South Africa: The Evil Triplets And The Mining Industry

Last Updated: 2 February 2012
Article by Sekai Chiwandamira and Tiyani Majoko

Without Prejudice December 2011

In a speech delivered on 2 August, Minister of Mineral Resources, Susan Shabangu, gave a stern warning to the mining industry when she indicated that the Department of Mineral Resources (DMR) is serious about the implementation of measures to address the "evil triplets of poverty, inequality and unemployment" faced within the communities where mining operations are conducted.  

Legal nature of a mining right

The Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) illustrates that the holder of a mining right, granted in terms of the MPRDA, has a limited real right in respect of the minerals or petroleum in the land to which such right relates.

The court held in the Meepo case  that the granting of a mining right is contractual. It found that the minister is a representative of the state, which is the custodian of mineral resources in South Africa. Furthermore, it found that an applicant is granted a limited real right by the DMR for a specified duration, mineral, surface area, subject to the conditions determined or agreed on. Regulation 12 to the MPRDA reiterates the court's view when it states that the terms and conditions of a mining right agreed upon will be approved by the minister.

What are the terms and conditions of a mining right?

The MPRDA sets out a number of terms and conditions to which the holder of a mining right is obliged to adhere before the minister grants the mining right. s23(1)(b), (e) and (h) highlight the said terms and conditions imposed on the holder of a mining right namely:

(b)    The applicant has access to financial resources and has the technical ability to conduct the proposed mining operation optimally;

(e)    The applicant has provided financially and otherwise for the prescribed social and labour plan; and

(h)    The granting of such a right will further the objects referred to in s2(d) and (f) and in accordance with the charter contemplated in s100 and the prescribed social and labour plan.

s2(d), (f) and (i) stipulate some of the objects of the MPRDA which are to:

(d)    Substantially and meaningfully expand opportunities for historically disadvantaged persons, including women, to enter the mineral and petroleum industries and to benefit from the exploitation of the nation's mineral and petroleum resources;

(f)    Promote employment and advance the social and economic welfare of all South Africans; and

(i)    Ensure that holders of mining and production rights contribute towards the socio-economic development of the areas in which they are operating.

Furthermore, it is interesting to note that the objects of the MPRDA specifically address the terms and conditions with which the holder of a mining right is obliged to comply for purposes of addressing the "evil triplets".

The holder v the custodian

As already mentioned, the state is the custodian of the mineral and petroleum resources, which are the common heritage of all the people of South Africa, and the Ministry is a representative of the state. s24(b) of the Constitution of the Republic of South Africa  adds a further emphasis with regards to the role of the Ministry.

The MPRDA has made provision in s23(1)(d) for the preservation of the environment in terms of which the Minister must grant the mining right, if it will not result in unacceptable pollution, ecological degradation or damage to the environment.

The Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (Mining Charter) illustrates that mineral resources are non-renewable in nature and their exploitation must (in line with the Constitutional provisions for ecological, sustainable development and use of natural resources) emphasise the importance of balancing concomitant economic benefits with social and environmental needs without compromising future generations. This explains the paternalistic manner of the Ministry with regard to the protection of the mineral resources.

The DMR's mechanisms to address the "evil triplets"
One of the striking objects of the MPRDA is to ensure that all people, especially those seen as historically disadvantaged South Africans, are able to benefit from the mining activities in their communities. This must be in line with s25(4) of the Constitution, which stipulates that every individual must have access to the natural resources of the country.

The MPRDA and the Mining Charter are mechanism tools that the DMR has adopted to ensure that the holders of the mining rights are committed to the development of the community through their various undertakings. For instance, s25(2)(h) provides for the holder of a mining right to submit a prescribed annual report, detailing the extent of compliance with the provisions of s2(d) and (f), which deal with the expansion of opportunities for historically disadvantaged persons, the promotion of employment, and the advancement of the social and economic welfare of all South Africans. Ultimately, the holders of the mining rights would have used their own discretion in determining both the undertakings and the amounts committed to. If there are any changes to the documents submitted pursuant to the application of the right, for example the company can no longer afford to employ as many people as were initially contemplated, they may submit an amendment to their mining right in terms of s102.

In addition to this, s93 of the Act stipulates that any authorised person may during office hours, without a warrant, enter mining production in order to inspect any operation carried out and require the holder of the right to produce any book, record statement or other document for inspection. One of the reasons for these inspections is to ensure that the holder is complying with the undertakings that have been made in the Mining Work Programme, Social and Labour Plan, and Environmental Management Programme are complied with.  

The holder of a mining right is required to report back in terms of compliance with the Mining Charter and must ensure that by 2014 there will be 10% participation by women and a 26% ownership by historically disadvantaged South Africans. Furthermore, the holder must adhere to the Mining Charter's scorecard, which dictates that BBBEE codes have a target of 1% of net profit after tax and must be spent on mine community development projects.

The consequences of non-compliance

The mining right granted to an applicant is not absolute. It can be suspended, cancelled or terminated by virtue of s47 and s93. s93 of the MPRDA allows for an authorised person from the DMR to suspend or terminate the right, if the holder does not comply with the terms and conditions agreed upon or contravenes any provisions of the Act. The order must be confirmed by the Director General for it to have effect. Furthermore, s47 of the MPRDA provides for the Minister to cancel or suspend a mining right, among others, if the holder breaches any material term or condition of the right. This was recently illustrated when on 26 September the DMR served a s47 notice on Central Rand Gold (CRG) cancelling its mining rights.

But practically speaking, what happens if the holders experience challenges and are therefore unable to implement these tools? Does this mean that they are now at the mercy of the DMR and there is no room for compromise? For example in the CRG matter, the company was committed to spending R32.9 million on its social labour projects during its first two years of operation.  Due to the various operational challenges it faced, it was only able to spend R18.8 million.  This example illustrates some of the challenges faced by mining companies in complying with the MPRDA and the Mining Charter. With this in mind, one wonders if the DMR looks at the holder of the right's circumstances before issuing the notices mentioned.

It would appear that government and trade unions' perception of the Mining Charter as good tool for transformation is one not being embraced by the mining industry.

When served with a s93 notice, production comes to a stop. Can the mine afford that? When the right is taken away in terms of s47 the impact is jobs losses, loss of production and the possibility of not acquiring another licence. The relationship between the holder of a mining right and the custodian of the mineral resources is weakened as the "evil triplets of poverty, inequality and unemployment" remain unresolved. Until both the holder and custodian of the mineral resources meet each other halfway in terms of compliance, the "bogeyman" called nationalisation to be laid to rest because, for some parties, this is the only solution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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