mining champion, however, remains how it will be financed.

“If it’s not run to make a profit it can run into some difficulty,” said Veeran. “One of the powers they are seeking for the company is to appropriate funding directly form the fiscus. But you don’t want to put a strain on already stretched government finances.”

However, he argued that a State mining company can be both beneficial and profitable. He pointed to the example of Vale, which was started by the Brazilian government and is now one of the three largest mining companies in the world.

“There is potential for it, but it needs to be done the right way, and we need to review if this is the right time for it to be done,” Veeran added. “It needs to be assessed on where there is the potential to acquire potentially profitable assets at a fair price in this climate.”

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