Peter Leon law firm Webber Wentzel and chairman of the mining law committee of the  International Bar Association comments:

The latest Fraser Institute’s Annual Survey of Mining Companies, which aims to establish how mineral endowment and public policy factors such as taxation and regulation affect exploration investment, shows South Africa has fallen 12 ranking positions in the  2009/2010 year to 61st out of 72 jurisdictions.

The Canadian based institute sends its survey to approximately 3 000 exploration, development and other mining companies around the world.

South Africa is now hovering just outside the ten worst ranked jurisdictions for mining investment globally and is the third worst ranked country in Africa, ahead of only the Democratic Republic of Congo and Zimbabwe.
Over the past decade South Africa has steadily fallen in the Survey’s policy potential index rankings from a position of 27 out of 47 ranked jurisdictions in the 2002/2003 survey to 61/72 in the 2009/2010 survey.  In the 2008/2009 survey, SA ranked 49/71.

It is no coincidence that South Africa’s ongoing fall in the Fraser rankings has coincided with the reform of South Africa’s minerals ‘  legislation with the introduction of the Mineral and Petroleum Resources Development Act (MPRDA) in 2004, as much as how the Act has been implemented.

The main factors causing the fall in South Africa’s rankings between this and last is uncertainty concerning “native land claims” and the overall security situation. Other factors which have contributed to the fall, albeit less significant, include the taxation regime, political stability, and availability of labour and skills.

The ongoing debate about mine nationalisation has also been a factor.  The uncertainty surrounding the MPRDA Amendment Act 2008, which, after being signed by then President Kgalema Motlanthe on 21 April 2009 still awaits the proclamation of a date upon which it will enter into force may well be another factor.

However, the outlook for the future is brighter.

The Department of Mineral Resources, under the leadership of Minister Susan Shabangu, has this year, shown a real commitment to turn around South Africa’s mining sector through a tripartite consultation process.  This consultation has primarily taken place through the Mining Industry Growth, Development and Employment Task Team (MIGDETT), comprising mining companies, labour and government.

MIGDETT has met since December 2008 and recently made recommendations on how to create sustainable growth in, as well as transform, the mining sector at the Mining Summit organised by the DMR on 30 and 31 March 2010.  A draft document entitled the “Strategy for the Sustainable Growth and Meaningful Transformation of South Africa’s Mining Industry” was adopted at the Summit and aims to provide the basis upon which the South African mining sector’s global competitiveness can be enhanced through, among other things, infrastructural development and regulatory reform.

Minister Shabangu has called for the country’s mining laws to be amended by early 2011, and if this process proceeds as envisaged, there is no reason to think that South Africa cannot improve substantially on its Fraser Institute score in 2011.
The Fraser Institutes Annual Survey of Mining Companies for 2009/2010 is available at: http://www.fraserinstitute.org/commerce.web/product_files/miningsurvey2009-2010.pdf.

Peter Leon, head of natural resources and regulatory at Webber Wentzel in Johannesburg, and also chairman of the mining law committee of the International Bar Association (IBA), said that Shabangu’s statement that nationalisation would not happen in her lifetime in her post speech press conference, was likely to be welcomed by foreign and domestic investors.

“Her speech seems to mark a significant departure from her and the governments previous hard-line approach towards the South African mining industry.

“Today the Minister’s stance was far more inclusive and facilitatative.

“Most encouragingly, she said that the controversial MPRDA (Mineral and Petroleum Resources Development Act) amendment act, signed by the president last April, would not be implemented until all stakeholder concerns had been addressed.

“She also indicated that the contentious codes of good practice would be reviewed.”

Last year’s much criticized codes of good practice attempted to amend the Mining Charter retrospectively by, amongst others things, requiring that BEE (Black Economic Empowerment) transactions had to be fully paid for within two year of the deal.

This is impractical as most BEE transactions are highly leveraged and long term in nature and therefore would require most mining BEE deals to refinanced at high cost in challenging economic conditions.

Leon noted that the government’s prescriptive approach to the mining industry is being softened and that for the first time since SA mineral regulatory reform began 10 years ago, a government minister had recognised that transformation and international best practice are not mutually exclusive.

“They can work together for the benefit of the country as a whole,” said Leon.

“Of course we have to wait and see what comes out of the March mining summit but these are early positive signs.”

The March summit brings together Government, business and labour to discuss sustainable growth and meaningful transformation in the South African mining industry.