Mining Brief – 29/03/2010

23 March 2010|In Mining Briefs

In this issue:

  • Private royalties payable in respect of unconverted old order mining rights in the context of th Mineral and Petroleum Resources Royalty Act, 2008


In terms of item 7(1) of Schedule II to the Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA“), an old order mining right continues in force for a period not exceeding 5 years from the date on which the MPRDA took effect subject to the terms and conditions under which it was granted.

Once an old order mining right has been lodged for conversion, the duration of the old order mining right concerned is extended until such time as the old order mining right is converted.

Although the majority of mining companies have lodged their old order mining rights for conversion, not all such old order mining rights have been converted. Pending conversion, the old order mining rights remain in force subject to the terms and conditions under which they were granted. It is accordingly possible for a royalty to still be payable in terms of such old order mining right for, at least, the period up until conversion.

With the advent of the Mineral and Petroleum Resources Royalty Act 28 of 2002 (“the Royalty Act“), it may be possible that the holder of an old order mining right that has been lodged for conversion, but which is not converted, is required to pay both the royalty payable under the Royalty Act from 1 March 2010, as well as the royalty payable as one of the terms and conditions of the old order mining right.

In this regard, section 2 of the Royalty Act provides that ” a person that wins or recovers a mineral resource from within the Republic must pay a royalty for the benefit of the National Revenue Fund in respect of the transfer of that mineral resource“. The liability in this regard attaches not only to the holder of a mining right or converted mining right under the MPRDA but to any person that wins or recovers a mineral resource (as defined). This means that the holder of an old order mining right which has been lodged, but has not been converted, is required to, with effect from 0 1 March 2010, pay the royalty referred to in the Royalty Act in respect of the transfer of minerals mined under such old order mining right.

Section 16 of the Royalty Act provides for transitional credits. It provides, in particular, that “there must be deducted from the royalty payable in respect of the mineral resource the amount of any lease, royalty or similar payment to the State in respect of that mineral resource….”. This transitional credit, however, only appears to apply to royalty payments payable to the State, and not to royalties payable to private persons. This, in turn, suggests that persons or mining companies paying royalties to private persons are subject to a double tax until conversion of the old order mining rights concerned.

To use an example, if person A is the holder of the rights to coal in respect of a particular farm and, in terms of a common law mineral lease, lets those rights to person B and, pursuant to such common law lease, person B obtained a mining license and an approved environmental management programme in respect of the mining operation in question. Let us also assume that the old order mining right was timeously lodged for conversion, but has not yet been converted.

The lease consideration or royalty payable to person A in terms of the common law mineral lease would continue to be payable until such time as the old order mining right is converted. This royalty would be payable in addition to the royalty payable in terms of the Royalty Act, which would be triggered by the disposal and transfer of the minerals in question. Upon conversion and registration of the converted mining right, such old order mining right would cease to exist in terms of item 7(7) of Schedule II to the MPRDA, and only then would the royalty payable under the old order mining right cease to be payable.

In the absence of any credit or offset for royalties payable to private persons under old order mining rights against royalties payable under the Royalty Act, holders of unconverted old order mining rights that are subject to such private royalties could be encouraged to ensure conversion of the old order mining right sooner rather than later (obviously this, however, needs to be weighed up against the more onerous social and labour plan and other commitments enforceable as part of the converted mining right).

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