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Is deregulation the answer to SA’s Zama-Zama crisis?

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Zama Zama’s have been able to access most historic mining sites in South Africa. it is especially in and around Johannesburg that illegal mining has become a headache. Image credit: Leon Louw for WhyAfrica

Is deregulation the answer to SA’s Zama-Zama crisis? 

The primary victims of South Africa’s one size fit all stringent mining regulatory system are the local artisanal and small-scale mining.

By Dominic Varrie Candidate Attorney at NSDV 

South Africa is hailed the world over for its mineral wealth and has hosted a thriving large-scale mining industry since the mid-1800’s.

As a result, the legislation governing mining in South Africa has been meticulously developed and the current framework is undeniably world class, but one could say that over-regulation of the mining sector, in particular with regards to the smaller players, may have given rise to some unfavourable consequences for the juniors. Let’s face it, the primary victims of South Africa’s one size fit all stringent mining regulatory system are the local artisanal and small-scale mining (ASM) operations.

Section 3(1) of the Mineral and Petroleum Resources Development Act, No. 28 of 2002 (MPRDA) states that “Mineral and petroleum resources are the common heritage of all the people of South Africa and the State is the custodian thereof for the benefit of all South Africans”. This lofty principle is unfortunately not reflected in the operation of the prevailing legislative framework.

The process of becoming lawfully entitled to mine in a particular area is long and burdensome.

At present the process takes at least 300 days to obtain a mining right and 180 days to obtain a prospecting right. These waiting periods represent the best-case scenario and assume that everything goes according to plan, which is seldom the case.

The preliminary stages can be incredibly costly, with the intricate prospecting processes, the need for an environmental impact assessment, onboarding of multiple technical specialists, a menagerie of documents, a social and labour plan, water use licence, waste management licence, environmental authorisation and mining works programme, to name just a few of the obligatory regulatory requirements that come at considerable cost.

The regulatory burden and associated costs continue to accumulate once a mining right has been secured and mining activities commence. The variety of mine health and safety requirements, various reporting obligations, regular audits and financial provisioning requirements that could run far into the millions, mean that smaller mining companies are never free of the financial burdens of the mining regulatory system.

To the mining giants of the world, listed companies, and mid-tier miners, these administratively and financially weighty procedures are at most, a minor inconvenience when the prize is the potentially handsome profits the mining industry has historically produced. In fact, for the most part, the strict regulation of larger players to some extent is beneficial for a sustainable environment and climate, and the protection of local host communities.

However, for ASM’s who in all likelihood do not have the funding necessary to traverse these strict procedures and actually commence with profit producing mining operations, the regulatory and financial burden is too heavy to bear. The uniform application of the current regulatory framework creates barriers to entry for ASM’s and allows large scale operators to maintain a stranglehold on the industry.

Illegal mining in South Africa (Is deregulation the answer to SA’s Zama-Zama crisis?

The regulatory barriers to entry are unfortunately discouraging for ASM’s and disincentivise their engagement with the formal sector, only adding fuel to the fire that is the informal, or rather illegal mining sector in South Africa.

Illegal miners, known locally as “Zama Zamas”, have long been a nightmare for the South African mining industry and recently, the criminality that surrounds these illegal mining formations means they are a bane for communities in general. Not only do Zama Zamas place themselves at substantial risk while conducting illicit mining activities, they also pose a threat to the safety of legal mining workers, the environment and urban and rural communities in general.

A report by the Transnational Alliance to Combat Illicit Trade (TRACIT) demonstrates the scale of the damage caused by illegal mining in South Africa:

  • A 2017 report by the Minerals Council South Africa estimates that the annual commercial value of illegal mining and illicit dealings in precious metals and diamonds is about R7-billion, including heightened security costs to protect mines from incursions by syndicates.
  • There are between 8 000 and 30 000 illegal miners reported to work in South Africa, including common reports of child labour and other human rights abuses.
  • Illegal gold mining operations have become a major challenge for legitimate companies, with as much as five percent of South Africa’s annual gold production lost to illicit activities.
  • Estimates place the illegal mining and export of chrome ore at nearly 1 million tonnes per year – more than 10% of South Africa’s legal chrome output.This underground industry has been robbing South Africa of important tax revenue, royalties and foreign exchange earnings, while costing legitimate mining companies billions in production loss and increased security expenditure, as well as creating a burgeoning organised criminal enterprise that law enforcement is increasingly struggling to reign in.

The economic upside of artisanal mining (Is deregulation the answer to SA’s Zama-Zama crisis?

ASM’s will often exploit smaller mineral deposits that are uneconomical for large-scale mining operations, utilising basic equipment and simple technology.

Freeing ASM’s from the regulatory constraints of the current regime could create an avenue for illegal miners to lawfully participate in the mining industry, allow the government to regulate and benefit from the increased activity in the sector, create much needed jobs in the country, combat urban migration and alleviate the strain on the local police force. 

This change will not require a total revision of the current regulatory framework, rather a targeted reform, consisting of a relaxation of the legislative requirements. This will facilitate access to the industry within reasonable limitations, and consequently divert many illegal miners toward the formal sector.

Another crucial intervention for ASM’s would be to improve access to funding. This can be achieved in a number of ways. A good start would be to amend the regulations promulgated in terms of the MPRDA to include and recognise junior mining and their specific requirements.

Investors have historically been apprehensive about ASM’s due to less experience, legislative and permitting challenges, the geopolitical climate of South Africa, as well as the lack of adequate infrastructure.

However, according to statistics released by the Minerals Council of South Africa, in 2018 junior mining contributed R54 billion to the mining sector, which increased by 63% to R88 billion in 2022, demonstrating the incredible potential of the sector.

Proactive effort is needed to encourage investment in the junior mining space. The successful model of the Victoria Falls Stock Exchange in Zimbabwe offers some innovative solutions, such as offering tax incentives for shareholders and an exemption from capital gains withholding tax for investors.

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What is Zimbabwe doing?  (Is deregulation the answer to SA’s Zama-Zama crisis?)  

African mining powerhouse, Zimbabwe, has recently taken steps to open up access to the mining industry for ASM’s. The currently enforced legislation in Zimbabwe is the Mines and Minerals Act [Chapter 21:05], an antiquated piece of legislation which has been in force since 1961. The old Act is set to be repealed by the more modern Mines and Minerals Bill, H.B. 10, 2022.

Artisanal and small-scale miners in Zimbabwe have long made a significant contribution to Zimbabwe’s economy, despite not being mentioned in the prior regulatory framework. The new Bill has expressly recognised and defined artisanal and small-scale miners. In an attempt to protect and bolster the local industry, the Bill has limited artisanal and small-scale miners to “Zimbabwean citizens or permanent residents”.

How is Ghana doing it? (Is deregulation the answer to SA’s Zama-Zama crisis?

Ghana has demonstrated the potential of the ASM sector, having legalised small-scale mining in 1989. In 2021, the sector employed 60% of Ghana’s mining work force, about 12% of the country’s population. In 2018, small-scale miners accounted for more 43,1% of total gold production in the country. The socio-economic benefit of the ASM sector is clear, however, while ASM is actually legal in Ghana, formalisation and regulation of the sector remains a challenge.

Unlocking the potential of ASM’s in South Africa can have significant wide-reaching benefits for South Africa. Targeted relaxation of regulatory constraints in the mining industry that specifically impact ASM’s can allow significant formalisation of the current informal sector, enabling improved regulatory control and protection of the sector.

The formalisation of ASM’s has the potential to produce many new jobs in the country, and with the recently announced labour statistics showing that South Africa had an unemployment rate of 32.6% in the second quarter of 2023, surely we should be trying to create jobs anyway we can, and the formalisation of ASMs is a viable option. An accessible, fairly regulated, and formal ASM sector could encourage many illegal miners to migrate over to the safety of the formal sector and who knows, it may even encourage funding to the sector as well.

Is deregulation the answer to SA’s Zama-Zama crisis?

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Is deregulation the answer to SA’s Zama-Zama crisis? 

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