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Trawling through the paper trail Posted: Thu, 07 Jul 2005 [miningmx.com] -- THE pressure is mounting on South Africa’s Department of Minerals & Energy (DME) amid industry fears that it’s struggling to trawl through the thousands of mining prospecting and mining conversion applications that have poured through its doors since 2004. Statistics supplied by the department show that 4 424 applications had been made of various types since May 2004, when the Minerals & Petroleum Resources Development Act (MPRDA) was promulgated. Of those, just 2,5% had been granted a year later – equal to 112 applications. “We’re concerned that there has to be a system of checks and balances,” says DME head Sandile Nogxina. “But it’s not in our interests to delay the system.” Consequently, the DME has specialised in the licensing of mineral right applications by establishing a minerals regulation division headed by chief director Jacinto Rocha. Werksmans Attorneys partner Hulme Scholes, an expert in minerals-related legislation, says that Government must let go the reins and allow public servants to take over the process (see box). He’s not alone in expressing some frustration regarding the pace of issuing licences. Mark Tyler, head of resources at Nedbank Capital, says there’s caution in the mining industry concerning regulatory changes. “Companies are seeing where the changes go before announcing deals.” However, Nogxina is equally concerned that, in its early days, the process remains a Government responsibility. The prospect of corruption concerns him; as does training. “It’s not that we don’t trust our department, but it’s taking more time than we anticipated and we don’t want to rush it.” Mining companies have just less than four years to convert existing mining or exploration activities to new order mining licences. But time is up on applications for mineral-bearing properties where there’s no current exploration under way. Companies with unexplored mining properties had to find, and fund, an empowerment partner. Says Nogxina: “What bothers us is the quality of the deals.” A complication likely to receive increased exposure is when mining companies fail to provide their empowerment partners with sufficient or, in some cases, any operational involvement. Nogxina says: “An empowerment firm may have a 51% stake in a mining operation but no voting control.” In other cases, empowerment partners aren’t aware of what conditions have been written into transactions. Capital calls on empowerment partners is another major problem, with dilution the result. Government’s Broad Based Black Economic Empowerment Act, passed in April 2004, is therefore an attempt to impose broad principles on SA’s various empowerment codes, including the MPRDA. It’s now the responsibility of the Department of Trade & Industry department (DTI) to regulate how the codes meet the overarching Act. Of importance is addressing the loopholes of empowerment legislation through which some companies have wriggled. However, Nogxina says that existing deals in the mining sector wouldn’t be unwound in the light of the Act. “We’re currently in discussions with the DTI on what we can implement. But one decision is that the Mining Charter will supersede objections raised by the code. Past deals can’t be undone, since they came after the code.” However, the Act means mining firms that haven’t yet been applied for mining licence conversions will be subject to more vigorous conditions than those applied in the early compliances. That’s an irregularity that may test the patience of offshore investors who already believe SA’s Government has “shifted the goalposts” regarding compliance with the laws. There are potential problems here. Will mining firms complying with the charter have to upgrade in order to meet the tenets of new legislation? “The new empowerment code needs to be workable,” says Fradreck Shoko, vice-president of JP Morgan Chase. “Certainly, one size doesn’t fit all.” Transactions that leave empowerment partners’ shares heavily encumbered or that delegate partners to a passive nonvoting role are also likely to fall foul of the DME in the future, Nogxina says.
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