Navigating The SA Legislative Minefield As A Junior Miner

By: Lili Nupen – Director at Nupen Staude de Vries

A report released last year by the Minerals Council South Africa’s Junior and Emerging Miners’ Desk titled The extent, nature and economic impact of the junior and emerging mining sector in South Africa showed that during the 2018 financial year, the junior mining sector contributed approximately R54-billion to the economy, representing 7.6% of the mining sector’s total revenue. This is not an insignificant figure and is rather surprising, in light of the various regulatory hurdles the junior miners are required to overcome in order to operate in South Africa.

The main challenge being the onerous regulatory and licensing regime which the juniors are required to comply with. This regime happens to be the exact same regime applicable to the majors who have been around for years, have far greater access to funding than the juniors and are able to, generally, weather exceptional economic circumstances such as COVID-19, where many juniors barely make ends meet or unfortunately buckle.

When questioned as to what the single biggest challenge has been for the junior miners, the overwhelming response has been accessing the requisite funds to be granted a mining right and then having sufficient resources to retain this right. The retention of a mining right requires strict compliance by the holder of a mining right with the myriad requirements and compliance criteria imposed on all mining companies equally from the Department of Mineral Resources and Energy, the Department of Environmental Affairs, Forestry and Fisheries, the Department of Human Settlements, Water and Sanitation as well as the municipalities, landowners, suppliers etc. This is in addition to the demands and requirements placed on juniors by the unions, communities, traditional councils and other stakeholders. Interestingly, the report says 88% of difficulties were experienced by juniors before the stage where production had even commenced.

A few of the regulatory requirements imposed on the junior miners (and equally on the majors) include the maintenance of proper records, the meeting of all reporting obligations on matters regulated under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA), the National Environmental Management Act, 1998 (and all related legislation) and the National Water Act, 1998. In addition, junior miners are faced with having to ensure that the properties on which they intend to mine are correctly rezoned in terms of the applicable by-laws prior to commencing with operations and that landowners permit them on to the properties, potentially for a rental fee.

“While the big mining companies have the financial muscle to create technical departments and employ technical people and lawyers to engage with the regulator, often junior miners do not have this luxury. While the Department of Mineral Resources and Energy has been increasingly approachable and engaging over the years, the base legislation, being the MPRDA, and more specifically the recent regulations promulgated under the MPRDA, seem to be similar to those of a first world country and are applied across the board to all mining companies equally. They do not differentiate between junior miners and big mining companies. While it is easier for the big mining companies to comply, it is extremely difficult for junior miners to, and as a result, junior miners are often unable to do business and create necessary jobs,” says a CEO from an established South African junior miner.

The only policy document that attempts to differentiate between the juniors and the majors is the new Mining Charter, 2018. This has aimed to provide relief for junior miners by providing exemptions for reporting on Mining Charter compliance in certain reporting requirements. These include employment equity and inclusive procurement where junior miners with an annual turnover of less than R10-million and with fewer than 10 employees are exempt from reporting on compliance with these elements. This seems to be a step in the right direction.

Following the outbreak of COVID-19 in South Africa, it is anticipated that junior miners will be at an even further disadvantage as they have been required to cease operations and then allowed to operate at a reduced capacity, while obligations to comply with the regulatory framework, such as to perform in terms of social and labour plans, have continued throughout, without the benefit of continuous income. Furthermore, given the impact on the global economy, the requisite funding commitments (both local and global) which have been made to these junior miners may in all likelihood not be met, resulting in retrenchments and potential business rescue and/or liquidation proceedings commencing.

At this uncertain time, the Mineral Resources and Energy minister has issued directions in terms of the regulations published in terms of the Disaster Management Act, 2002 to provide for measures necessary to manage COVID-19 within the mining industry. The directions are valid for the duration of the declared national state of disaster and provide for an extension of time which will be allowed in relation to applications submitted under the MPRDA; the submission of renewal applications, appeals and compliance with directives issued. Similar directions have been issued by the minister of Environmental Affairs, Forestry and Fisheries.

Despite the extension of time permitted, there is no reprieve for junior miners insofar as compliance is concerned, and they will still be required to comply with all the legislative requirements following the lockdown period. This carries a significant cost with it, as well as a level of uncertainty, which in turn affects the appetite of international investors.

Given that compliance has been highlighted as an overarching concern for junior miners and before any much-needed legislated reforms are implemented, there is clearly a need for a system to be implemented that eases this burden and assists mining companies with ensuring that the onerous compliance requirements are met.