South Africa should adopt free entry system

The subject of the editorial in the April 9-15 issue of The Northern Miner is the most fundamentally important issue to face the world’s mining industry in the past 30 years, yet the author never actually identifies the issue itself.

At the heart of the matter is the “free entry system of mining law” and the “legal security of tenure” granted to the free miner by countries that employ that system of law.

The editorial was trying to describe the South African government’s desire to replace the existing free entry system of mining law with a new “discretionary system of mining law.”

The removal of the free entry system of mining law will destroy the legal security of tenure granted under that system. This includes the destruction of the concept of a mining claim as “real property” with all the attendant protection that real estate law entails. It will also destroy the statutory right to enter, locate the claim, prospect and mine the claim — an inherent principle of the free entry system.

These rights and liberties, which are supposed to be protected by law, are to be replaced by absolute ministerial discretion. In practical terms, this is usually accomplished by issuing mining licences.

We must understand that a licence is only permission to do something that would otherwise be illegal. A licence grants no legal or property rights and is completely revocable once it is issued. A licence also grants no legal security or tenure. And under the proposed system, the minister could easily refuse to grant a licence.

Mining companies would not risk capital investment in a jurisdiction without legal security of tenure, because it significantly raises the risk of losing their investment. For example, if the licence is revoked, the mine is dead and the investment is lost, with no legal recourse. Furthermore, no bank or financial institution can lend money to a mine operating on a discretionary licence, because it is not a secured property.

Legal security of tenure is one the five fundamental principles required to make an area fit for mineral investment. Without any one of these, the region is unfit for investment, and the potential wealth that the minerals could generate will be left in the ground. Under the discretionary system, the jurisdiction will soon find itself without a mining industry.

The Prospectors & Developers Association of Canada (PDAC) refers to the proposed South African legislation as “counter-productive to efforts aimed at encouraging investment and creating a much-needed junior mining sector.”

The PDAC commentary goes on to say that “the bill fails to establish a framework of legal norms whereby the prospectors and junior companies can acquire, hold, encumber, and freely transfer prospecting and mining rights.”

However, having made these points, the PDAC proceeds to hurt its argument by pointing out that “Canada, Australia, and the U.S. all have strong mineral development sectors because they share a legal framework that gives citizens access to mineral opportunities and the opportunity to raise capital based on the potential of their holding and on fungible, freely transferable rights.”

This is incorrect. Canada, Australia and the U.S. have already overthrown their free entry system of mining law and replaced that system with a de facto discretionary system of mining law. The free entry system no longer exists, in reality, in any of these countries.

The governments of these countries have spent the past 30 years overthrowing the free entry system by replacing it with a discretionary system of mining law under guise of water and land-use licences and exploration permits.

These licences and permits are being used to various degrees to impede, withhold or prohibit the legal security of tenure that used to operate on mining claims throughout Canada, Australia, the U.S., New Zealand and elsewhere.

This has led to such well-known violations of the concept of free entry and legal security of tenure as Windy Craggy, Voisey’s Bay, the Redfern Resources road permit in the Taku River Valley, etc.

Various properties in the U.S., Australia, New Zealand, the former U.S.S.R. and, in particular, at the Kilometre 88 area of Venezuela have created serious problems for their owners. These problems have to do with a lack of security tenure and the use of discretionary licences.

The loss of legal security of tenure by the overthrowing of the free entry system of mining law has been a prime factor in the collapse of the mining industry in numerous countries, especially Canada, the U.S. and Australia.

It is very late in the day to try to recover the free entry system, but failure is no longer an option. Our mining industry is in great peril because of this lack of understanding regarding free entry. If we are to recover as a strong and healthy mining industry, we must understand what we have lost by ridding ourselves of the free entry system, and we must learn how and why this loss occurred. Only then will we have the change to re-establish the free entry system.

This should become a priority for the entire mining industry. Without addressing the loss the free entry system and its replacement with the discretionary system of mining law, our industry will continue to wither and die, as South Africa’s mining industry is about to.

I strongly suggest that the industry initiate a well-funded and fully supported initiative to achieve the following three goals:

– Re-educate the mining industry about the free entry system of mining law and legal security of tenure and why they are absolutely essential for our industry’s survival.

– Examine the process by which our government overthrew the free entry system and replaced it with a discretionary system of mining law.

– Convince our government to strike down their discretionary system and reinstate the free entry system.

I suggest this effort should be undertaken by an organization with the necessary credentials and academic, multi-disciplinary expertise to achieve a successful resolution to this most critical issue.

An organization such as the Lassonde Institute at the University of Toronto should have the resources to carry out such a project.

The PDAC was correct to warn the South African government of the negative consequences arising from its proposed overthrow of the free entry system.

Rather than preach to the South Africans, we should be practising what we preach here in Canada.

Having failed to do so for the past 30 years, we have lost our legal security of tenure. This was the most valuable and effective defense for our industry and our investments. We have sown the wind and we are reaping the whirlwind, which is another way of saying that our industry is collapsing as a result of the erosion of investor confidence.

It is time to take corrective action to reinstate the free entry system of mining law in Canada — or suffer the consequences of a dead mining industry.

Jim McFaull

Whitehorse, Y.T.