Highlights:

• The calls by the Youth League of the African National Congress for the nationalisation of mines has been much talked about but on balance is very unlikely to occur.
• Most of the recovery and growth in global steel production is attributable to China’s phenomenal growth with non-Chinese production not yet recovering to pre-crisis levels.
• The Minister of Mineral Resources has assured potential Chinese investors that South Africa offers a competitive mining sector open to foreign investors.

1. Introduction

The principal legislation governing the mining industry in South Africa is the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) which came into force on 1 May 2004 and replaced the Minerals Act, 1991. The MPRDA is not a “Mining Code” because it does not codify mining law in South Africa.  As such, and although the MPRDA is the starting point, the common law remains applicable.  In addition, other pieces of legislation are also pivotal.

2. MPRDA

2.1.         The MPRDA changed the system of mineral regulation in South Africa from that of private ownership of mineral rights and licensing to one which is administratively driven and has replaced mineral rights with limited real rights in the form of prospecting and mining rights (for minerals) and exploration and production rights (for petroleum).  The objects of the MPRDA include the empowerment of historically disadvantaged South Africans and security of tenure.

2.2.         Transfer of prospecting and mining rights as well as the change in controlling interest of companies (that hold rights) requires consent of the Minister of Mineral Resources.   Similarly, encumbrances of each right require Ministerial consent (save where the encumbrance is registered in favour of a bank or registered financial institution).

3. Law Applicable to Empowerment

3.1.         On 11 October 2002, and as a result of a tripartite process (involving government, labour and the mining industry) the Broad Based Socio Economic Empowerment Charter for the Mining Industry (“the Original Mining Charter”) was signed by the representatives of the participants of the tripartite process.  The Original Mining Charter was gazetted as the Charter contemplated in section 100 of the MPRDA on 13 August 2004.  The Original Mining Charter became the instrument by which Government was to achieve its target of substantially and meaningfully introducing historically disadvantages South Africans into the mining industry.  The Original Mining Charter imposed a 26% empowerment requirement on mining companies.  After 5 years of its existence, it was reviewed and by way of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry dated 20 September 2010 (“The Amended Mining Charter”) it was amended.

4. Mining Titles Registration

The primary legislation governing registration of mining titles is the Mining Titles Registration Act, 1967 (MTRA).  Under this law, the Mineral and Petroleum Titles Registration Office (MPTRO) is established as a Mining Titles deeds registry.  Mining Titles must be registered in the MPTRO. The role of the MPTRO is to register prospecting and mining rights that have been granted to holders.

5. Mine Health and Safety Act 29 of 1996

This Act provides for the protection of the health and safety of employees and other persons at mines and, for that purpose to promote a culture of health and safety; to provide for the enforcement of health and safety measures; to provide for appropriate systems of employee, employer and State participation in health and safety matters; to establish representative tripartite institutions to review legislation, promote health and enhance properly targeted research; to provide for effective monitoring systems and inspections, investigations and inquiries to improve health and safety; to promote training and human resources development; to regulate employers’ and employees’ duties to identify hazards and eliminate, control and minimise the risk to health and safety; to entrench the right to refuse to work in dangerous conditions; and to give effect to the public international law obligations of the Republic relating to mining health and safety; and to provide for matters connected therewith.

6. Precious Metals Act 37 of 2005

This Act provides for the acquisition, possession, smelting, refining, beneficiation, use and disposal of precious metals; and to provide for matters connected therewith.  It is the legislation that is dedicated to the precious metals industry.

7. The Diamonds Act 56 of 1986

This Act provides for the establishment of the South African Diamond and Precious Metals Regulator and for the establishment of the State Diamond Trader; for control over the possession, the purchase and sale, the processing, the local beneficiation and the export of diamonds; and for matters connected therewith.

8. Size of the industry

8.1.         The mining sector accounts for over seven per cent of the country’s gross domestic product (GDP), it provides employment to close to 500 000 workers and has mineral resources estimated at US$2.5-trillion, the largest in the world.

8.2.         The South African mining industry’s total income in 2010 was R424-billion while expenditure was R441-billion. R228.4-billion was spent on purchases and operating costs such as timber, steel, explosives, electricity, transport and uniforms. R78.4-billion was paid on salaries and wages for mine employees, R49-billion on capex, R17.1-billion in tax, R16.2-billion in dividends, R38-billion on depreciation and impairments and R13-billion on interest to the banks. Estimates by the Chamber suggest that only about R34-billion or 8% of the total expenditure is moved offshore. That means that 92% of the value of local mining expenditures are effectively captured in South Africa resulting in the creation of thousands of jobs and significant multiplier effects into the rest of the economy.

9. Main resources (minerals)

9.1.         The main minerals are gold, platinum group metals, silver, iron ore, manganese, nickel, coal, chrome and copper. In addition to these, there are mineral deposits of rare earths, andalusite, base minerals and metals.

9.2.         South Africa is home to about 80 per cent of the world’s proven platinum and manganese reserves.

9.3.         South Africa’s fluorspar (natural calcium fluoride) reserves exceed 30 million tons, it has the third largest reserves in the world and accounts for around 30 per cent of the western world’s and about 10 per cent of all known reserves; iron ore amount to 9 300 Mt, or nine per cent, the sixth largest in the world; 80 per cent of the world’s known manganese ore deposits are located in the Northern Cape and the North West province; 8,5 per cent of the world’s nickel reserves, are located in South Africa’s Bushveld Igneous Complex; with around 15 million tons of zinc reserves, contains about 3,5 per cent of global deposits of the metal; 14,3 Mt, 22,1 per cent of the world’s known zircon reserves are found in South Africa; South Africa’s Bushveld Igneous Complex contains more than 5 million tons of vanadium ore reserves, which represents about half of Western world reserves and one-third of the global total; vermiculite ore reserves at nearly 80 million tons, South Africa has the second largest reserves of the metal, representing about 40 per cent of the world total.

9.4.         African production of uranium oxide, currently accounting for more than 20 per cent of world output. South African output is mainly produced as a by-product of gold and copper mining. The Richard’s Bay titanium reserves are the fourth largest in the world, Silver is an important constituent of gold and platinum ores in South Africa and occurs too in the ores of the base metals (zinc, lead, and copper).

10. Main players

The Chamber of Mines of South Africa (Chamber) is a prominent industry employers’ organization which exists to serve its members and promote their interests in the South African mining industry. The members of the Chamber include financial corporations, contractors, associations and mining companies (i.e. Anglo American, Anglogold Ashanti, BHP Billiton, Harmony, De Beers, Gold Fields, and Lonmin etc).

11. Investment climate

11.1.       According to the Chamber, in the first half of 2011, steel production stood at an annualised 1.5 billion tons, 8.9% higher than the level recorded in 2010 and is likely to be a record production year.

11.2.       Nearly 100% of South Africa’s cement and building aggregates are made locally and 80% of the country’s steel is made locally from locally mined iron ore, chrome, manganese and coking coal using furnaces that are 95% powered by electricity from coal fired power stations (the 20% imported steel is speciality steel products not made locally). Over 30% of the country’s liquid fuels are produced within the country from locally mined coal and 95% of electricity is generated in power plants that use locally mined coal.

11.3.       Most domestic chemicals, fertilisers, waxes, polymers and plastics are fabricated using locally mined minerals and coal and 20% of the world’s platinum catalytic converters are made in South Africa. The Chamber estimates that another R200-billion in sales value and 150 000 jobs can be attributed to the local downstream beneficiation sectors. All South Africa’s gold and pgms are refined locally and more than 50% of diamonds by value are sold locally into the downstream diamond cutting and polishing industry.

12. Nationalisation

12.1.       The calls by the Youth League of the African National Congress for the nationalisation of mines were arguably the most talked about issue relating to the mining industry during the year. The ANC has directed a team to look into the merits of nationalisation, which is due to report its findings at the party’s policy conference in June 2012. Nationalisation is not government policy and the Chamber is opposed to it, which represents most of the players in the mining industry. The Chamber is committed to working towards finding the best alternatives.  On the balance of evidence, nationalisation will not happen.

13. Exciting projects

Some of the recent and exciting projects include the following:

13.1.       Gold One

Gold One’s flagship operation is the Modder East mine; the first new mine to be built in South Africa’s gold-rich East Rand region in 28 years. With a currently defined ore reserve of 1.53 million ounces at 4.0 grams per tonne and a 13-year life of mine, Modder East’s target reefs are located no deeper than 500 metres below surface. The mine’s shallow resources allow for trackless mine infrastructure where the underground orebody is accessed via a decline. Dedicated trucks transport rock out of the mine while a vertical shaft provides quick face access for personnel. Modder East’s first 240 ounce gold pour took place in July 2009. The mine’s first tonne of gold was poured in May 2010, only 10 months after its commissioning. At the end of the 2010 financial year, which marked only one year since Modder East had declared continuous and commercial production, the mine recorded a maiden profit of A$ 19.35 million before taxation. The mine’s low 2010 cash costs of US$ 484 per ounce were attributable to mechanised off-reef development and in-stope hydropower drilling. The use of hydropower also enables safer and more efficient working conditions as well as electricity savings. For 2011, Gold One anticipates increasing gold production by 80% and has forecast annual production of 120,000 ounces.

13.2.       Kalagadi Manganese

Kalagadi Resources is in the process of establishing a manganese mine, coupled with a sinter plant, near Hotazel in the Northern Cape. The main shaft has holed through the lateral developments to the ventilation shaft at a depth of 281 metres, the production level of the R11-billion project, on which only equity funding has been spent so far. The project includes Kalagadi constructing a high-carbon ferromanganese smelter in Coega’s industrial development zone near Port Elizabeth, which will create the steel-making ingredient ready for consignment to foreign and local factories

The three-million-ton-a-year mine will provide the ore for the production of 2.4-million tons a year of sinter, 700 000 t of which will be sent to the ferromanganese smelter and 1.7-million tons a year of which will be marketed. The smelter will have a capacity to produce 320 000 t/y of high-carbon ferromanganese. Commissioning is scheduled for the third quarter of 2012, with the mine, sinter plant and smelter expected to employ 2 200 people. Mashile-Nkosi is targeting a 50% female employee complement. Kalagadi has secured both rail and port capacity from Transnet Freight Rail and power supply from Eskom. Kalagadi is currently generating its own power for the project from diesel-fuelled generator sets.

13.3.       Coal of Africa

Coal of Africa is an emerging developer and producer of high-quality thermal and coking coal. Based in South Africa, it has two operating collieries and two projects in early operations and development, as well as a valuable suite of exploration projects, enabling them to grow well into the future. With good access to rail and port infrastructure, Coal of Africa can effectively service both domestic and international markets, providing a much-needed resource for economic growth and development for the country and the provinces in which we operate.

14. Chinese entrance

The Minister has assured potential Chinese investors that South Africa offers a competitive mining sector. “… my government is committed to creating a favourable and globally competitive mining sector in South Africa,” she told the 2011 Mining Ministers Forum in Tianjin, China”

According to the Chamber, in 2010, global diamond retail sales rose by 2.5% to US$60-billion, global jewellery sales rose by 7% to US$150-billion and polished diamond prices improved by about 6%. The strong price recovery was driven by re-stocking and a rebound in the global diamond market, particularly with the rise in polished demand from China and India.

Most of the recovery and growth in global steel production is attributable to China’s phenomenal growth with non-Chinese production not yet recovering to pre-crisis levels. China is currently producing 46.5% of global steel, driven by its own substantial industrialisation and urbanisation requirements.