Posted: ’01-JUL-04 08:00′ GMT – – Archive

MINEWEB: Time now to have a look at the mining sector and my colleague Stewart Bailey is in the studio. More controversy. It seems like tonight is full of controversy, Stewart?

STEWART BAILEY: Full of controversy and about a month ago, Mineweb ran a small story, based on an interview with the Director-General of Minerals and Energy. In that interview we were told that prospecting licences on government property – trying not be too complex – would only be granted to companies that had a 51% black shareholding. Now you might be forgiven that’s a small story, especially because it covers prospecting. And, as you know, in South Africa prospecting has never been a big part of this industry. We are focused on big mega-operations – platinum, gold, coal and what not. But the broader implications are starting to be felt here. What it means is that few, if any, foreign companies are going to spend money looking for new mines in South Africa. After all, why should they, if there’s no chance that they are ever going to control any mine that they find?

MINEWEB: When you say “government property”, is that the country? Are all mining rights belonging to government, unless they have signed them over to people?

STEWART BAILEY: What they’re saying is government property covers any property that the government owned before May 1st this year – so that wasn’t owned by any of the major mining companies. So anything that wasn’t owned by the mining companies, effectively. If anyone wants to look for any minerals on those properties, if they want to spend money looking for them, it has to be a black-controlled company that gets the licence to do that. If you are not a black-controlled company, no licence. Now the new rules caused quite a stir among international mining juniors, many of whom are already operating in South Africa. A lot of them have threatened to pull out, a lot of them off the record to us, actually. But we will wait for them to put their names to that. What is interesting though, is that we’ve looked through all the new legislation and we haven’t found this 51% rule in any of the law books. So go figure.

MINEWEB: Well, Hume Scholes, who is a consultant on mining and mineral legislation to the legal firm Werksmans, joins us now. That last point that Stewart made there, Hume, about not being able to find the 51% in any of the regulations – what does that actually mean?

HUME SCHOLES: To explain the issue comprehensively, unfortunately you have to look at two different legislative dispensations. And the first one is the old system, under the Minerals Act and the common law, which effectively changed on 1 May 2004, when the Mineral Development Act was promulgated as effective legislation. Under the old system, as Stewart correctly pointed out, the state did own some mineral rights, separately to mineral rights which are privately owned by, as Stewart gave an example, major mining companies. Under the old system, the state could impose any conditions it liked upon applicants for the right to prospect or mine for state minerals, because it owned those mineral rights. It’s like if I own a building and you come to me, and you ask me to lease the building, I can put any conditions in that lease which I want – it’s my building.

MINEWEB: And I don’t have to come and lease from you.

HUME SCHOLES: Exactly. If you don’t like it, go away. Under those circumstances, the state was entitled to put in a 51% requirement, because the state owned those mineral rights. Where the controversy has arisen is that the industry understood that when mining companies convert their rights from the old system to the new system, the state would require of them a 15% participation interest by historically disadvantaged persons in five years, and a 26% participation interest in 10 years.

MINEWEB: That’s the mining charter.

HUME SCHOLES: That’s the charter and the scorecard, correct. What has happened now, is the state has come back and said that, if it’s an application, a new application for a right under the new legislation, we will now also require a 51% participation by historically disadvantaged persons, as we were entitled to do under the old system, when we owned the rights. Everybody was expecting that, when you convert your rights to the new system, or you apply under the new system, the same 15 to 26% threshold would apply. But now the government has come out and said that is not the case.

MINEWEB: Let me just understand this correctly – if I had mineral rights under the old system, and I’ve now applied to convert the mineral rights, knowing that I must have 15% black shareholding and then 26% in ten years time, that should be sufficient for me. Now if I try to convert, I know that I can’t do any exploration unless that is 51% black held. Is that right?

HUME SCHOLES: Yes and no. If you had what the Mineral Development Act in Schedule 2 calls an “old order prospecting right” or an “old order mining right”, which means you held mineral rights under the old system, plus a prospecting permit or a mining authorisation, meaning that you were actually turning them to account, you could then convert to the new form of prospecting rights or convert to the new form of mining rights. In those circumstances, you require the 15 to 26%.

MINEWEB: Phew, I’m getting a little mixed up here, and I think that probably the guys in the mining sector know exactly what you’re talking about. But perhaps we can move to the next issue, which is what’s going to happen from here? If foreign companies don’t like this, they don’t want to come and mine, I suppose that’s one thing. But the South African majors – will they be put at any disadvantage?

HUME SCHOLES: Where they had unused rights under the old system, what I called unused old order rights, which they do not convert, but they apply for the new form of rights, they would also need that 50-plus-one percent under the new thinking that has emerged from government. So they would be subject to the same constraints.

MINEWEB: Let me understand this. If they then want to build a new mine, 51% of that new mine has to be black owned?

HUME SCHOLES: If they want to exploit rights which they had not exploited before, they would need 50-plus-one, yes.

MINEWEB: All right. I think I’m getting the picture.

HUME SCHOLES: Just to make it clear, based on the use-it-and-keep-it or use-it-or-lose-it principle, if you were prospecting or mining for rights under the old system, the government is saying you can continue to do that in the new system, on a 15 to 26% participation by historically disadvantaged persons. If you owned mineral rights under the old system, which you are not using, to acquire the right to then use it under the new system, you need the 50-plus-one percent.

MINEWEB: David, are you 100% in touch here?

DAVID SHAPIRO: Almost. It is very subtle, and very difficult to understand. But I’m getting the grip. So if you were already working those rights, and I think participating, then you only have to do 15 to 26%. But if it’s completely new, that’s where the problems come.

MINEWEB: What has the international reaction been to this?

HUME SCHOLES: Well, there’s an organisation called FIMA, the Foreign Investors Mining Association, which has come out very vociferously against this, and they did get some exposure in the Business Day a few days ago, etc. And they are just saying that it’s not on, that everybody was expecting a 15 to 26% participation interest, and that government must rethink those high percentages of 50-plus-one. The big problem is, Alec, as you know, it’s very difficult to raise money in this country for prospecting. It’s hard enough to get funding to buy 15 to 26% participation in a prospecting venture. And to set the threshold that high is going to be almost impossible to raise money.

MINEWEB: So what needs to be done to fix it?

HUME SCHOLES: They need to lower the percentages. It’s quite simple. Lower the percentage. You see, in my view, make it easy for people to prospect, make it easy for them to acquire these prospecting rights and to find what is in the ground. Once they’ve found what is in the ground, once they’ve spent money on a bankable feasibility study, when you go to a mining situation, then impose these empowerment thresholds., because people can raise money to buy into a mining venture based on a bankable feasibility study. Nobody is going to lend money to a prospecting operation. To raise that sort of money is incredibly difficult.

MINEWEB: I think you’ve put it now in perspective, don’t you Stewart?

STEWART BAILEY: I think Hume is exactly right. I met with a North American company last week that is active here. They said if 51% is imposed, they are going to pack up and walk away. They said there’s just no point in them carrying on.

MINEWEB: Because it’s a high-risk enterprise to prospect and if you are prospecting with your money, why – unless there are black-owned prospecting firms who want to go out prospecting.

STEWART BAILEY: There are none. And the whole point is that no bank is going to finance that. You cannot get that finance in for exploration, because it’s hit and miss, it’s like venture capital for the mining industry. So no chance.

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