The extracting and exploration of mineral and petroleum in South Africa now comes with a price. It is indisputable that royalty payment as provided for by The Mineral and Petroleum Resources Royalty Act 28 of 2008 will have an impact on all mining operations in South Africa. The main purpose of this Act is imposition of a royalty payment on the transfer of mineral resources and to provide for matters connected therewith. The Mineral and Petroleum Resources Development Act no 28 of 2002 also makes provision for the payment of royalties.

Those affected are those in possession of a prospecting, mining, exploration or production right; a retention permit; mining permit; a lease or sublease in respect of a production right; or any person who wins or recovers a mineral resource within South Africa. Such persons are said to win or recover a mineral resource and must therefore pay a royalty for the benefit of the National Revenue Fund in respect of the transfer of that mineral resource "the extractor". These royalties are due to the state; as custodian of all mineral and petroleum resources within the Republic. The state possesses the right to exercise sovereignty over the entire mineral and petroleum resources.

This royalty is generally calculated by utilizing specific formulae but not all are bound to pay Royalty to the State. There are those who are exempt from the payment of Royalty: firstly, small businesses whose gross sale according to the Act does not exceed R10 million or in respect to all minerals transferred, does not exceed R100 000. Secondly, Sampling extractors are also generally exempt from paying royalties if the gross sales in respect to those mineral resources does not exceed R100 000 during a year of assessment. Such royalties are made payable semi annually by way of estimated payments on a basis similar to provisional tax for income tax purposes.

The state acts through the Minister of Minerals and Energy and the Minster must ensure the suitable development of South African's Mineral and Petroleum resources within a framework of National Environmental policy, norms and standards while promoting economic and social development. Essentially, that's the long and short of it.

Written by: Mikateko Baloyi, Corporate law consultant at Masephule Dinga Inc.