[miningmx.com] – SOUTH Africa’s Chamber of Mines (CoM) hailed the approval of the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill by Parliament’s National Assembly on March 12, and said the thorny issue of domestic pricing of strategic minerals had been resolved after adopting the principle of ‘mine gate pricing or another agreed price’.
In its infancy during 2010, the amendment bill was primarily administrative in scope, seeking to close loopholes and confusions that had emerged in the implementation of the MPRDA since 2004.
It also sought to streamline the mining, environmental and water permit application process which the South African government now promises will narrow the waiting time for mine project approval to 300 days from an estimated three years.
In the last 18 months, however, the bill has had new measures written into it which, in essence, aim at achieving new and broader policy desires. For instance, an effort was made to write developmental pricing of certain commodities, identified as strategic by the mines minister, into the bill.
The aim of developmental pricing is to provide a foundation for beneficiation industries. In the case of coal, the bill wanted to allow for pricing of domestic coal that makes power provision cheaper.
However, it was issues of ministerial discretion that drew criticism of the Amendment Bill. The fear was that the minister could limit exports of ‘strategic minerals’ and even dictate domestic pricing, possibly by implementing an export levy.
The outcome according to the chamber, however, is that it has negotiated a switch from developmental pricing to mine gate pricing whilst acknowledging “… the minister’s prerogative to designate a mineral as strategic in support of a beneficiation objective,” adding that this would be in consultation with industry.
As for levies on exports, one suspects this is a battle that may yet be fought. The CoM said taxes fell outside the ambit of the MPRDA amendment. It also said implied the MPRDA Amendment Bill would require more fine-tuning as further work was required in order to develop “… the regulations that will help give effect to the MPRDA Amendment Act.
In general, however, the CoM thought the legislation gave greater certainty to South Africa’s mining sector.
“Given that the ANC as the ruling party has rejected wholesale nationalisation as a policy option for South Africa, that government is working with business and labour to promote growth and transformation in the mining sector and that any taxation question will be dealt with in the Tax Review Committee process, the Chamber believes that greater policy certainty is being created for the South African mining sector,” it said.
Commenting directly on what may happen to ‘strategic minerals’, it said the critical issue of domestic pricing had been resolved with the adoption of the concept of ‘mine gate pricing or another agreed price which is clear and transparent’.
“The mine gate principle is an established practice at a global level,” said Roger Baxter, chief operating officer and senior economist at the Chamber of Mines in a telephonic interview.
“It is not import parity pricing, but export parity pricing without transportation costs (free-on-rail). The difference is that it is a market-related price free of outside interference, and it is not developmental pricing,” he said.
The Amendment Bill also makes allowance for “an agreed price” in lieu of mine gate prices which allows for parties to ‘agree’ on a benchmark. This has special relevance for domestic coal sales where Eskom could theoretically apply its average buying price. “The word ‘agreed’ is very important in this part of the bill,” said Baxter.
Mining companies with existing mining rights would not be required to apply for export permits unless exporting for a third party. This may have an effect on trading companies such as Johannesburg-listed Metmar, or on the marketing division of Glencore Xstrata which buys third party coal, or the coal trading firms such as Trafigura or Gunvor.
It would appear this part of the Amendment Bill is aimed at restricting at least some speculative trading activity in the coal sector. Eskom has complained in the past about the sale of certain quality coals to, for instance, Indian companies, at a premium when the coal should have been sold to Eskom itself.
The chamber, however, washed it hands of other elements in the MPRDA Amendment Act such as the relatively recent entry which allows the state to take a one fifth free-carry in oil and petroleum assets, or even buy 100% of the projects on the basis of “an agreed price”.
The criticism is that if the state is allowed a free-carry, and companies are still required to meet 26% empowerment thresholds in terms of the mining charter, which is like a regulation of the MPRDA, then the entity doing the investment is only barely allowed control of the asset with a 54% stake.
Baxter, however, said the oil and petroleum companies were represented by a separate organisation – the Offshore Petroleum Association of SA (Opasa) – and the outcome of the Amendment Bill was for them to consider. Interestingly, the Department of Mineral Resources views oil and gas as ‘a mining activity’ which is the defence it used for not wanting to separate the MPRDA so that the mining and oil and gas sectors could be treated differently.
