• De jure

    The mining industry is coming more and more to rely on specialist legal counsel.

    De jure

    Consider this tale of a single yet important, piece of South African legislation… The Mineral and Petroleum Resources Development Act of 2002 (MPRDA) came into effect in 2004. By 2008, however, it already had a draft amendment bill attached. In December 2012, cabinet approved the draft MPRDA Bill, despite concerns from across the mining industry. In February 2013, Chris Stevens, Werksmans Attorneys director and head of mining and resources, wrote in a statement that: ‘South African mining law, since the implementation of the MPRDA, has been saddled with the difficult topic of mixed minerals that is often found in a platinum/chrome scenario, a gold/uranium scenario and an iron ore/manganese scenario.

    ‘There are often different right holders or different applicants for rights for minerals occurring in the same ore body.’

    By 2014, the draft amendment bill had been approved by both Parliament and the National Council of Provinces but it still needed to be signed off by the Presidency. In early 2015, on advice from then Minister of Mineral Resources Ngoako Ramatlhodi, President Jacob Zuma sent the bill back to Parliament for reconsideration, saying it did ‘not pass constitutional muster’.

    There it has remained ever since, caught up in internal parliamentary processes… And if the Mineral Resources Parliamentary Committee ends up regarding the bill as being procedurally or substantively beyond repair, the MPRDA – in its entirety – will fall by the wayside, and we’ll be back to square one.

    Stories like this are not uncommon when it comes to complex legislation – but they do help explain the increasingly important role that lawyers now play in the mining sector.

    ‘Lawyers are crucial in most aspects of the effective operation of mining companies,’ says Nicola Jackson, partner at international business law firm Fasken Martineau.

    ‘Whether it is regulatory advice, corporate and tax guidance on acquisitions, divestments and proposed mergers, advice on structuring deals, financing deals or – in this current market – refinancing deals, it is important that a company gets a law firm on board that has sufficient breadth and depth of expertise and experience in advising on various aspects of the industry.’

    She adds that when it comes to appointing lawyers, ‘mining companies are looking for practical solution-finders that understand the industry’.

    ‘It is not so much a matter of knowing the law; it’s more a matter of knowing how the various regulatory bodies are likely to apply the law’

    The mining industry is highly regulated, with a strict framework determining who has the right to lawfully explore, prospect and extract the mineral or other natural resources. It is also highly complex, with mining houses constantly involved in M&As, financing, business rescue, contractor agreements, construction and infrastructure deals, health and safety issues, environmental questions, dispute resolutions and cases involving constitutional, administrative and criminal law.

    Yet while many mining lawyers focus on a particular specialised area (such as mine health and safety, or the regulatory environment), Warren Beech, partner and head of mining at law firm Hogan Lovells, argues that a sector-based approach is better, as it allows for practical, implementable, multidisciplinary advice to be given.

    ‘By understanding the sector and the multitude of laws that apply to the sector, holistic advice can be given to the various stakeholders in the mining and natural resources sector,’ he says. ‘Adopting the multidisciplinary sector-based approach also generally means that the practitioner can give advice holistically, regardless of the particular question being asked.’

    Beech adds that there are, generally, cycles in the type of regulatory aspects that arise in the mining and natural resources sector.

    ‘These cycles are influenced by both internal and external factors,’ he says. ‘Examples of internal factors include trade union dynamics, management changes, changes to systems of work and introduction of technology. Examples of external factors include cycles in demand for the mineral or natural resource, commodity prices, trade and investment patterns.

    ‘Currently, the emphasis from a health and safety perspective is on enforcement through the processes in terms of Section 54 of the Mine Health and Safety Act – the so-called mine closure notices.

    ‘From an environmental perspective the emphasis is on compliance with environmental authorisations, water-use licences, etcetera – and on ensuring, in particular, that financial provision is made for remediation and rehabilitation of negative environmental impacts on mine closure and downscaling of operations, and future potential impacts,’ says Beech.

    ‘From the perspective of the communities, the emphasis is on enforcement and compliance with the social and labour plan and, of course, on empowerment provisions – and in particular compliance with the provisions of the Mining Charter.

    ‘There is also currently an emphasis on resolving disputes relating to double-granting of rights to prospect or mine, or overlapping rights, which are granted over the same land or the same mineral.

    ‘Mining lawyers would typically get involved in the full spectrum of regulatory compliance with the applicable legislation,’ says Beech.

    In many ways, lawyers are similar to doctors – their business is about both prevention and cure. For mining houses, the prevention side has to do with giving informed advice and opinion, while the cure often lies in facilitating restructuring or settling litigation. And, to continue the doctor comparison, the advice lawyers are asked to give doesn’t always relate to the legal health of a company.

    ‘Mining lawyers would typically get involved in the full spectrum of regulatory compliance with the applicable legislation’

    Beech says: ‘The mining and natural resources sector has faced unprecedented challenges over the last two to three years, and it is only by understanding the full range of those challenges, whether they are “legal” challenges or not, that advice can be given that is practical – and implementable by the relevant stakeholder.’

    One of the primary challenges that mining firms face is regulatory uncertainty, a ‘very broad description that incorporates the concerns regarding the vast array of legislation that applies to the mining and natural resources industry, which several industries are now faced with; the regular changes that are made to the mining and natural resources legislation; the anomalies that are created because there is such a vast array of applicable legislation; and inconsistent interpretation and application by the regulators’, says Beech.

    Jackson agrees. ‘Policy uncertainty remains a significant risk to resource investors across the continent, but particularly so in South Africa,’ she says.

    ‘Resource ventures take years to plan and implement, and are extremely capital intensive. So before investors enter into the South African market, they need some level of policy certainty from government. Issues such as local participation requirements, state participation requirements, the level of state intervention, security of tenure and beneficiation are some of the crucial issues that the South African government needs to provide investors with clarity on.

    ‘The issue of uncertainty surrounding the MPRDA Amendment Bill is a prime example of this. This “wait and see” approach has obviously had a direct impact on the low level of M&A activity we’re seeing in the local market.’

    From a legal point of view, says Beech, it is not so much a matter of knowing the law; it’s more a matter of knowing how the various regulatory bodies are likely to apply the law.

    ‘It is essential that mining lawyers are fully up to speed and familiar with legislation as it changes,’ he says. ‘But most importantly, how the regulator – primarily the Department of Mineral Resources – interprets and applies the legislation, both from a national and a regional perspective. These insights are, in many instances, more important to the client than a pure legal interpretation of the wording in the particular statute.’

    Beech adds that often the ability to provide insights on interpretation and application is not only based on knowing where to find guidance and practice notes, issued by the regulators, but rather on close working relationships with the regulators and other stakeholders.

    ‘A “go it alone” approach is not always appropriate or successful, and an attempt to unilaterally implement decisions and procedures may not lead to success,’ he says. ‘All stakeholders should generally be engaged, including the regulator, trade unions and communities. By addressing the challenges holistically, pressure can be eased.’

    By Mark van Dijk
    Image: IStockPhoto