Regulatory and legislative uncertainty – with specific reference to gaps created by the amendments to the Mineral and Petroleum Resources Development Act (MPRDA) and the National Environmental Management Act – is not only one of the key challenges that the South African exploration and mining industry faces but is also one that is impacting significantly on the industry and foreign investment in the industry.

This situation is highlighted by law firm Hogan Lovells partner and head of mining Warren Beech, who believes that investors are extremely cautious when making investment decisions in the absence a stable framework from which to obtain prospecting and mining rights and the related environmental authorisations.

Many investors from the historical and traditional investment jurisdictions, such as Australia and Canada, and the more recent investment jurisdictions, such as China, are concerned about the ever-changing regulatory environment in South Africa and cite this as one of the key deal breakers regarding investment in South Africa.

Beech says that if key legislation, such as the MPRDA, is consistently subject to review, proper decisions on investment cannot be made, and the long lead times between the decision to invest and the granting of the authorisations impact on these decisions even further.

For example, if it takes four to five years to obtain a water-use licence, in the absence of which mining operations often cannot start, investment destinations that can expedite the authorisation process would be more attractive to the investor.

To overcome this, it is essential for South Africa to accept that the investment market is extremely competitive and that there are other countries, including countries in Africa, that appear to be more attractive to investors.

Mining companies, therefore, need to ensure that a realistic picture of the challenges is created because, once the challenges are accepted, they can be dealt with.

Meanwhile, environmental authorisations are a critical component of the ability to mine lawfully. Even if a prospecting right or a mining right is granted, in the absence of the environmental authorisations and water-use licences, the investor is not allowed to lawfully start with mining operations.

The delayed return on investment represents a significant additional risk to the investor in these circumstances.

To overcome the challenge of regulatory uncertainty and its knock-on effect of deterring investment in the short to medium term, Beech tells Mining Weekly, it is essential to ensure that there is a proper, realistic and in-depth understanding of the complexities that form the basis of the regulatory uncertainty.

It is not appropriate to contribute to incorrect or agenda-driven speculation. The focus must instead be on a proper understanding of risks, which will, in turn, inform decision-making on the acceptability of the risks, he notes.

Further, the most important expectation that needs to be managed is project timelines.

Investors or shareholders often compare the South African mining environment with that of other countries where the application or authorisation processes are much quicker, while, in respect of the mining regulatory aspects and the various environmental authorisations, they are, in fact, very lengthy and could take between four and ten years before mining may start, with goal posts that could shift along the way.