A guide to developing mining projects

South Africa



“South Africa’s mining industry has been and remains
the bedrock of Africa’s economic powerhouse.”

South Africa’s mineral endowment is well known and covers precious metals (gold, silver, platinum group metals), precious stones (diamonds), base minerals (iron ore, chrome, manganese, coal, heavy mineral sands, and many more), construction materials (sand, stone, clay), and natural oil and natural gas (coalbed methane, share methane).

Early phase

Mining project acquisition

Business sale and purchase

It is possible to purchase the business of the mining project, as opposed to the company which owns the mining project. Investors may choose this option because they wish to acquire the specific project assets rather than all of the assets and liabilities of the company holding the mining project. Asset acquisitions generally require less due diligence than corporate acquisitions but may be more complicated to implement due to the need to ensure that all relevant assets and related contracts are assigned to the incoming purchaser.

The cession of a prospecting right or mining right to another entity (as part of the sale of the specific project assets) will require the consent of the Minister of Mineral Resources. The Minister must however grant consent if the proposed acquirer is capable of carrying out and complying with the obligations, terms and conditions of the right and satisfies the requirements (including empowerment requirements) as if it were an applicant for a new such right.

The shorter term permits, being reconnaissance permits and permissions, technical co-operation permits, retention permits, and mining permits (all defined in the Mineral and Petroleum Resource Development Act, 2002 (MPRDA), are not transferable, and will need to be applied for by the new operating entity.

Mining in South Africa is subject to a particular tax dispensation, which concerns certain upfront concessions in respect of the treatment of capital. The impact of the proposed acquisition on both the acquiring entity and the entity disposing of the asset must be carefully analysed from a tax perspective to ensure tax efficiencies.

Share acquisition or subscription

Another option is for an investor to purchase the shares in the company holding the prospecting or mining rights. This may be done by a private purchase of shares in a private target company, an on-market portfolio acquisition of shares in a listed target company or an off-market takeover bid or scheme of arrangement in respect of a listed target company.2

An investor could also subscribe for shares in the company holding the prospecting right or mining right rather than purchasing shares in the company from an existing shareholder. Any such subscription which is a result of an offer by the company to subscribe for shares must either comply with the requirements of an offer to the public in the Companies Act, 2008 or be structured in a manner so as to be exempted from being an offer to the public.

A disposal of a controlling interest of an entity (other than a listed company) which holds a prospecting right or mining right (as part of the sale of the specific project assets) may only occur with the consent of the Minister of Mineral Resources. This consent is not a formality, and the conditions applicable to an acquisition of prospecting or mining rights apply.

Earn-in arrangements

Earn-in arrangements are not uncommon in South Africa, and are typically utilised if the mining right is held by an empowered entity with little capital. Typically, as the investor injects funds into the company to develop the project, the investor acquires a greater interest (be it shares or – if an unincorporated entity – members interest) in the company or unincorporated entity.

A variation on the earn-in method is for the investing entity to acquire preference shares in the company, the subscription price of which is used as operating capital. Once mining begins, the preference shares are redeemed on a formula determined by the value of the material actually extracted. This is typically called a ‘pay-as-you-mine’ funding structure.

Foreign investment and exchange control regulation


South Africa has exchange control rules which restrict South African residents from expatriating funds from South Africa and owning foreign funds or assets, without permission either from one of the banks appointed by the Minister of Finance to act as an authorised dealer  (Authorised Dealer) or the Financial Surveillance Department of the South African Reserve Bank (FinSurv). Movement of money out of South Africa requires FinSurv approval.

For exchange control purposes, natural persons will be resident in South Africa if they have taken up permanent residence or are domiciled in South Africa. A legal entity will be regarded as being resident in South Africa if it is registered in South Africa.

Investments into South Africa

There is no restriction on the inflow of investments into South Africa by non-resident investors. Such transactions must, however, be concluded on an arm’s length basis at fair market related prices and financed in an approved manner.

Where a non-resident investor intends to hold shares in a South African company, approval via an Authorised Dealer must be obtained to hold the shares. This is a procedural approval, which is based on objective facts and is obtained post-acquisition of the shares. The Authorised Dealer will endorse the share certificate in the name of the non-resident investor with the words “non-resident”. The endorsement ensures that any proceeds relating to a sale of the shares which are accruing to the non-resident investor may be transferred abroad.

Any income such as dividends and interest derived from the South African-held investment may be remitted by the non-resident with the approval of an Authorised Dealer, provided that dividends declared for that non-resident’s benefit may be remitted only if the share certificates reflecting the non-resident’s shareholding are endorsed “non-resident”.

Expatriation of funds

As stated above, South African exchange control regulations regulate the outflow of funds from South Africa. Exchange control approval is required either via an Authorised Dealer or directly from FinSurv to expatriate funds from South Africa. Provided the payments are legitimate, this consent is not usually delayed or withheld.

Precious Metals Act, 2005 (PMA) and the Diamonds Act, 1986 (Diamonds Act)

The PMA regulates the acquisition, possession, smelting, refining, beneficiation, use and disposal of precious metals (ie, gold, platinum group metals and the ores of such metals and any other metals that the Minister of Mineral Resources has declared by notice in the Government Gazette to be a precious metal for the purposes of the PMA). The Diamonds Act has a similar effect in regard to diamonds. Specialist advice from our team is best acquired if an investor intends undertaking operations relating to precious metals or diamonds.

Developing New Mining Projects

Initial exploration and feasibility studies

Early on in its life cycle, a mining company will undertake initial exploration and prospecting activities, provided that it has obtained the appropriate right. Once obtained, exploration of various types (such as exploration drilling and aerial and geotechnical surveys) is then undertaken to see whether there is resource potential.

Assuming the results indicate a resource presence, the mining company will explore the extent of the resource to estimate the size and grade of the deposit. Initial feasibility studies will then be conducted to estimate the theoretical economics of the project and to identify whether further feasibility and engineering studies are warranted.

The feasibility stage usually involves expenditure of significant funds and for that reason is carried out once the initial exploration phase has produced some promising results. Feasibility studies will evaluate the overall economic viability and technical and financial risks of the project. They will consider details of the operations and management, market research, legal and accounting requirements and tax obligations, as well as the development and operating costs. Feasibility studies take into account the economically recoverable portion of the deposit, engineering and construction costs, environmental and social impact, finance and capital requirements, marketability, location of the mine, proximity to infrastructure, geological considerations and access to land, power and water.

Involving local communities in mine development is an increasingly important aspect of successful mine construction and operation. At a minimum, the communities involved should be identified and a communication strategy established.

Project structuring

A key issue to consider is the way in which a mining project will be structured. If there are multiple parties involved, the project may be developed under a joint venture arrangement. A joint venture may be either an unincorporated joint venture (regulated by a joint venture agreement) or an incorporated joint venture (regulated by a shareholders agreement and the incorporated entity’s constitutional documents).

Usually the venture participant holding the majority interest will be appointed joint venture manager and will have responsibility for the day-to-day operations of the project. Each participant in the joint venture will be responsible for bearing its share of project costs according to its participating interest.

The tax implications will differ depending on the type of joint venture structure used (eg, unincorporated or incorporated). Foreign investors will often establish a special purpose vehicle to hold their mining project investment (in particular, due to the local minimum ownership requirements). Determining an appropriate project structure is important, as it will impact the project’s profitability, risks and liabilities.

Acquisition of Prospecting and Mining Rights


Mineral and petroleum regulation is governed by the MPRDA which provides for reconnaissance permissions3, prospecting rights4, retention permits5 and mining rights6 in respect of minerals other than petroleum, and for reconnaissance permits, technical co-operation permits7, exploration rights8 and production rights9 in respect of petroleum.

The Department of Mineral Resources (DMR) considers a wide range of factors and principles before approving any application for a prospecting or mining right. These factors include proposals relating to Black Economic Empowerment and social responsibility and evidence of an applicant’s ability to conduct mining optimally.

Prospecting rights

Prior to prospecting for any mineral or commencing any work incidental thereto, 
a person must obtain a prospecting right from the DMR.

The holder of the prospecting right must commence prospecting activities within 120 days of the effective date of the prospecting right and in order to retain the prospecting right, the holder of a prospecting right must continuously and actively conduct prospecting operations to be conducted in accordance with the prospecting work programme.

A prospecting right is valid for the period stipulated in the right, with a maximum term of five years, after which the holder of a prospecting right may apply to renew the right for a further period of up to three years.

The holder of a prospecting right has the exclusive right to apply for and be granted a mining right in respect of the mineral and the prospecting area to which the prospecting right relates and additional areas which might comprise the mining area.

The holder of the prospecting right may enter the land to which such right relates together with his or her employees, and may bring onto the land any plant, machinery or equipment and build, construct or lay down any surface, either aboveground or underground, which may be required for purposes of prospecting.

Mining rights

In order to mine for any mineral or commence any work incidental thereto, a person must obtain a mining right from the DMR.

The holder of a mining right must commence mining operations within one year from the effective date of the mining right and in order to retain the mining right, the holder of a mining right must actively and optimally conduct mining in accordance with the mining work programme.

A mining right is valid for the period stipulated in the right, with a maximum term of 30 years, after which the holder of a mining right may apply to renew the mining right for further periods of up to 30 years each.

A holder of a mining right has, subject to compliance with the requirements of section 24 of the MPRDA, the exclusive right to apply for and be granted a renewal of the mining right in respect of the mineral and mining area to which existing mining right relates. The holder of a mining right can carry out any other activity incidental to mining, which activity does not contravene the provisions of the MPRDA.

The holder of a mining right may enter the land to which such right relates and may bring onto the land any plant, machinery or equipment and build, construct or lay down any surface, either aboveground or underground, which may be required for purposes of mining.



Broad-Based Black Economic Empowerment (BEE) is governed generally by the Broad-Based Black Economic Empowerment Act, 2003 (BBBEE Act) and the Codes of Good practice promulgated under the BEE Act (Codes).

BEE in the mining sector, however, is not governed by the BBBEE Act or Codes but rather by the MPRDA and the Mining Charter promulgated under the MPRDA (Mining Charter), a revised version of which came into effect on 20 September 2010.

Mining Charter

The objectives of the Mining Charter include the promotion of economic opportunities in the mining sector in South Africa for Historically Disadvantaged South Africans (HDSAs).

The term HDSA is the equivalent of the term “black people” used in the BEE Act and the Codes and refers to any South African citizen, category of persons or community, disadvantaged by unfair discrimination before the Interim Constitution of the Republic of South Africa, 1993 came into operation.

As with BEE generally, although an entity will not be sanctioned for failing to be BEE compliant in the mining sector, it is in practice impossible for an entity to operate in the sector if it is not BEE compliant. This is because the DMR will only issue a mining right to an entity and, thereafter, not revoke/cancel that right on BEE compliance grounds if that entity: reports its level of compliance with the Mining Charter each calendar year; has a minimum of 15 per cent black ownership and has a plan to achieve at least 26 per cent HDSA ownership (which includes meaningful economic participation and full shareholder rights) by 2014. Due to the local ownership requirements, investors often establish a special purpose vehicle in which they hold 74 per cent and their HDSA partner holds 26 per cent. This ensures the investor retains control and confidentiality over its own business and operations; and has a plan to convert and upgrade all hostels in line with the requirements of the Mining Charter and the Housing and Living Conditions Standard developed in terms of the MPRDA (which ensures that mine workers have a good living environment).

After fulfilling the three criteria above, an entity is measured on the BEE Scorecard contained in the Mining Charter and is assigned a BEE score. There is no ‘good BEE score’ in the mining sector. What matters is whether the measured entity is fulfilling the conditions relating to BEE contained in its mining right(s).

The elements of the Mining Charter BEE Scorecard against which an entity is measured, are:

  • ownership;
  • procurement and enterprise development;
  • beneficiation;
  • employment equity;
  • human resource development;
  • mine community development;
  • housing and living conditions
  • sustainable development and growth of the mining industry; and
  • reporting (monitoring and evaluation).

The Mining Charter also sets targets for the various elements. For example, the Mining Charter sets a target for:

  • the preferential procurement element of procuring a minimum of 40 per cent of capital goods from BEE entities by 2014; and
  • the employment equity element of 40 per cent HDSA representation by 2014 at each of the levels of executive management (board), senior management, core and critical skills, middle management and junior management.

In addition, mining companies must identify and fast-track their existing talent pools through career path programmes to ensure high level operational exposure.

Environment and planning laws

Environmental management legislation

The following major pieces of legislation presently account for the bulk of environmental management in South Africa. They are the:

  • National Environmental Management Act, 1998 (NEMA);
  • National Water Act, 1998 (NWA);
  • National Environmental Management: Air Quality Act, 2004 (AQA);
  • National Environmental Management: Waste Act, 2008 (Waste Act);
  • National Environmental Management : Protected Areas Act, 2003; and
  • National Environmental Management: Integrated Coastal Management Act, 2008.

NEMA is the overarching legislation which provides an underlying framework and relates to all three fields of environmental concern, namely resource conservation and exploitation, pollution control and waste management, and to a limited degree, land use planning and development. NEMA is underpinned by the globally accepted concept of sustainable development. These Acts may result in the mining entity being required to obtain additional consents, including water use licences and a waste management licence.

Environmental management plan or programme (EMP)

Environmental law in South Africa is becoming increasingly stringent and is based on the concept of integrated environmental management.

In terms of the MPRDA an EMP must be approved by the Minister of Mineral Resources for a prospecting and/or mining right application and the procedures are set out under the Mineral and Petroleum Resources Development Regulations, 2004. The applicant for a prospecting or mining right will make two applications: the first application to the DMR for approval of its EMP and the second application to the Department of Environmental Affairs, for the granting of environmental authorisations for any listed activities under the NEMA regulations.

Although EMPs are legislated for in the MPRDA, the MPRDA requires that any prospecting or mining operations must be conducted in accordance with generally accepted principles of sustainable development by integrating social, economic 
and environmental factors into the planning and implementation of prospecting 
and mining projects. Despite the EMP being approved by the DMR, this does not absolve the holder from complying with the objectives under NEMA and applying for any other authorisations or licences required in order lawfully to conduct all the activities of the mine.

In addition, the Minister of Mineral Resources will not approve an EMP unless the prescribed financial provision for rehabilitation or management of the negative environmental impacts has been made. The environmental liability of the mine must be assessed annually and the financial provision must be increased to the satisfaction of the Minister of Mineral Resources. Three alternative funding mechanisms are accepted by DMR:

  • annual contributions into a trust approved by the South African Revenue Services for the life-of-mine;
  • bank guarantee for part or all of the closure liability including for premature closure; or
  • cash deposits with the DMR.

Liability for environmental damage

A significant feature of the MPRDA is that the holder of a right is responsible for any environmental damage, pollution or ecological degradation as a result of its prospecting or mining operations. The directors of a company are jointly and severally liable for any unacceptable negative impact on the environment.

In addition, in terms of NEMA, if the person responsible for environmental damage fails to comply with a directive issued by the Department of Environmental Affairs, the Department may undertake the remedial measures and recover the costs from the current landowner or occupier. The current landowner or occupier may, however, raise the defence that there has been historical pollution which was not caused by them.

National heritage resources

The National Heritage Resources Act, 1999 provides for the protection and management of heritage resources, which include resources of archaeological, cultural or historical significance, collectively forming South Africa’s national estate. Sites containing heritage resources must be investigated and, if necessary, protected for the nation. This may include procedures relating to the relocation of graves.


Planning is regulated by provincial and local legislation. Municipalities are empowered to consider applications to rezone land and to establish new townships within its area of control in terms of provincial legislation. The provincial legislation provides for the creation of town planning schemes by municipalities. These schemes set out the means in which land within the municipal area will be used. Authorised local authorities are empowered to consider and approve applications to amend these schemes (commonly referred to as rezoning applications) and are also empowered to approve the establishment of townships, all subject to appeals to the provincial authority.

In a recent Constitutional Court case, the court held that where mining is not permitted by a zoning scheme, a holder of a mining right cannot start to mine until the land is rezoned to allow for mining. This means that in respect of new mining operations, it will be necessary to rezone the land if required. For the purposes of determining the merits of a proposal to rezone land, the municipality must consider certain issues in making land planning decisions. These issues include the welfare of the community concerned; preservation of the natural and developed environment and the protection and preservation of cultural and natural resources, including biodiversity.

Land Access

Under the MPRDA any holder of a prospecting or mining right may enter the land to which such right relates. The holder of the right does not have to own the land in order to conduct prospecting, mining or any other activity incidental thereto. Under the MPRDA in situations where the landowner or lawful occupier of the land in question refuses access to the holder of the prospecting or mining right or places unreasonable demands in return for access to the land, the holder of the right must notify the relevant regional manager who will institute the dispute resolution and enforcement procedures set out in the MPRDA, which could include the conclusion of an agreement for payment of compensation for loss or damage caused by the prospecting or mining operation.

Community rights and land claims

Community rights

In the case of land registered or to be registered in the name of “communities” (a community being defined as a coherent, social group of persons with interests or rights within a particular area of land which the members have or exercise communally in terms of an agreement, custom or law), the community has a preferent right to acquire a prospecting, mining, exploration or production right (s104 MPRDA).

If the land is being occupied by the community as a residential area, then no such right may be granted unless the Minister is satisfied that having regard to the sustainable development of the mineral resources and the national interest, it is desirable to grant such right and that the operations will take place within the framework of national environmental management policies, norms and standards (s48 MPRDA).

The community would need to be taken into account in the preparation of the social and labour plan (MPRDA regulation 46).

Land claims

South African property rights could be subject to land restitution claims, provided that those claims are proved to be of substance in the Land Claims Court and were lodged with the Commission for the Restitution of Land Rights prior to 31 December 1998. No claims lodged after 31 December 1998 will be accepted by the Commission.

Mining project financing

Mining companies have evolved in their financing needs and have moved from primarily equity financing to debt financing which is provided in various forms, 
to mention a few:

  • project financing (involving commercial lenders and development 
    finance institutions);
  • commodity based offtake financing;
  • project bonds;
  • export credit financing.

If project financing is to be utilised as the form of financing of mining and natural resources projects, a number of elements need to evaluated and considered to ensure the success of the project. We have in this section highlighted a number of specific elements that need to be taken into account when considering project financing as the method of financing.

Recourse issues

The essence of project financing is limited recourse financing against the cashflows provided by the particular project rather than against the balance sheet of the project company.

However, particularly in the case of a mining project, having a lengthy construction period with no available cash flow, lenders may require an initial full recourse phase, during which they have recourse to a creditworthy shareholder or sponsor of the project company under a guarantee or sponsor support agreement. This may involve financial obligations and/or a completion guarantee of the project itself, with the obligation to procure completion by the project company and to step into the project in the event of project company default or failure.

Typically the full recourse phase will last until completion, at which point the obligations of the shareholder and/or sponsor will usually fall away, and therefore the precise definition of “completion” (which may be a combination of mechanical and economic tests) will be a key issue for negotiation. From the point of view of the shareholder/sponsor it will be vitally important to ensure that, once the full recourse phase has ended, it is clearly released from all its obligations and there is no risk of it being liable for unforeseen liabilities, such as under indemnity provisions or by reason of breach of representation or warranty which would militate against the limited recourse principle.

Key project agreements

It is important to ensure that the key project agreements, such as the concession/licence agreement and the offtake contracts, are in form and substance acceptable to the lenders, so as to be eligible for financing on a project finance basis. Lenders will normally require these agreements to form part of the security package and it is therefore important that bankability issues are addressed when finalising the commercial terms. For example, the contracts must be capable of cession and contain clear payment provisions. This needs to be borne in mind from the outset of a project, as these project agreements are likely to be negotiated at an early stage and probably before the financing package has been developed.

The construction phase is an important stage in the development of a mining project. The contracts which govern the construction of the mines are vitally important and need to be carefully considered and drafted. The issues that most commonly arise when negotiating these construction contracts relate to default, delays, legislative requirements, force majeure, contractor’s limitation of liability, insurances, and the rights and consequences associated with the termination of the contract.

In particular, the issue of potential cost overruns must be carefully considered in the construction contracts. Mining companies need to ensure that they have sufficient cover to reduce the impact of these cost overruns should they occur during the construction phase of the project.

Construction contract agreements associated with mining developments include Engineering Procurement and Construction contracts, Engineering Procurement Construction Management contracts and Project Management Contracts.

Intercreditor issues

The project financing may require the provision of debt at both senior and mezzanine (junior) level and as a result this can give rise to complicated intercreditor issues which will need to be negotiated and documented between lenders. In particular, it is necessary to ensure that the position of the mezzanine lender does not restrict unnecessarily the contractual rights of the senior lenders or of the project company.

Direct agreements

Direct agreements will typically be sought by the lenders with third parties who are contracting with the project company in relation to the project, for example, offtakers, construction contractors, power suppliers and equipment lessors. On an event of default, the direct agreements allow the lenders to step in and perform the project company’s obligations under the contract and to continue to enforce the contract against the third party. The key contracts to be subject to direct agreements will need to be established and the direct agreements themselves will need to be negotiated at an appropriate stage, bearing in mind that lenders and the project company may well have limited leverage over those parties.

Lender/Project Company balance of rights

As with any project financing, in the case of project financing for a mining project it is important to ensure that an appropriate balance is struck between the legitimate concerns of the lenders to protect the financing and the rights of the project company to operate the project without unreasonable restriction. Particular issues which in our experience can require consideration in mining project financings include:

Environmental/corporate governance issues

The majority of lenders providing finance on a project finance basis do so provided that there is the compliance with appropriate environmental principles (such as the Equator principles and IFC Standards). Usually social and action plans are required to be implemented, adhered to and reported on to lenders pursuant to the financing agreements to ensure compliance with these lender requirements failing which same will constitute an event of default.

Negative covenants

The lenders will need to protect themselves by imposing restrictions on such matters as borrowings, disposal of assets and the incurring of liabilities, combined with events of default applying to the project and the project company. It will be a matter for negotiation on each project how far these provisions should extend to companies other than the project company (such as project contractors) and how far these provisions should be qualified.


It is important to ensure that the lenders’ insurance requirements, which may include political/transfer risks cover, do not impose unreasonable costs or obligations on the project company.


The lenders usually have requirements under the financing arrangements for the establishment and implementation of an agreed hedging strategy, covering interest rate, currency and/or commodity price risks. This should as a general matter be for the overall benefit of the project company, in protecting against market risk, but it is important to ensure that its terms are commercially reasonable and do not involve excessive financial costs.


The lenders will require full security over all moveable and immoveable project assets. In South Africa, the security is granted by way of a cession in securitatem debiti over intangible and incorporeal assets and by way of general and special notarial bonds over moveable assets and mortgage bonds over immoveable property. There is no stamp duty payable on the registration of notarial and/or mortgage bonds but there are registration fees payable to conveyancers who attended to the registration of the aforementioned bonds on behalf of the lenders. In registering security, it is important to ensure that these costs are mitigated where possible and taken account of in the financial model.

Account provisions/financial covenants

These provisions are at the heart of every project financing. It is important to ensure that a balance is struck between the legitimate concerns of the lenders to monitor and control cashflow and the borrower’s ability to incur costs necessary to operate the project and to make agreed payments to shareholders and where appropriate, project sponsors.

Events of default

The events of default will frequently be one of the most vigorously negotiated provisions in the relevant common terms agreement or facility agreement. Although it is common for their scope to extend to entities other than the project company (such as the shareholders, sponsors and key project contractors) or to material project agreements, lenders will normally accept that they may be subject to appropriate qualifications, which may include cure periods and financial thresholds.

Operational considerations

Domestic market obligations

In addition to the PMA and the Diamonds Act the DMR has issued a Beneficiation Strategy, 2011 which will lead to a Beneficiation Policy and to legislative 
amendments (including to s26 of the MPRDA) to promote availability of minerals for local beneficiation.

Mine health and safety

Health and safety in the mining sector is governed by the Mine Health and Safety Act, 1996 (MHSA). The MHSA requires owners (which, in relation to mines, includes the holders of a prospecting permit or a mining authorisation issued under the MPRDA) or the person for whom the mining activities are conducted) to:

  • ensure responsibility for health and safety through the creation of codes of practice, training, identifying potential hazardous factors and risks, investigating such risks, conducting occupational hygiene measures and establishing a system of medical surveillance of employees exposed to health hazards; and
  • safeguard the rights of employees to refuse to work in or move away from areas which are unsafe or potentially unsafe.

Compliance with the MHSA is mandatory and failure to comply is a criminal offence.

The MHSA provides inspectors with wide powers, including but not limited to the right to issue contravention/prohibition notices and in so doing, to suspend the non-compliant entity’s operations. These wide powers do not, however, include the power to revoke or cancel a prospecting or mining right.

In addition the MHSA provides for a monetary administrative fining system which can be imposed on owners where there have been contraventions of the legislation.

Incident response

South African mines are among the deepest and most dangerous in the world.

There is increasing pressure from government for employers to address occupational health and safety in mines requiring employers to take steps to improve monitoring standards and practice in the workplace. There have been concerted calls for more rigorous enforcement of the MHSA and for employers found to have contravened the Act to be prosecuted.

Procedures and plans to manage daily operations and major incidents before, during and after they happen are critical. With dedicated experts who understand the industry, our team of committed professionals will assist you in ensuring compliance with Mine, Health and Safety legislation and minimising exposure to risk including informal investigations and formal inquiries conducted by the Department of Labour; representations and submissions to the Department of Labour; health and safety policies and procedures; civil and criminal prosecutions arising out of health and safety incidents and accidents; and health and safety compliance audits.

Royalties and relevant taxes

Mining royalties

In terms of the Mineral and Petroleum Resources Royalty Act, 2008 (MPRRA), the holders of mining rights are required to pay the South African Government royalties for minerals removed and disposed of during prospecting and for minerals mined. The method used to determine the royalty depends on whether the mineral resource is refined or unrefined.

The royalty for a refined mineral resource is determined as a percentage of the ‘gross sales’ of the extractor in respect of that mineral resource during the assessment period, in accordance with the following formula:

0.5 Tel + {earnings before interest and taxes/(gross sales in respect of refined mineral resources x 12.5)} x 100

This may not exceed 5 per cent.

The royalty for an unrefined mineral resource is determined as a percentage of the ‘gross sales’ of the extractor in respect of that mineral resource during the assessment period, in accordance with the following formula:

0.5 Tel + {earnings before interest and taxes / (gross sales in respect of unrefined mineral resources x 9)} x 100

This royalty may not exceed 7 per cent.

Relevant Taxes

Taxes most commonly imposed on mining companies in South Africa include:

  • Income tax, capital gains tax and donations tax (Income Tax Act, 1962);
  • Diamond export levy (Diamond Export Levy Act, 2007 and Diamond Export Levy (Administration) Act, 2007) (DELA);
  • Value-Added Tax (Value-Added Tax Act, 1991);
  • Property rates (provincial rating legislation);
  • Transfer duty (Transfer Duty Act, 1949); and
  • Dividend withholding tax (from 1 April 2012, replacing the former secondary tax on Companies. (Income Tax, 1962).

Tax advantages and incentives in relation to the carrying on of mining activities include:

  • A special tax regime applies to income from mining operations, permitting deduction 
    of capital expenditure (ss15 and 36, Income Tax Act, 1962);
  • A special tax regime applies to upstream oil and gas activities (10th schedule, Income Tax Act, 1962); and
  • The royalty regime and the diamond export levy regime favour local beneficiation (MPRRA and DELA).

There are no withholding taxes on the payment for any services within South Africa, apart from the normal “pay as you earn” deductions from employees’ salaries and other social security taxes.

Withholding taxes on payments out of South Africa, including payments on interest, royalties, services and dividends are as follows:

  • Exchange control restrictions exist on payments overseas;
  • A withholding tax on foreign dividends exists;
  • A withholding tax on interest, effective from 1 January 2013;
  • A withholding of amounts from payments to non-resident sellers of immovable property, and
  • A withholding tax on royalties.

No stamp duties are payable, however there are duties on transfer of securities (Security Transfer Tax Act, 2007). There are also application fees, prospecting fees, and registration fees, but they are not significant (MPRDA and MTRA).

In terms of provisions for advance depreciation and/or carry forward of losses, capital expenditure can be deducted from income in the year incurred and carried forward to subsequent years (ss15 and 36, Income Tax Act, 1962). Losses can also be carried forward (Income Tax Act, 1962).



1 A transaction acquisition resulting in a shareholder (or shareholders acting in concert) acquiring 35 per cent of the shares in a regulated company will trigger a mandatory offer to the remaining shareholders to acquire such shareholders shares. The term “regulated company” includes public companies, state-owned companies and, in certain instances, private companies.
2 searching for minerals or petroleum but excluding prospecting or exploration
3 searching by means which disturb the surface or sub-surface of the earth
4 retaining a prospecting area pending mining becoming economic in accordance with market conditions
5 winning of minerals and operations incidental thereto
6 conducting a technical co-operation study
7 defining a petroleum trap to be tested by drilling, logging and testing with the intention of locating a discovery of petroleum
8 development and production of petroleum


South Africa’s mining industry has been and remains the bedrock of Africa’s economic powerhouse.