Jun 29 bis Aug 11

Revitalising exploration in South Africa’s mining industry

South Africa’s mining industry is not sustainable without investment in exploration. The discovery of new assets is not only critical for sustaining current output levels or growing the industry but also crucial if the country is to diversify its mining industry and remain competitive globally. A country’s regulatory framework for mineral development is one of the investment criteria assessed. This is done in order to determine which countries are targeted for exploration projects by major and junior mining companies.1 Investor confidence in the framework is key to attracting investments into exploration and is influenced by regulatory certainty and the ability to predict the continuation of the framework in the long term.1 Aspects of a regulatory framework considered are typically:

  • Security of tenure
  • Ability to move to the mining phase
  • Transferability and ability to bond
  • Ability to use surface
  • Environmental obligations
  • Indigenous land use rights & the impact thereof and
  • Fiscal regime (taxes, customs and ability to repatriate dividends)1

Before 1992, exploration was regulated by a common law mineral rights system in South Africa. In the system there was little regulation, predominance was given to the prospecting right owner over the land owner and it was easy to move from prospecting to mining (only a common law mineral rights owner could apply for a mining right).1 Since then a state licensing system was introduced as the system of prospecting permits. Currently prospecting is regulated by the MPRDA (Mineral and Petroleum Resources Development Act No. 28 of 2002). The intentional search for any mineral by any method is defined as “Prospecting” (in other countries it is exploration) in the MPRDA and the types of permits that can be issued are a:

  • Prospecting Right
  • Reconnaissance Permission (Lacks security of tenure) or
  • Retention permit (yet to be issued in South Africa).1

The principle used for the issuing of permits is “first come first served” in the application procedure (whereas other countries use a tender system). Applicants must demonstrate technical and financial capability as well as the ability to mitigate environmental and health and safety concerns. Key features of the MPRDA are that it gives exclusivity to a prospecting right holder to convert the permit to a mining right and that the stipulations in the MPRDA are statutory (the state cannot impose further conditions when issuing permits). Other important aspects are:

  • permission required to remove and dispose of bulk samples
  • submission of records to the Council of Geosciences is mandatory
  • environmental authorizations (NEMA and Water Use)
  • execution and registration at the Mining Titles Office (problems with accessing records)
  • Other precedence’s set by case law (e.g. on communal land consent must be obtained whereas the law only requires consultation).1

From a regulatory framework perspective, the MPRDA satisfies the investment criteria used to determine the attractiveness of a mining jurisdiction. However, exploration has declined tremendously since the 1990’s in South Africa. The key reasons for the decline in exploration in South Africa are administrative problems from the side of the regulator as well as the empowerment requirements (BEE) imposed on applicants of a Prospecting Rights.1

Historically the administrative problems experienced by applications are delays due to the loss of documents, overlapping rights, lack of transparency and extreme delays related to the issuance of water use licenses (statutory requirement).1  Transparency is a major problem in the system as there is currently no way of knowing whether or not a piece of land has rights that have been issued or rights lodged.1 Section 17 (1) (f) & Section (4) impose empowerment requirements on entities wanting to carry out prospecting activities in South Africa. These requirements do not make sense as exploration is an investment without dividends and the practicality of these requirements is questionable.1

Revitalising exploration in South Africa does not require wholesale changes to the regulatory framework.1The empowerment requirements hamper exploration and administration is a key hurdle to investment that needs to be overcome. Furthermore, major mining companies in South Africa have historically carried out exploration with Juniors playing a minor role. Majors have exited the country and focused their exploration activities elsewhere and this has left the Juniors as the main source exploration activity.1

Equity Finance is the primary source of funding for prospecting due to the high risks involved. Debt funding, Listing Finance, Project Finance, DFI’s, Equipment Finance and offtake finance options are not available at this stage of mineral development.2 As such, Juniors are hampered by lack of access to finance and the burden is too big for them to tackle alone.

To solve the problem of declining exploration and to ensure the growth and sustainability of the mining industry, the legislation must be amended to exclude the empowerment requirements. Furthermore, the SA must shift its exploration focus to Electric Vehicle metals and minerals (in line with future projected global demand), target databases of mothballed/closed mines (there is still a lot of untapped value in the ground), focus exploration to locations near producing mines, create partnerships between Juniors and cash generative mines and facilitate strategic partnerships with Majors.2

By: Gerard Mohapi - gmohapi@germanchamber.co.za


  1. C. Stevens.  The legal framework. Presentation by Werksmans Attorneys. In the Proceedings of the REVITALISING EXPLORATION IN SOUTHERN AFRICA ONLINE CONFERENCE SERIES POTENTIAL FOR EXPLORATION (SAIMM), , South Africa, 10 June 2020
  2. M. Seeger. Mine financing (raising capital for the mining life cycle - from prospecting to mining) in today’s world. Presentation by MX Mining Capital Advisors.  In the Proceedings of the REVITALISING EXPLORATION IN SOUTHERN AFRICA ONLINE CONFERENCE SERIES POTENTIAL FOR EXPLORATION (SAIMM), , South Africa, 17 June 2020
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