The withdrawal of the Minerals and Petroleum Resources Development Act Amendment Bill, the finalisation of Mining Charter 3 and the investment drive led by President Cyril Ramaphosa, has given the South African mining sector reason to be cautiously optimistic, Herbert Smith Freehills partner Peter Leon suggested during a roundtable on comparisons between South African and Brazilian mining and infrastructure investments, on Thursday.
Leon pointed out that the South African mining industry had been characterised by severe regulatory uncertainty over the last five years, with haphazard decision-making, the Department of Mineral Resources' (DMR's) attempts to amend "what was already a problematic mining code", as well as the imposition of a highly unpopular draft Mining Charter by former Mineral Resources Minster Mosebenzi Zwane.
He noted that these actions led to South Africa's performance on the Fraser Institute's Policy Perception Index dropping from 54% or "slightly above average" in 2014, to 43% in 2017, placed within the bottom ten jurisdictions.
Leon also noted that the country's exploration budget had decreased from $300-million in 2012 to $80-million in 2017.
However, he added that the Minerals Council South Africa (MCSA) had reported that investment in the industry had grown from R67.6-billion (or $480-million) in 2016 to R80-billion ($805-million) in 2017. An increase of 20%. Production has also increased and so too has export revenue (4%).
Leon noted that the MPRDA Amendment Bill was driven by politics, something of a compromise by the African National Congress which had rejected a call by its Youth League to nationalise the industry. He commented that, "even the former President was persuaded that the Bill was unconstitutional."
He pointed out that the Act does require some amending, stressing, "the criteria for the granting, suspension and cancellation of prospecting and mining rights needs to be clarified, and so does the role of the Charter in relation to the Act."
Leon further commented that administrative discretion had to be "narrowed" and time-frames for decisions had to be tightened.
He noted that the MCSA and the industry had welcomed Mining Charter 3, but that greater detail was required with regard to the more onerous ownership requirements. Leon also noted that the Charter's procurement quotas still contravened South Africa's obligations under the General Agreement on Tariffs and Trade as well as the General Agreement on Trade and Services.
However, Leon stated that, "I think [the appointment of a] new minister, the withdrawal of the MPRDA Amendment Bill, the finalisation of Mining Charter 3, and the improved cooperation between the DMR and the industry will foster greater transparency, efficiency and consistency."
Leon also cited South Africa's deep capital markets, sophisticated financial systems and world-class engineering schools and firms, stating that South Africa "still has the necessary attributes to reclaim its place as the continent's leading mining destination."
PNA partner Carlos Vilhena, meanwhile, said the Brazilian mining sector contributed 3.7% to that country's gross domestic product and supported about 180 000 direct and two-million indirect jobs.
Further, exploration, expansion and infrastructure expenditure had been revised upward by 8% to $19.5-billion in 2022.
Vilhena noted that, in the last two years or so, the Brazilian government had made concerted efforts to improve Brazil's ability to attract investment, a goal that is a priority for the President-elect Jair Bolsonaro.
"One of the major changes is the creation of a new mining authority – the national mining agency. The five directors are appointed by the President, confirmed by the senate, and have a mandate of five years." The idea is that instead of having one person making arbitrary decisions, five directors, who cannot be removed by the President (as with a Cabinet reshuffle), and who will be in place for at a minimum of five years will "hopefully provide stability in terms of regulation and implementation."
Vilhena also noted that the incoming administration's campaign focused on "right-wing" policies, including increased privatisation and tax and pension reform. The President-elect also seeks to root out corruption and create a more "business-friendly" environment.
He concluded that, if the incoming administration achieves its stated objectives, the Brazilian mining sector will be able to capitalise on the increased investment and improved commodities prices.