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South Africa's five year Exploration Strategy, a year in

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In an attempt to boost South Africa’s ailing exploration industry, the Department of Mineral Resources and Energy (“DMRE”) published an exploration strategy for South Africa’s mining industry on 14 April 2022 referred to as the Exploration Implementation Plan (“Exploration Strategy”). The Exploration Strategy recognises the mining industry’s historical contribution to the South African economy and aims to reposition South Africa as a significant country in the global minerals sector after losing its shine over the years.

The Exploration Strategy is intended as a roadmap for the DMRE to achieve the objective of reviving South Africa’s appeal and market share in the global minerals sector. South Africa’s share of global exploration activity stood at 5% in 2003 but has now declined to below 1%. This comes at a time when the race for rare earth minerals and minerals of the future is at a critical point, thus making the strategic placement of mineral-rich countries a key focus. The Exploration Strategy sets out a five year period within which to achieve its stated aims and 14 April 2023 marked the one year anniversary since its release.

We are tracking the progress of the Exploration Strategy and on review, at the one year mark, have observed, inter alia, the following:

  • Increasing global market share through a cadastral system that would make it easier to apply for the relevant rights designated in the Mineral and Petroleum Resources Development Act, 28 of 2002 (“MPRDA”) has been identified as a key intervention within the MPRDA’s regulatory framework. On 27 March 2023 the DMRE in collaboration with the State Information Technology Agency issued a Request for Bids in respect of the design, implementation, maintenance and support of an online mining licencing system to replace the SAMRAD online system. If successful, this online mining licensing system could enhance regulatory certainty in the context of applications, speed and efficiency of processing of applications and dealing with issues of overlapping applications. However, the cadastral system initiative has been years in the making and there is significant red tape to overcome before such an online system can successfully be implemented.
  • Exploration investment has been identified as a key barrier to greenfield exploration activities in South Africa by both established mining companies and emerging junior companies. In particular, a lack of listing of exploration companies on the Johannesburg Stock Exchange (“JSE”) limits access to resources underpinning exploration activities. Of the 39 mining companies listed on the JSE, 35 are actively trading, of which 6 are true exploration or development companies. By comparison there are over 2000 listings of mining companies on the Canadian stock exchanges. To address this barrier, the Exploration Strategy has recommended an engagement with the JSE by the DMRE and the Minerals Council South Africa to explore necessary interventions to unlock barriers to listing of exploration companies within 3 months. We have not received any information of follow up developments in this regard.
  • A lack of access to financial instruments has also been recognised as a key barrier to exploration with limitations to the diversity of available fiscal/financial instruments for junior miners. In addressing this barrier, the Exploration Strategy requires the Minerals Council of South Africa to engage stakeholders to assess the efficacy of the Canadian flow-through shares instrument and its applicability to the South African mining exploration jurisdiction. In October 2020, i.e. prior to the publication of the Exploration Strategy, the Minerals Council of South Africa Junior and Emerging Miners' Desk, in collaboration with advisors including Fasken, had already submitted a proposal to the National Treasury in 2020 regarding the introduction of a local tax incentive based on the Canadian flow-through shares model, proposing tax incentives for purchases of equity in entities undertaking exploration activities. This proposal is still under consideration at a government level.
  • On regulatory/policy matters the Exploration Strategy, among other issues, identifies the existing timeframes for exploration and the principle of “first come, first served” as barriers. According to the Exploration Strategy, these barriers could be overcome through appropriate amendments to the regulatory framework to allow for, amongst other things, adequate data collection to enable the principle of “first come, first served” to be replaced with a qualitative based system whereby the processing of applications will be determined on the basis of how best they will achieve the objects of the MPRDA. To date no such amendments to the MPRDA have been published for comment.

Arguably one of the greatest hurdles to overcome on Regulatory/policy matters (a key barrier identified in the Exploration Strategy) is regulatory uncertainty created by the failure to align the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (“Mining Charter, 2018”) with the High Court judgment (Minerals Council of South Africa v Minister of Mineral Resources and Energy and Others (20341/19) [2021] ZAGPPHC 623; [2021] 4 All SA 836 (GP); 2022 (1) SA 535 (GP) (21 September 2021)). This High Court judgement affirmed the principle of “once empowered, always empowered” and set aside a raft of provisions in the Mining Charter, 2018.

The minerals race is fast-paced and South Africa is only one of many mineral-rich countries in Africa vying to be the golden goose in the global mining sector. Time is therefore of the essence in overcoming the barriers identified in the Exploration Strategy.

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