Mining legislation

South African mining law

Introduction

Immediately prior to May 1, 2004, the principal legislation governing mineral rights in South Africa was the Minerals Act, which came into effect in 1991. The MPRDA that came into effect on May 1, 2004 replaced the Minerals Act. The Mineral and Petroleum Resources Development Act (MPRDA) contains certain transitional measures with regard to mineral rights, prospecting permits, and mining authorizations (old order rights) obtained prior to May 1, 2004.

The MPRDA vested custodianship of all minerals in the South African State.

There are four principal authorizations available under the MPRDA with respect to minerals – a reconnaissance permission, a prospecting right, a retention permit, and a mining right.

• Reconnaissance permission. A reconnaissance permission may be applied for to search for minerals by way of geological and geophysical surveys. Such permission is valid for two years and is not renewable.
• Prospecting rights. A prospecting right may be granted for up to five years and may be renewed once for a period not exceeding three years. The holder of a prospecting right has the exclusive right to apply for and be granted a mining right.
• Retention permit. Issuing of a retention permit will be considered in cases where the holder of a prospecting right cannot proceed to mining because of unfavourable prevailing market conditions. It is valid for up to three years and may be renewed once for a period not exceeding two years. The holder of a retention permit has the exclusive right to apply for and be granted a mining right over the retention area.
• Mining right. Mining rights are granted for a maximum of 30 years but are renewable for an indefinite number of further periods, each of which may not exceed 30 years.
• Transitional arrangements. Old order rights held under the previous dispensation are required to be converted to (new order) rights recognized under the MPRDA. In accordance with the transitional arrangements of the MPRDA all applications for prospecting permits, mining authorizations, consent to prospect or mine and all environmental management programs made under the Minerals Act but not finalized or approved before May 1, 2004 (the date on which the MPRDA took effect), are treated as having been made under the MPRDA.

The Mineral and Petroleum Resources Development Act (PDF- 3.49MB)

Black economic empowerment legislation

The MPRDA introduced a broad-based socio-economic charter for the South African Mining Industry, the Mining Charter, that sets a framework, targets and timetable for effecting the entry of HDSAs into the mining industry. Targets, time frames and commitments are set for human resource development; employment equity; non-discrimination against foreign migrant labour; mine community and rural development; housing and living conditions; procurement; ownership and joint ventures (which has a target of 26% equity ownership by historically disadvantaged South Africans within 10 years); and beneficiation. In addition, applicants for a mining right must have a labour and social plan approved as part of the application process and community issues are usually prominent in such plan.

Environmental management

Applicants for a mining right are required to conduct an environmental impact assessment and submit an environmental management program, while applicants for a prospecting right, mining right or reconnaissance permit have to submit an environmental management plan. Prospecting and mining rights only become effective under the MPRDA on the date that the corresponding environmental management plan or program has been approved. Requirements for making financial provision for the remediation of environmental damage as well as for the issuing of a closure certificate are included in the MPRDA and include the requirement that financial provision must be in place before approval of the environmental management plan or program and the fact that an application for a closure certificate now becomes compulsory upon lapsing of the right or cessation of activities.

The Mineral and Petroleum Resource Royalty Act

Having been passed in 2008, the South African Mineral and Petroleum Resources Royalty Act came into effect on 1 March 2010. In terms of this Act, royalties are payable by mining companies on profits (rather than revenue as initially proposed) made by mining companies and includes producers of PGMs in concentrate.

The Mineral and Petroleum Resources Royalty Act (PDF- 500KB)

South African Taxation Matters

Mining companies in South Africa are taxed at the standard corporate tax rate of 28%. In addition, a secondary tax on companies is payable at the rate of 10% on the excess of dividends paid to shareholders over dividends received from other South African companies. The total effective nominal tax rate on distributed profits is, therefore, 36.89%. No other tax or withholding tax is payable in respect of dividends paid to shareholders.

Corporate tax is paid on all income, plus 50% of capital gains, less deductible operating expenditure and a capital expenditure allowance. Deductible expenditure includes rehabilitation expenditure actually incurred and annual contributions to an approved rehabilitation trust. Prospecting and capital development expenditure is treated as follows:

• all prospecting and capital development expenditure is carried forward to the year of commencement of production;
• thereafter the accumulated prospecting expenditure and all future prospecting expenditure is allowed as a deduction either in full or in annual installments as determined by the South African Revenue Services;
• in the year of commencement of production and thereafter the accumulated and future annual capital expenditure on shaft-sinking, mine equipment and mine development is deductible in full up to the amount of taxable income from mining before allowing for this capital expenditure allowance. Any excess of capital expenditure over such taxable income is carried forward for deduction from future taxable income from mining;
• capital expenditure in respect of employees' housing, hospitals, schools, shops, recreational buildings and facilities and railway lines is deductible in 10 equal annual instalments. Capital expenditure in respect of motor vehicles intended for the private use of employees is deductible in five equal annual instalments. Each annual instalment is included in the above capital expenditure which is subject to the annual limit of taxable income from mining;
• no deduction is allowed in respect of the cost of land and mineral rights; and
• proceeds on the disposal of any asset previously included in the capital expenditure allowance are first deducted from any excess capital expenditure not already deducted and thereafter are included in full in taxable income. Such proceeds do not give rise to capital gains.

South African taxation matters: www.sars.gov.za