Introduction

On 12 March 2014, the National Assembly (NA) passed the Mineral and Petroleum Resources Development Amendment Bill, 2013 (Bill) by 226 votes to 66. The Bill amends a number of key provisions of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA). It represents the most significant and far reaching changes to the MPRDA since its promulgation in May, 2004.

The Bill itself has been amended four times since its original version was published for public comment in December, 2012. The most significant amendments were made during a meeting of the NA's Portfolio Committee on Mineral Resources on 7 March 2014, which produced the final version of the Bill (recent amendments). The Chamber of Mines, which was consulted on the recent amendments, has expressed its satisfaction with the final version of the Bill, indicating that these address many of the Bill's original shortcomings.

The Bill. as passed, is not completely free from issues. Further, the recent amendments contained an important and last-minute change to provisions concerning the state's participation in the oil and gas industry.

The effect of key clauses, as they appear in the final version of the Bill, is highlighted below.

Beneficiation and designated minerals

The Bill obliges the Minister of Mineral Resources to "initiate or promote the beneficiation of mineral resources in the Republic" and requires the Minister to "designate any mineral or mineral product for local beneficiation". The Minister is granted wide discretionary powers, under the amended Section 107 of the Act, to determine the "terms and conditions applicable to beneficiation of mineral resources as contemplated in Section 26" as well as to "publish such conditions required to ensure security of supply for local beneficiation in the prescribed manner".

Beyond this, the Minister's discretion must now be guided by reference to "national development imperatives". These are described in Section 26 of the MPRDA, as amended, as including "macro-economic stability, energy security, industrialisation, food security and infrastructure development".

The Bill requires the Minister to establish an advisory council under Section 56A of the MPRDA. The Minister must consider the advice of this council before designating a mineral for beneficiation; the council's recommendations are, however, no longer required as a condition precedent to the exercise of the Minister's powers. Under the Bill, the Minister has broad discretion to set the percentages, quantities, qualities and timelines for beneficiation in regulations. The Bill also makes it clear that the Minister's decision to designate minerals for the purposes of beneficiation must be published in the Government Gazette.

In terms of the recent amendments, the price at which designated minerals must be sold for beneficiation under the Bill is no longer prescribed, but is set at the "mine gate price or agreed price". "Mine gate price" is defined in the amended Section 1 of the MPRDA, as "the price (excluding VAT) of the mineral or mineral product at the time that the mineral or mineral product leaves the area of the mine, and excludes charges such as transport and delivery charges from the mine area or the mine processing site to the local beneficiator".

Any person who wishes to export a mineral or mineral product must first comply with the Bill's beneficiation provisions and must receive written approval from the Minister before it may export such mineral or mineral product. This may well contravene provisions of the World Trade Organization's General Agreement on Tariffs and Trade, 1994 (GATT), to which South Africa is a party. The GATT prohibits, in Article XI read with article XX, quantitative restrictions on exports as well as export licensing.

Order of processing of licensing applications

The amended Section 9 of the MPRDA, abolishes the "first-in, first-assessed" (FIFA) principle which has applied to the processing of applications for mineral rights in South African mining law for over a century. The Bill introduces a form of tender system to replace the FIFA regime. Under this, the Minister must invite applications before applicants may apply for rights to particular minerals and land under the MPRDA.

The Bill was improved by amendments proposed by the DMR on 29 October 2013 and 6 November 2013, as the Minister is now obliged to issue invitations for applications for rights, while any person may request the Minister to issue such invitations. It does not appear, however, that the Minister is required to issue invitations simply because a request is made. The recent amendments, however, require that the Minister must "give preference to an application lodged" by the person who first requested invitations to be issued. This requirement could conflict with the exclusive right of the holder of a prospecting or exploration right to apply for and be granted a mining or production right respectively.

Specific provisions relating to the oil and gas sector

Despite speculation that the provisions relating to the oil and gas sector could be separated from the MPRDA and placed in a separate Bill, the MPRDA continues to govern the upstream oil and gas sector. The Bill now introduces state participation in exploration and production rights under the amended Section 86A(2) of the MPRDA. Under the Bill, the State will acquire an automatic 20% free carried interest in all new exploration and production rights.

Following the recent amendments, the State is "entitled to a further participation interest in the form of … acquisition at an agreed price; or … production-sharing agreements". This participation, which was limited to 30% under previous versions of the Bill, is now apparently unlimited. It is also not clear what "an agreed price" means or how a deadlock will be broken where the state is "entitled" to an interest, but cannot agree with the exploration company in question on a price for such interest.

The provisions relating to strategic minerals (the amended Section 49 of the MPRDA) now also relate to "petroleum and forms of petroleum". This means that petroleum and petroleum products may be declared as strategic minerals. Under Section 49 of the MPRDA, the Minister may prohibit or restrict the grant of exploration and production rights for strategic minerals at any time.

Other important provisions

The amended Section 43 of the MPRDA envisages that a right holder is no longer indemnified from liability for environmental damage after the issue of a closure certificate. No changes were made to Clause 30 in the recent amendments, and the liability of mining companies for unknown, latent or residual environmental damage remains potentially perpetual.

The amended Section 99 of the MPRDA continues to impose substantial penalties of up to 10% of an offender's annual turnover for even minor contraventions, such as a failure to submit an annual report under Section 25(2)(h) of the MPRDA. Following the 29 October 2013 amendments, the Bill's financial penalties were capped at ZAR800 000 where the annual turnover of an offender cannot be established. However, under Section 99(1A)(v), a fine imposed by the Director-General may now be elevated to have the effect of a civil judgment given by a magistrate. This was unchanged by the recent amendments and may have implications for the right of access to courts protected by s 34 of the Constitution.

Various instances of broad administrative discretion remain in the Bill, including the beneficiation provisions discussed earlier. Further, many time periods, previously specified in the MPRDA, have been replaced, under the Bill, with periods which will be prescribed by Ministerial regulation. The Bill has also not resolved the potential overlap that may occur between a miner's right to the principal mineral and the rights a third party may be granted to minerals "associated" with such mineral, under the amended Section 102 of the MPRDA.

Further procedures

The Bill was tagged by Parliament's joint tagging mechanism as one under Section 76 of the Constitution of the Republic of South Africa. A bill which is tagged as such falls within the functional areas of concurrent national and provincial legislative competence under Schedule 4 to the Constitution. Accordingly, under Section 76 of the Constitution, the Bill has now been referred to the National Council of Provinces for further consideration.

Contact:

Peter Leon | Partner

Manus Booysen I Partner

Jonathan Veeran | Partner

Rita Spalding I Partner