THE IMPACT OF THE MINERALS AND PETROLEUM RESOURCES DEVELOPMENT ACT ON MINING INVESTMENT

Abstract

This research compares South Africa‘s new mineral legislation with the old and with that of India, Philippines and China to determine if the new legislation is more or less onerous on potential mineral exploitation investors when compared to its competitors. The Apartheid regime left a strong economic race barrier. In 1998 the government published the new mineral policy embarking on the road to re-structure the oligopolistic South African mineral sector. In May 2004 the new Minerals and Petroleum Resources Development Act will be ratified. The objectives thereof are to stimulate economic growth, human development, reduce poverty and increase equality across the population through the restructuring of the industry and attracting international investment. International investment funding is attracted to areas offering a higher marginal rate of return. In addition resource funding from mining multi-nationals is highly likely to be placed in those countries with similar prospectivity1 bases. Given this, it is appropriate to compare mineral legislation between different countries, which have similar country risk and mining activities. These factors when applied to the risk/return model indicate that South Africa‘s competitors are the countries of India, Philippines and China. China and India have similar mining activity ratings, whereas the Philippines has a closer country risk rating to South Africa. For the South African government to ensure that the mining sector contributes to GDP growth or is a major stimulus, factors of risk and returns must be taken into consideration. The risk/ return profile must attract the investment decision, as the government has no intention to provide the necessary capital. South Africa has an extremely large mineral resource potential, but this in itself is not sufficient, as investment is the key to liberate growth stemming from mineral resources. The research concludes that mining entities already in operation in South Africa would find the new legislation more onerous when compared to the previous legislation. New entrants would have found the existing conditions stemming from the old legislation extremely onerous; and thus potential investment would have found a different host. When comparing the legislation between the different countries in the sample, South Africa ranks as the third most uncertain. South Africa ranks as having the highest potential to be the most onerous on an investor in terms of obligations. The term exclusive right used in South Africa‘s mining legislation is the least ambiguous. In terms of concessionary sizes and durations, South Africa‘s mining legislation ranks as the most practical/ least onerous. It is recommended that the government minimise the uncertainty created, by issuing guidelines on the social plan requirements. Secondly on going HDSA equity requirements for new/existing entrants need to be stated. Clarification of which minerals are covered by concessions is needed. The application process should be changed to a first-filed, first-served policy. Further it is recommended that mechanisms to resolve disputes be clearly stated and extended to other aspects. Current bidding/ tendering clauses need to be limited and South Africa needs to develop a world-class integrated resource data base system. Lastly, the Government must ensure that applicable structures are put in place to grow a viable venture capital mining market