Tuesday, September 30, 2008

The commencement of the MPRDA radically transformed the law governing rights to mineral resources in South Africa and has caused a significant increase in the transactions in this sector. 
The new legislation creates a “use it or lose it” principle that was previously absent from South Africa’s minerals dispensation that has seen a huge upsurge in foreign companies seeking a foothold in the lucrative South African mining sector as well the number of Black Economic Empowerment companies given an opportunity to acquire a stake in the wealth of South Africa’s natural resources. 
The New Mining Regime
The MPRDA endorsed the view that South Africa’s mineral and petroleum resources belong to the nation, and accordingly established the State as the custodian of South Africa’s mineral resources, through the Minister of Minerals and Energy.  The State therefore has the power to grant, control, administer, or refuse prospecting rights, mining rights, mining permits, retention permits, permissions to remove or dispose of any minerals, and other related rights under the MPRDA.   
In this regard, the MPRDA replaced the common law position which provides that the land owner is the owner of the whole of the land, including the air space above the surface and everything below it.  The common law position was supported by the Minerals Act, 1991 (“Minerals Act”) which has since been repealed by the MPRDA.   
While the MPRDA does not expressly provide that the State is the owner of unmined minerals, the ability of a land owner to exercise absolute rights over minerals found on or under their land has been neutralised. The owner retains ultimate ownership, but not the incidence of ownership in respect of the minerals.  Accordingly, the holder of a new order right to minerals under the MPRDA has a limited real right in such minerals.   
Transitional Provisions
While the MPRDA clearly regulates the acquisition of new order rights, it also provides certain transitional provisions aimed at protecting security of tenure in respect of prospecting and mining operations that were taking place immediately before the MPRDA commenced; giving the holders of certain rights under the Minerals Act an opportunity to comply with the MPRDA; and promoting equitable access to the nation’s mineral and petroleum resources. The transitional provisions in the MPRDA accordingly provide for the: 

continuation of old order prospecting rights;

continuation of old order mining rights

processing of unused old order rights (i.e. rights entitlements, permits of licences in respect of which no prospecting or mining was conducted immediately before the MPRDA came into effect)

continuation of reservations, and permission for the right to use the surface of land; and

continuation of environmental management programmes.

The transitional provisions in the MPRDA also specifically provide for the continuation of certain old order rights subject to the terms and conditions in terms of which they were granted, save where such terms and conditions were contrary to the Constitution of the Republic of South Africa, 1996.  In addition:

the holder of an unused old order right had the exclusive right to apply for a new order prospecting right or mining right within one year of the commencement of the MPRDA, failing which the unused old order right ceased to exist on 30 April 2005;
the holder of an old order prospecting right had the exclusive right to apply for a new order prospecting right or mining right within 2 years of the commencement of the MPRDA, failing which the old order prospecting right ceased to exist on 30 April 2006; and

the holder of an old order mining right has the exclusive right to apply for a new order mining right within 5 years of the commencement of the MPRDA, failing which the old order mining right will cease to exist on 30 April 2009, unless this time period is extended by the Department of Minerals and Energy. 

How are new order mining rights protected?
A new order mining right is a limited real right that may be enforced against third parties and once granted the state has a limited power to interfere in the right. Failure to respect to such a right could give rise to criminal liability, a civil claim for damages or an administrative justice action. 
When a party’s rights or legitimate expectations have been materially and adversely affected or that party has been aggrieved by any administrative decision taken in terms of the MPRDA, the MPRDA allows for an appeal to be made against such decision. 
Once the person has exhausted the remedies provided for by the MPRDA he or she may apply to the High Court for a review of the administrative decision, according to the provisions of the Promotion of Administrative Justice Act 3 of 2000. 
Black economic empowerment in the mining sector  
South Africa’s Constitution provides for redressing historical socio-economic inequality and discrimination. Black economic empowerment (BEE) is therefore a central part of the government’s economic transformation strategy to empower historically disadvantaged individuals (HDIs). 
The policy objectives in the MPRDA explicitly include the expansion of opportunities for HDIs to enter the minerals industry or benefit from exploitation of the nation’s mineral resources. The MPRDA also specifically allows communities to secure preferential rights to prospect, mine, or to explore, on any land which is registered in the name of such community.  
The Mining Charter furthers the empowerment objectives contained in the MPRDA and the Broad-Based Black Empowerment Act (BEE Act). It provides a framework for progress empowerment of HDIs in the mining industry and to achieve equitable access to mineral resource for all South Africans. The specified target of the Mining Charter is the transfer of ownership of 15 per cent of the assets of the South African mining industry to HDIs by 2009 and to increase this to 26 per cent by 2014. Mining companies should reach a target of 40 per cent HDIs representivity at management level by 2009. Additionally, the Charter requires the mining industry to improve mineworkers’ housing, nutrition, literacy and employment skills. 
In practise, a mining right may be refused if it does not further the BEE objectives of the MPRDA and the Mining Charter. To ensure that these objectives are upheld, applicants for mineral rights are required to comply with certain conditions before these rights are granted.  
Applicants are required to submit a social and labour plan, which obliges holders of mining rights to contribute to the socio-economic development of the area in which they are operating. 

Optimal exploitation  
In terms of the MPRDA the rights holder has an obligation to ensure optimal exploitation of the mineral resource. A person is only entitled to a mining or prospecting right to the extent that he or she actively exploits these rights. 
The holder of a prospecting right therefore has an obligation to continuously conduct prospecting operations within the lim­ited period of the right. A retention permit may only be issued if the applicant has completed the prospecting activities and studies of the market have revealed that mining of the mineral will be uneconomical due to prevailing market conditions. 
To ensure optimal exploitation a planned mining work programme must be followed. There are specified periods for min­ing or prospecting right holders to commence their operations. Corrective measures may be taken against a holder if minerals are not mined optimally. 
Any person other than the holder of a mining right only has the right to mine as a contractor or service provider, in terms of an agreement concluded with the holder.

Transfer of rights
Mining or prospecting rights may only be transferred, ceded, let, sublet, alienated, disposed of, or encumbered by mortgage with the Minister of Minerals and Energy’s consent and on just cause. The person to whom the right will be alienated or disposed must show they are capable of complying with the obligations and terms and conditions of the right in question; and that they satisfy the requirements of an applicant. 
A change of control of a holder or a company that controls the holder of a mining or prospecting right also requires the Minister’s permission. 
A contravention or failure to comply with the MPRDA is an offence, for which penalties are stipulated in the Act. 

Can foreign parties acquire mining and prospecting rights? 
There are no restrictions in the MPRDA on a foreign party acquiring mining rights in South Africa.
However, because of legislation providing for the advancement of historically disadvantaged people, there are benefits in a domestic partner having some form of interest in the foreign party’s mining activities. The foreign party would need to give careful consideration to the most appropriate business entity utilised to acquire mining rights and have regard to South Africa’s exchange control restrictions.
The MPRDA has significantly increased the opportunities for non-entrenched players in the South African minerals sector.  It has however created mining and prospecting rights which are administrative rights and not akin to property rights.  Although the right is a "limited real right" which confers certain rights on the holder there are a number of bases upon which the right can terminate or lapse.  For example the Minister may cancel or suspend any new order prospecting right or mining right if the holder:  

is conducting any prospecting or mining operation in contravention of the MPRDA;

breaches any material term or condition of such right;

is contravening the approved environmental management programme; or

has submitted inaccurate, incorrect or misleading information in connection with any matter required to be submitted under the MPRDA. 

In addition, the right can be surrendered or abandoned.  For all those reasons caution should be exercised when dealing with new order rights and a full “title” due diligence should always be undertaken. 
Claire Tucker is a director and Twaambo Muleza is an associate at South African law firm Bowman Gilfillan.

The Mineral and Petroleum Resources Development Act, 2002 (“MPRDA”) came into force on 1 May 2004 and ushered in a new regime for the exploitation of mineral and petroleum resources in South Africa.   In line with this new regime, all rights to minerals and petroleum resources issued under the MPRDA are suitably referred to as “new order rights”.