HomeNewsBeech: Zuma ‘dumps cold water’ on mines with foreign ownership land ban

Beech: Zuma ‘dumps cold water’ on mines with foreign ownership land ban

By Warren Beech, partner and head of mining at law firm Hogan Lovells

The announcement by President Jacob Zuma of the ban on foreign ownership of property under the Regulation of Land Holdings Bill, was in stark contrast to the message by the Minister of Mineral Resources, Advocate Ramatlhodi, during his opening address at the ISH Energy South African Coal Export Conference and the official opening address at the Annual Investing in African Mining Indaba in Cape Town.

It is also a significant potential blow to the beleaguered South African mining industry.

Minister Ramatlhodi has emphasised the importance of the South African mining industry, stating that coal remains a major source of energy for South Africa and accounts for 95% of electricity generation, 70% of primary energy and 30% of petroleum liquid fuels.

The coal sector is also the mining industry’s third largest employer, and second largest generator of foreign revenue.  Minister Ramatlhodi reiterated that the South African mining industry was integral in addressing high levels of unemployment and inequality, and acknowledges that the South African mining industry is a key contributor towards the attainment of national developmental objectives.

Minister Ramatlhodi commented that “…South Africa is ready for investments. In the past 22 years we have built a stable constitutional democracy underpinned by the rule of law and a justiciable Bill of Rights.  This is further re-enforced by a strong monetary and fiscal regime and independent Reserve Bank, which have assisted us to navigate rapid and sometimes difficult changes in the global economy… given the centrality of mining to the economy of the country, we are leaving no stone unturned, in providing a stable environment for investments…”

Days after Minister Ramatlhodi’s opening address at the annual Investing in African Mining Indaba on 10 February 2015, President Jacob Zuma’s announcement of the Regulation of the Foreign Holdings Bill, dumped cold water on any positive investment sentiments expressed by Minister Ramatlhodi.

Land ownership, while emotional, also plays a vital role in establishing an asset base, which in turn, creates viable balance sheets for investment in prospecting and mining operations.  Leases, no matter how long they are, do not provide the same level of security of tenure, and may be insufficient to spur normally cautious investors to put up the money.

While it may be argued that the minimum proposed duration of a lease, of 30 years, is consistent, for example, with the maximum duration of initial periods in relation to Mining Rights, various preferential rights are granted to the holders of Mining Rights to apply for and be granted an extension of Mining Rights.  Similar provisions may not be included in the final version of the Bill, and ultimately, the Act.  In addition, restrictions on the total ownership to a maximum of 12 000 hectares does not take into account the often significant footprint required for viable mining operations.

With foreign direct investment having reduced, according to latest figures, the announcement by President Jacob Zuma is likely to impact further on investment in the South African mining industry.