Bill should encourage investment

It’s hoped that the Mineral and Petroleum Resources Development Bill, under review in parliamentary committee hearings in South Africa, will be amended so that investment, jobs and empowerment prospects will not be eroded.

Small mining companies have difficulty raising financing, even under the existing legislation, and numerous international investors, bankers and lawyers have clearly explained how key aspects of the bill would discourage loans and deter investment in the mining industry.

Indeed, the pivotal issue of whether or not the bill would deter investment has been distorted by a number of sources. The Chamber of Mines is unaware of any company’s having threatened to withdraw from South Africa should the bill be passed in its present form, as some have claimed. What many significant investors have said is that the bill will discourage new investment, and that those most affected by a less internationally competitive investment regime will be the emerging black empowerment companies, the very groups the legislation seeks to assist.

For example, the restrictions on the transfer and encumbrance of prospecting and mining rights will reduce both the value of these rights and their suitability as security. This will further erode the willingness of banks and others to finance new and small companies, which typically have few or no other assets to offer as security for loans.

The bill also requires that those applying for prospecting or mining rights have access to sufficient financial resources to operate “optimally.” This will clearly hinder smaller companies with limited financial resources, as will the uncertain and potentially open-ended obligations of the proposed social plans with which all rights holders must comply.

Although a broad cross-section of stakeholders has expressed concerns about the bill’s shortcomings, various entrepreneurs seem to believe that public endorsement of the bill in its present form will facilitate their access to valuable mineral reserves once the bill becomes law.

Such public posturing is in itself an ominous indication of expectations as to how the discretionary powers envisaged in the bill will be exercised. Unfortunately, the bill’s failure to require the minister and her officials to exercise their discretion in accordance with clear, objective and verifiable criteria only serves to increase investor anxiety.

For instance, the bill offers no guidance as to how the minister would decide whether the grant of a mining permit will further the bill’s objectives, or whether a company is mining “optimally.” In both cases, the decision will critically affect a company’s right to mine.

If we genuinely wish to increase fixed investment in the mining sector, these and other legitimate investor anxieties cannot simply be dismissed, no matter how unfounded they may seem to us. Nor can we afford to take the line that we will not be held hostage by investors. Such a dismissive approach has no place in a serious debate about draft legislation which, if suitably amended, could have such far-reaching and enduring benefits for our national economy and the quality of so many peoples’ lives.

Rhetoric creates neither wealth nor jobs, but sound administrative law can help to create the conditions for both. The mining industry wants good law and successful policies. Bad law frightens investors and undermines good intentions.

Most investors, local and foreign, recognize that a mining law must address popular aspirations and provide economic development opportunities. Indeed, social inclusion is internationally recognized as a legitimate and desirable legislative goal. To the best of our knowledge, no one has objected to the social objectives of the bill.

What we have objected to are those provisions that would undermine the bill’s objectives and deter new investment in the mining industry, particularly since there are numerous other, tried-and-tested forms of minerals licensing and procurement which allow transparent, objective criteria for disadvantaged groups without unnerving foreign investors.

Major investments with their huge job creation potential can only come from large, internationally oriented mining companies. Such companies have many opportunities open to them, and are discouraged by legal uncertainty and any hint that security of mining title depends on government discretion that cannot be safely predicted.

Fairness, certainty and objectivity are also the essence of international investment treaties. Various lawyers have clearly indicated that key provisions of the bill would be in breach of our obligations under several such treaties. No matter how justified we may believe it would be to disregard these obligations, if we want the foreign investment that is so crucial to the realization of our dreams and ambitions, we must be prepared to find a way to honour our commitments.

— This is an edited version of an information bulletin published by the Johannesburg-based South Africa Chamber of Mines. The author is the Chamber’s deputy communications adviser, Gay Khaile.