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Barry Sergeant and Peter Leon, South African mining sector expert and a partner at Webber Wentzel, examine South Africa's new mining charter and the implications for investors
BARRY SERGEANT: I'm in conversation with Peter Leon who is a partner at Webber Wentzel in Johannesburg. Peter, the past couple of months - if one can put a time frame on it - have been pretty tumultuous in the South African mining sector. We've had the aftermath - not that the story's over - of the Kumba Iron Ore / Imperial Crown Trading (ICT) debacle. We also had South Africa's Mineral Resources Minister Susan Shabangu - it seems like only weeks ago - saying there's going to be an overhaul of the main mining legislation the 2004 The Mineral and Petroleum Resources Development Act (MPRDA) and a moratorium of six months for new prospecting licences. With that still in the air, just this week we are given the revised Mining Charter and you've already raised some serious concerns about that Charter - do you want to mention some of the main points there that you picked up on?
PETER LEON: Yes, obviously it has been a tumultuous time, but one must also say that the Minister has tried through her statement of 17 August 2010 to put things in the right direction in terms of trying to make sure that the Act is amended and the industry is put back on course. One must welcome those sort of statements - of course the issue is going to be to what extent is that actually become a reality, in other words, does that get put into effect and the Act is amended in the way that she's talking about. In terms of the amendment to the Mining Charter - I've already got two or three major concerns - the one is it now seems to me the Charter unlike what it was previously - and effectively the Charter's been rewritten - now has the force of law and non-compliance with it entails consequences which could result in a mining company losing its licence which I think is very severe and goes well beyond what was in the Charter originally. If you look at the original Charter of October 2002 it was really consensual an agreement between the industry, government and labour setting a course for the transformation of the industry - now the document seems to become a lot more prescriptive with pretty dire consequences if it's not complied with. The second issue in relation to the Mining Charter is the ‘soft targets' in the original Charter - the aspirational targets for 40% black management and so on have now all become hardened so that these are now actual concrete targets that the industry is going to have to reach by May 2014. I have some concerns about whether that is going to be achievable. Obviously the Chamber of Mines have gone along with this so presumably they think the members can meet these targets - bearing in mind even the equity targets weren't reached by May 2009 - I'm a bit sceptical as to whether all these targets are going to be reached by May 2014 which is less than four years away so that's another point. Then the final point I would just make is where obviously it's very good news that the 26% - the equity target hasn't been changed and I give credit to government and the chamber for achieving that. Clearly the requirements for meeting that target and the benefits to the beneficiaries have been tightened up considerably and they're going to have to receive economic benefit from these investments even though they're not shareholders and really be treated as shareholders - although as a matter of company law they are not - there are going to be some interesting consequences arising out of that.
BARRY SERGEANT: Very much so - just from a technical legal point of view - when we were told a few weeks ago by the Minister that the MPRDA is going to be revised - how is it that a few weeks later we get a revised Mining Charter which as you say appears to have a force of law. How do those two stream along side of each other - there seems to be a contradiction?
PETER LEON: Well the answer is sadly they don't. You must understand the Mining Charter review started in 2009 with the Department already doing this thing on their own and they employed a firm of consultants, as I recall it, who produced a report which was kept under wraps and was given to the industry late last year or the beginning of this year and then fortunately through the Municipal Infrastructure Grant (MIG) debt process, this tripartite process involving government, labour and business, better sense prevailed and the department didn't do what's it's done in the past which is just do the review itself and then spring it on the industry. The Mining Charter review is basically taken into MIG debt, which is a good thing. If you look at the mining declaration, which came out at the end of June, I would say something like 80% of that declaration is actually in the Mining Charter review itself. So in other words that process - the Mining Charter review was actually going on right through this year and the Minister's announcement on 17 August was very much the result of what had happened with ArcelorMittal, Kumba, ICT and Lonmin. So in fact they are different processes and if you look at them without knowing all of that, it would seem to be contradictory but there is a reason for it and that is basically what has happened over the last couple of months.
BARRY SERGEANT: Just looking a bit broader, you're chairman of the Mining Law Committee on the International Bar Association. How does South Africa sit in broad terms, in the international arena at this stage - in other words how does the legislation which has once again been changed, how does it rate on an international basis comparable to other mining jurisdictions?
PETER LEON: It's a good question - unfortunately it doesn't rate very well - you could see that the Fraser Institute report of March 2010, although we did a bit better in their interim report in June - but the reason it doesn't rate very well is because there's too much discretion in the Act - there are no time limits in the Act. Until very recently there was no proper mining cadastral where we could claim information on mining titles in real time and wanted to know who had applied for what. So a lot of defects in the law - if you look at other mining jurisdictions like Ghana in Africa for example, the mining licences are granted by an independent commission, and not by the government at all. The president has to act on the advice of the Minerals Commission. And Chile for example, another very successful mining jurisdiction in the developing world - mining licences are granted by a judge, which is even more extraordinary. So you look at all the problems that we have with the Act, we just don't rate very well. In fact through the International Bar Association (IBA), we're actually working on a project, which will be launching in Vancouver at the beginning of October to develop a model mining development agreement for developing countries - and South Africa could take note of what the IBA are doing there.
BARRY SERGEANT: Without being specific about individual clients, what kind of feedback have you had over the past couple of months - or what kind of questions or concerns are coming from your client base about mining in South Africa - whether it's prospecting or mining or M&A?
PETER LEON: People are very concerned - the concern is not just amongst my clients, but amongst the investor community - I was in London recently where there were a number of institutional investors present at a conference I addressed on the future of the mining industry. People are worried about their title - to be quite frank. They're worried about the security of the rights that they have and whether there is an opportunity for opportunistic behaviour where those rights get taken away. So there is a concern about that and the concern is: is the government actually going to live up to the promise of amending this law - fixing it and avoiding the problems we've seen with Lonmin and with ArcelorMittal in the last couple of months.
BARRY SERGEANT: What kind of confidence does the industry express on exactly that point that the politicians will come to the party and deliver - we have had statements coming from various vested interests about nationalisation - there's been a lot of noise about that recently. That has been troubling the atmosphere - it's been muddying the waters.
PETER LEON: Yes - I have to say that the sort of senior leadership level - the governing party represented by the minister and indeed the president, have been quite forthright in saying nationalisation is not the ANC's policy. In fact Kgalema Motlanthe, deputy president was in London this week, as you know, making exactly that point to investors and the international media. But obviously people are concerned as to what is going to come out of the ANC national general council meeting in Durban next week, and whether the ANC Youth League's threat to nationalise the mining industry can be carried forward to the party's five-yearly conference in December 2012. So the noise around nationalisation, plus all these issues over mining title make for an unsettled atmosphere and that's why it was very important for the minister to make that announcement on 17 August that the law was going to be amended. But the proof of the pudding is going to be in the eating and the issue is going to be - do all these issues get fixed next year, and how quickly is the department going to produce an amendment Act.
BARRY SERGEANT: We live in interesting times - there's no question about that - no doubt we're going to be speaking again soon...
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