In the mining industry, where huge capital is required to develop projects and construct mines, the ability of the listed company to raise funds on the stock exchange is crucial. However the Mineral and Petroleum Resources Development Amendment Bill, 2012, published in December, could severely hamper South Africa's capital raising capability.
This is according to Otsile Matlou, Director and Head of Mining at ENS (Edward Nathan Sonnenbergs), who says the concern is with regards to amendments to Section 11 of the Mineral and Petroleum Resources Development Act of 2002 (MPRDA).
"If this amendment ever became law, then South Africa's ability to raise much needed funds for mine development and production from the capital market would essentially cease to exist. This would put an industry, already suffering from the effects of a devastating industrial action and a weak global economy, into greater difficulty," he says.
Otsile explains that the implementation of the MPRDA gave the State custodianship of the mineral resources on behalf of the people of South Africa. Section 11 of the MPRDA was crafted as an anti-avoidance provision to ensure that parties do not circumvent the objects of the MPRDA through skillful commercial structuring.
According to Matlou, Section 11 was designed to tackle two types of transitions: asset transactions (involving the transfer, letting, assignment or disposal of mining and prospecting rights or any interest in such rights) and share transactions (involving the disposal of a controlling interest in a company which holds mining or prospecting rights).
"Parliament realised that many mining companies, including the leading mining houses such as Anglo American, AngloGold Ashanti, BHP Billiton, Gold Fields, Impala Platinum and Lonmin, are listed and their shares are traded daily. An exception was built into section 11 exempting changes of control of listed companies from the requirement that the Minister of Mineral Resources must consent to each and every change of control of a listed company," he says.
However, in 2008, following four years of implementing the MPRDA, the Department of Mineral Resources (DMR) http://www.dmr.gov.za/ identified certain loopholes in the wording of section 11. Matlou says Parliament sought to address these in the Mineral and Petroleum Resources Development Amendment Act, 2008 by, inter alia, increasing the ambit of section 11 to cover every disposal of any shares -even one share - by a mining company.
According to Matlou, this amendment did not address the loophole in section 11 but rather seemed to increase the difficulty of commercial enterprise in the mining industry. "Although the State's custodianship of the mineral resources has been widely accepted in the mining industry, the experience of mining companies between 2004 and 2008 was that section 11 consents took too long to be granted.
By increasing the ambit of section 11 to cover every disposal or acquisition of any interest or share, all that Parliament was doing in 2008 was to overburden the already stretched capacity of the DMR to process section 11 applications and the 2008 Amendment has not come into force," he says. The 2008 Amendment has not come into force.
Matlou says the 2012 Bill went a step further in regard to section 11 by proposing to delete the listed company exemption. In simple terms, he says this means that each time a share of a listed mining company is traded on the stock market, either on the Johannesburg Securities Exchange or elsewhere, the Minister must consent.
"However, it's clear that the Minister and the DMR do not have capacity to do so. Even more problematic is the impact of this proposed amendment on capital markets. If the amendment became law, shares of listed companies will effectively cease to be tradable. Clearly the State is encountering problems with how some in the mining industry are structuring transactions to circumvent the objects of the MPRDA.
It is therefore necessary to enact laws designed to deal with this. Such laws must be clear and precise. In addition, the capacity of the DMR to execute its function of regulating the mining industry must be increased," he says.
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