Red tape chokes mining growth

The Department of Minerals and Energy has undertaken to investigate industry complaints that the deluge of prospecting applications received since the promulgation of the Mineral and Petroleum Resources Development Act (2004) had seriously hindered investment in the mining sector.

The Mining Summit, to be held in Johannesburg in two weeks, will address this issue in a breakaway session that includes representatives from labour, the government and business, said Abe Mngomezulu, Deputy Director General for mineral development and investment promotion in the Department of Minerals and Energy.

“We’re going to look at the problems in the industry and find out from the players why we’re not seeing quick investment,” Mngomezulu said. “We have to remember, though, that mining is not a shopping complex, it is a longer-term investment.”

According to information, accurate on August 23, the Department of Minerals and Energy had received 9 071 mining and prospecting licence applications since the promulgation of the Act on May 1 2004. Of these only about 25% had been successfully granted. Up to 983 had been refused, which means the applicants cannot re-submit and 1 356 had been rejected, which means that firms can re-submit applications.

This, however, is an improvement on last year’s performance. According to Miningmx, this time last year a paltry 2,5% of the 4 424 applications received had been granted. “At some point there was bad planning at the [Department of Minerals and Energy] level,” said Jacinto Roche, Deputy Director General for mineral regulation in the department. “We are now committing ourselves to sticking to time frames.”

The minerals Act provides for state custodianship of mineral resources and the government becomes the grantor of prospecting, exploration, mining and production rights — its overarching objective is to open the country’s vast mineral resources to new entrants, while existing players have to meet progressive empowerment targets to maintain their rights.

There are three categories of rights given recognition in the Act — old-order mining rights, old-order prospecting rights and unused old-order rights.

An old-order mining right is one where the right is held by a company, where mining operations were being actively conducted when the Act came into effect. The holders of such rights have until May 2009 to convert their rights into new-order rights. Empowerment targets have to be met (the applicant has to be 26% empowered) and a social plan submitted to ensure the success of the conversion.

To date the government has received 359 such applications; however, this figure will grow, said Roche.

An old-order prospecting right is similar to the old-order mining right in that, if the company that held the right at the time the Act became effective was actively prospecting, it maintains its right, with two years to convert that right into a new-order right.

This deadline closed at the end of April this year. According to Roche, 369 applications still need to be processed.

Unused old-order rights are when the holder of the mineral rights, mining title or rights to prospect was not actively pursuing prospecting or mining at the commencement of the Act. The holder of the unused right had one year to convert these rights. If they failed to apply, or the application was turned down, the rights reverted to the state and were opened to new-market entrants.

“Prospecting is the future, not mining rights,” said Roche. Hundreds of new players have taken advantage of the Act and have been further galvanised by the profita­bility of the country’s mining sector, despite a widely accepted anecdote in the mining industry that only 10% of exploration activities successfully convert to mining operations.

“We’ve even had applications from companies wanting to prospect inside Jo’burg,” said Roche. “People see an open space and they decide to apply.”

But there are increasing concerns in the industry over delays and requirement uncertainties with regards to the Act. Industry sources complain that fixed investment in the mining industry has fallen off considerably in comparison with other mineral-rich countries. While this could also relate to infrastructure bottlenecks and the fluctuating currency, sources said the Act was largely responsible for what was termed an “economic slowdown” in the minerals sector. Exact statistics were not immediately available, but one source from a large mining house said the largest slowdown had been in prospecting because existing players had put some of their operations on ice to deal with the requirements of the Act. There have also been instances where black economic empowerment (BEE) companies had sold their mining or prospecting licences back to established companies — rather then attract these companies to help them finance projects. The government is monitoring this trend as well as an increasing number of BEE fronts parading as black empowered companies. These are hidden in complicated shareholding structures.

“Due to the application influx there were bottlenecks in the system that slowed the process down. The [Department of Minerals and Energy] found that it would focus on one application to the detriment of another. Also, applications are sometimes sent back to the applicant to deal with the problems and it is then out of the hands of the government. What is killing us is this back and forth,” said Roche.

As an example of the influx of applications since the promulgation of the Act in Mpumulanga, Roche said that between 1992 and 2004 — the year the Act was promulgated — there were only 800 new applications, whereas in the past two years, the government has received 1 000 new applications.

“Mpumulanga, Limpopo, North West and the Northern Cape are churning out applications,” he said. “Just for today I am expecting 69.”

To streamline the process, the Department of Minerals and Energy has appointed three chief directors, responsible for three provinces each. In addition, each major mining company has been allocated a month of exclusivity to interact with the department to deal with its applications. During the month the department will facilitate a three-day workshop with the company, which will then have two weeks to compile its application and walk away with its licence.

“Although this process started in May we have not been able to convert a single one,” said Roche. “The falldown is generally at the social and the labour plan.”

AngloGold and Harmony have converted their rights into new-order rights on their own steam.

“For those who are honest the issue of delays should be gone by November this year,” said Roche. “But we also have the problem of under-capacity. If I scream for warm bodies now, I’ll only get them next year.”

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Vicki Robinson
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