Junior mining investment stumbling due to regulatory uncertainty

Jonathan Veeran, partner and deputy head of Webber Wentzel’s mining sector group

“Mining investment is normally of significant magnitude, high risk and long-term in nature. Risks flow from the macro-economic factors beyond the control of the investor and host countries and cannot be avoided. The period over which the investment will render returns normally extends beyond the reasonably foreseeable and predictable,” said Jonathan Veeran, partner and deputy head of Webber Wentzel’s mining sector group.

Among the challenges are:

• The lack of consultation on and the potentially far reaching amendments to the Mining Charter is of grave concern to the industry.
• The lack of certainty around when the MPRD (Mineral and Petroleum Resources Development) amendment bill would come into force is also a deterrent to investment.
• Housing and living conditions – investors are expected to comply to many regulative legislations on this aspect, of which many contradict each other.

“These are but three examples of the impact that regulatory uncertainty has on investment,” says Veeran.

Lighter regulatory touch

The South African government should look very closely at developing a lighter regulatory regime for the junior mining sector. As:

• Cost efficiency - the regulatory framework is complex and requires a host of skilled personnel and consultants to ensure initial and sustained compliance. Such skilled services and consultants are usually too expensive for juniors; and
• Administrative burden - the time consuming tasks of regulatory compliance is not only costly but burdensome in terms of time for juniors.

Veeran says the creation of an efficient and transparent public administration system is critical to driving investor confidence. “It requires consistent application of legal principles across the board and timely decision making that won’t leave the industry in limbo.”

More than political grand gesturing

“Compliance with and the enforcement of anti-corruption laws, both locally and internationally, as well as sanctions against rogue states and individuals are making its presence felt in South Africa practically in among foreign listed companies where foreign statues with extra-territorial reach, such as the UK Bribery Act and the US' FCPA, find application. It means that the legislative parameters within South Africa’s mining industry need to be about more than just political grand gesturing,” he says.

Veeran uses the fact that South Africa is missing from the EITI (Extractive Industries Transparency Initiative), which comprises of 41 members of which 26 are African states, as an example.

“Mineral policies and regulation should be aimed at promoting a competitive mining industry that is sustainable in the long run. A good start would be to drive a more equitable share of revenue from mineral resources to economic growth and employment creation in downstream industries. It is necessary for stakeholder, investors and government to form a social compact for the industry within which the needs and requirements of each party are understood and addressed to create an investor friendly regulatory regime,” concludes Veeran.