Precious Metals Bill: hearings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
18 October 2005
PRECIOUS METALS BILL: HEARINGS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Johnson Matthey Catalyst Presentation
Metal Concentrators Presentation
Chamber of Mines Presentation
Impala Platinum Presentation
Lonmin Platinum Presentation
Angloplatinum Presentation
COSATU Presentation

SUMMARY
The Committee held public hearings on the Precious Metals Bill. Johnson Matthey Catalyst told the Committee that while they supported the initiative to encourage the beneficiation of local raw materials, the Bill did not do so as it potentially increased the administration and cost burden associated with meeting the regulations. To develop a South African beneficiation industry for precious metals, incentives were required. The Bill did not address this issue, and instead concentrated on regulating the various stages of beneficiation.

The Metal Concentrators said that the jewellery industry had been over-regulated and so supported the Bill. Most of the their concerns focussed on a need for clarity in the Bill. For example, an "authorised dealer" was only allowed to deal in gold but not precious metals including platinum. This seemed to be an omission that had to be rectified.

The Chamber of Mines said that they supported the DME’s intentions behind the Bill but the Bill would not achieve these intentions. At present the process of renewing licences was simple but the proposed process in clauses five, six and seven was more difficult and cumbersome. The imposition of a beneficiation license was unnecessary as many activities could be undertaken under the existing licences. The Bill would not provide greater downstream beneficiation opportunities or create greater access to precious metals. The Bill could not be passed in its current form. The beneficiation provisions had to be deleted and processed through Parliament.

Impala Platinum said that their refining agreements would be adversely affected by Clause 3(3) of the Bill. This clause made the transportation of fabricated or semi-fabricated material illegal. The Bill also affected their recycling businesses. The lack of certainty in this area was worrying to them and their customers. The definitions of ‘semi-fabricated’ and ‘unwrought precious metal’ had to be distinguished from the metals produced from South African mines.

Lonmin Platinum said that they would support an independent impact study in the precious metals industry. Once the findings were known, and after the requisite consultations had taken place, the legislation could be drawn up. Adding to the number of permits that had to be applied for could reduce competition in the market. Lonmin proposed a delay in the implementation of the Bill if possible and the initiation of a process of consultation with the Government on how to encourage beneficiation.

Angloplatinum said that the Bill was positive in that there was a centralised administration process and the Bill tried to regulate the safe transportation of metals. The restrictions on importing and exporting could interrupt metal-flow and contribute to market volatility. The Bill had to be modified to deal only with the administrative and security aspects of the industry. The beneficiation aspect could be dealt with in a separate Beneficiation Promotion Bill.

COSATU said that beneficiation could not be delayed even though the supply of ore was declining. It was needed as a result of the large number of retrenchments in the mining industry. The private sector had shown its lack of willingness to encourage local beneficiation and so the State had to take the primary role. This process did not preclude the introduction of a wider Beneficiation Bill in the future.

Members of the Committee asked for clarity on the claim that the Bill was possibly unconstitutional and what incentives the companies in the industry wanted. It was not right that the country was being held to ransom by a few companies who had long-term contracts with international companies.

MINUTES
Johnson Matthey Catalyst Submission
Mr G Young, the General Manager, said that while Johnson Matthey supported the initiative to encourage the beneficiation of local raw materials, the Bill did not do so as it potentially increased the administration and cost burden associated with meeting the regulations. The lessons learnt through the Motor Industry Development Program (MIDP) should be applied to the precious metals industry. The MIDP provided a clear long-term development incentive framework that facilitated long-term investment planning horizons. It supported local manufacturers to overcome the strategic cost advantage of distance from the target market.

Access to commodities freely traded in global markets did not in itself constitute a competitive advantage. Precious metals were high value, low volume materials with no or minimal cost advantage of being close to a ‘source.’ To develop a South African beneficiation industry for precious metals, incentives were required for business to make investments, develop or acquire the necessary skills and assist in overcoming the disadvantage of distance from target markets. The Bill did not address any of these issues, and instead concentrated on regulating the various stages of beneficiation.

Mr J Armstrong, the Commercial Director, then told the Committee more about the catalytic converter industry in South Africa. About 88% of their products were exported to Europe, 7% to the United States and 5% into Asia, so there was room for growth in the American and Asian markets.

Discussion
Ms N Mathibela (ANC) asked how representative Johnson Matthey was and what incentives they wanted.

Mr S Louw (ANC) asked if Johnson Matthey had any black economic partners.

Mr Young replied that Johnson Matthey was a subsidiary of an international company and so it had no black economic partners. Their business required highly skilled employees and so there were people who were receiving specialised bursaries at tertiary institutions. About 30% of their employees were women. The incentives they required were difficult to articulate. It was better to follow a model that had worked previously such as the MIDP because an incentive package took a while to be developed.

Mr E Lucas (IFP) said that it was important to encourage local car manufacturers to use products manufactured here.

Mr C Molefe (ANC) asked if there were any barriers to beneficiation and why the company felt that the Bill did not encourage beneficiation.

Mr Young replied that there were no barriers to beneficiation as they had no problems obtaining the materials they needed. There was the potential for the company to hold multiple licenses and this would add to their costs. In comparison to the MIDP where there were incentives for local vehicle manufacturing, such a provision did not exist in this Bill.

Metal Concentrators Submission
Mr B Stern, the Metal Concentrators spokesman, said that the jewellery industry had been over-regulated and so supported the Bill. Some of the barriers in the industry were over-regulation and under-skilled staff. The proposals in the Bill that licences would be valid for five years and registers were not required reduced the administrative burdens on jewellers, and were welcomed.

Most of the Metal Concentrators concerns focussed on a need for clarity in the Bill. For example, an "authorised dealer" was only allowed to deal in gold but not precious metals including platinum. This seemed to be an omission that had to be rectified. Jewellers regarded their waste as a form of savings which they kept until they needed to pay or set-off a debt for example. The prohibition in the Bill of this method of settling debts increased the number of procedures that had to be followed. This method had no negative effects and was standard practice in the industry.

The Bill only allowed certified persons to transport precious metals but this was a totally impractical requirement as courier companies transported most of the metals. It was impossible to give certified copies of their license to each courier as this could amount to giving 5000 certified copies per year. There were security implications with this also.

Chamber of Mines Submission
Mr A van Achterberg, Assistant Legal Adviser, said that the Chamber supported the DME’s intentions behind the Bill but the Bill did not achieve these intentions. For example, the provisions aimed at discouraging illegal activities were welcomed but more improvements had to be made. There had to be more consultation with the South African Police Service and the maximum penalties were still too low.

The definitions of ‘semi-fabricated’ and ‘unwrought precious metal’ needed to be revised as it was only possible to distinguish between them by using expensive, sophisticated equipment. In considering applicants in Clause 4, there was no criteria to follow which created uncertainty and gave the Regulator an unlimited discretion. This clause was possibly unconstitutional. At present the process of renewing licences was simple but the proposed process in Clauses five, six and seven was more difficult and cumbersome. The imposition of a beneficiation license was unnecessary as many activities could be undertaken under the existing licences. Permits to import and export added additional administrative burdens and practical, transitional arrangements had to be planned otherwise current agreements, investor confidence and local employment could be jeopardised.

The Regulator’s function in respect of precious metals was limited to issuing, renewing and cancelling licences. He/she was subject to the direction of the Board but the Board had no power to ensure that the Regulator adhered to instructions. The Bill would not provide greater downstream beneficiation opportunities or create greater access to precious metals. Mr van Achterberg said that the Bill could not be passed in its current form. The beneficiation provisions had to be deleted and processed through Parliament.

Discussion
Mr H Schmidt (DA) and Ms Mathibela asked the Chamber to elaborate on the issue of the possibility of the unconstitutionality of the Bill.

Mr A van Achterberg explained that the courts have said that the legislature must set out the parameters within which a Minister’s discretion may be exercised. These parameters were missing from the Bill.

Mr Molefe asked if the Chamber could ensure the compliance with legislation by its members and if they were unhappy with the permits.

Mr A van Achterberg replied that the Chamber was not a policing body. It was a voluntary body as there was a lot of legislation to do with mining and it was not possible to ensure total compliance. Individual members liased with Government bodies and made sure that they were in compliance with the law. The Chamber was not unhappy with the permits per se, but was unhappy with the way the requirements were drafted especially as the criteria for their granting were unclear.

Impala Platinum Submission
Ms C Markus, Corporate Affairs Director, said that Clause 3(3) of the Bill would adversely affect their refining agreements. This clause made the transportation of fabricated or semi-fabricated material illegal. It was unclear if auto-catalyst materials were included in this prohibition and these metals made up a large part of the industry. The Bill also affected their recycling businesses. The lack of certainty in this area was worrying to them and their customers. To remain an attractive business, the constraints proposed by the Bill would have to be scaled back.

As a solution, the definitions of ‘semi-fabricated’ and ‘unwrought precious metal’ had to be distinguished from the metals produced from South African mines. The semi-fabricated precious metal produced from imported recycled used catalysts had to be excluded from a beneficiation license. There had to be recognition of the differences between the primary production from South Africa and recycled material. Clause 3(3) had to be deleted to keep existing legal arrangements lawful.

Discussion
Ms Mathibela asked if this Bill made it possible to access platinum from Impala’s mines. If not, what improvements could be made to the Bill? What were their concerns on security of tenure in the awarding of licenses?

Ms Markus said that the Bill required a number of permits where there used to only be a few. There were no reasonable criteria to regulate how these licenses would be awarded and there was no mention of any timeframes. To improve the Bill the recycling and refining aspects had to be deleted. The ‘unwrought precious metal’ definition had to be refined as the confusion the current one created could drive a potential customer to choose a Canadian company over a South African one where the requirements were more relaxed for example.

Lonmin Platinum Submission
Mr T Reilly, the Vice President of Legal Services, said that they would support an independent impact study in the precious metals industry. Once the findings were known, and after the requisite consultations had taken place, the legislation could be drawn up. They endorsed the proposals of the Chamber of Mines and their proposals were mainly technical in nature. Adding to the number of permits that had to be applied for could reduce competition in the market. The Bill took no cognisance of the commercial reality that existed in the industry.

There also seemed to be a duplication of resources between the Regulator and some of the work done by the Department of Trade and Industry. There were no fixed criteria for how the Regulator would issue licences. Going forward, it was important to note that South Africa had a unique position in the precious metals industry. Bureaucracy could jeopardise this position especially as South Africa competed on the world market and was essentially a ‘price-taker’. Lonmin proposed a delay in the implementation of the Bill if possible and the initiation of a process of consultation with the Government on how to encourage beneficiation.

Angloplatinum Submission
Dr F Petersen, the Chief Executive Officer, said that the Bill was positive in that there was a centralised administration process and the Bill tried to regulate the safe transportation of metals. It set out all the licenses that were required by all players in the industry and consolidated all of the old laws into one Bill. Some negatives were the complex definitions and requirements. The restrictions on importing and exporting could interrupt metal-flow and supply which could contribute to market volatility. Having to produce certified copies only of licenses could lead to forgery and the creation of an illegal market for precious metals.

The Bill had to be modified to deal only with the administrative and security aspects of the industry. The beneficiation aspect could be dealt with in a separate Beneficiation Promotion Bill to handle all minerals and not just precious metals.

Discussion
Mr Molefe said that it was not right that the country was being held to ransom by a few companies who had long-term contracts with international companies. They wanted to maintain the non-regulated arrangements.

COSATU Submission
Mr F Gona from the National Union of Mineworkers (NUM) said that beneficiation could not be delayed even though the supply of ore was declining. It was needed as a result of the large number of retrenchments in the mining industry. The private sector had shown its lack of willingness to encourage local beneficiation and so the State had to take the primary role. This process did not preclude the introduction of a wider Beneficiation Bill in the future. The main drive of the NUM was to create jobs. They had been encouraged by the successes that countries like India had made in this area. Thus, the Government had to intervene.

Certain provisions in the Bill had to be tightened up such as in Clause four to remove any discretionary allowances on the Regulator in considering the Mining Charter. This was necessary to encourage transformation.

The meeting was adjourned.