Wiseman Khuzwayo

The administrativE and practical implications of state intervention in the minerals sector have not been adequately considered, according to a report from law firm Webber Wentzel.

The issue is a hot topic at the ANC’s policy conference, where the party’s research document is being debated.

The proposed restructuring of the mining industry through the use of resource rents for socio-economic development is fraught with administrative, constitutional, foreign investment, tax and trade law implications, say the authors, Peter Leon, the head of Africa mining and energy projects at Webber Wentzel, and Jonathan Veeran of the firm’s mining energy and natural resources department.

They say the report by the ANC’s policy institute, titled “State Intervention in the Minerals Sector: Maximising the developmental impact of the people’s mineral assets” (Sims), has created considerable regulatory and fiscal uncertainty.

“If the proposals translate into policy, mining companies would be exposed to increased state control, higher HDSA (historically disadvantaged South Africans) equity targets, additional taxes and lower profit margins.”

They say a number of mining operations and investments will be adversely affected if the proposals are implemented as government policy.

“This is… more so given the fragile state of the global economy and the euro zone in particular, South Africa’s major trading partner.”

They say the Sims report suggests that it be made “absolutely clear that mineral rights are not included in property rights and belong to the people as a whole”.

Leon and Veeran say the report unfortunately does not provide details of the manner in which prospecting and mineral rights should be distinguished from property rights.

They add that the distinction between property rights and new order prospecting and mining rights could be drawn by amending section 5 of the Mineral and Petroleum Resources Development Act (MPRDA) in order to define prospecting and mining rights as merely personal rights, which are lesser in legal status and scope than limited real rights, or amending section 25 of the constitution to exclude specifically new order prospecting and mining rights from the ambit of its protection.

The authors say section 25 prohibits arbitrary deprivation of property, but permits expropriation under certain conditions. An amendment to section 5 of the MPRDA, which reduces prospecting and mining rights to personal rights, could not affect the scope and standard of constitutional protection furnished to a prospecting or mining right holder and would be a violation.

Foreign investors, they note, may qualify for protection under international investment law if their country of nationality or incorporation has concluded a bilateral investment treaty with South Africa.

While the Sims report rejects the nationalisation of mines, it suggests the nationalisation of targeted mineral extraction. This may refer to the possible nationalisation of mines that extract “strategic minerals”, the authors say, but this may well be unconstitutional.