NEDBANK Capital’s Paul Miller may have just hit the nail on the head with respect to the risk attached to new investment in South Africa’s mining industry.
Commenting in a webinar intended to tee-up this year’s Mining Indaba conference, Miller said the real risk in the sector was written into mining legislation from the outset: ministerial discretion.
In the hands of officials at the Department of Mineral Resources (DMR) he described as “activists”, the mining charter of any iteration is a tool potentially capable of subverting the industry. “The fundamental uncertainty in South Africa’s regulatory environment is not amendments, but uncertainty, discretion, and lack of timelines which are built into the regulations,” he said.
That makes the perceived risks of a redrafted mining charter a red herring and throws into relief the effort by attorneys MalanScholes to have the mining charter declared void on the basis it isn’t law, but policy. It fits into the long-standing narrative in South Africa’s mining sector which is for ‘lawfare’, as Miller described it.
For example look no further than the ministerial discretion that allowed a change of control permit – known as a Section 11 – to be awarded to Optimum Coal Mines in only months compared to the year-long process (and counting) Keaton Energy is having to wait as it seeks to sell its Vaalkrantz anthracite colliery.
Handing government officials so much discretion not only clears the way for activism, but opens the door to error. One need only look through the independent judgements of the High Court in the last four months.
In both the AngloGold Ashanti judgement, which successfully had its Kopanang mine reopened after the DMR issued a Section 54 notice, and Aquila Steel, which won the rights to minerals contested by a government-aligned company, the inefficiencies and incompetence of DMR officials have a central place in the judgements.
More ominous in the Aquila Steel case was the then mines minister’s decision to ignore the advice of his legal counsel which had urged him to find in favour of the mining company and drop the cross-appeal of the government company. The judge, however, stopped short of finding “institutional bias” in the DMR.
Privately, the mining sector thinks institutional bias is a way of life in the DMR.
One listed mining firm CEO told Miningmx recently that prior to receiving a Section 54 notice, the DMR’s inspector was able to miraculously identify the single vehicle were keys were illegally left in the ignition during a safety audit of the premises.
Nedbank Capital said it had had a good year of business in 2016. It completed about 24 transactions worth R20bn, but one wonders how many of those were in South Africa and related to re-financings of existing debt?
Elsewhere in Africa, there’s some roaring trade underway. Take West Africa for instance where a number of new gold mining firms are springing up; capital flooding through the door. “If new mines are not built, the industry will die,” said Miller. That is what’s happening in the South African mining sector, withering on the vine.
In any event, the MalanScholes application to the High Court is due to be heard in early February. By the time we return from the Mining Indaba, South Africa’s mining sector could be in a very different place.