11 October 2006
The Mineral and Petroleum Resources Royalty Bill is required to give effect
to the objectives of the Mineral and Petroleum Resources Development Act, 2002
(MPRDA). Being a money bill, Section 73(2) of the Constitution requires that
only the Minister of Finance can introduce it to Parliament, and that such a
bill also has to be separate from the principal Act (MPRDA).
The National Treasury first released a draft of the Mineral and Petroleum
Resource Royalty Bill in March 2003 for public comment. After extensive
consultations, revisions were made to the Bill. The revised draft Bill contains
important amendments that address most of the concerns raised during the first
round of consultations.
These revisions include:
The Royalty Bill attempts to reconcile the objectives of the MPRDA with the
broader economic objectives of the mining sector, including the need to
stimulate investment in this sector and the need for certainty for potential
investors.
The publication of the revised Royalty Bill is meant to facilitate such
certainty. Given the tax implications and economic impact of the Bill,
Government is providing a further opportunity for consultation with key
stakeholders by allowing them the opportunity to provide comments on this
revised version of the Bill. Government will table the Bill in Parliament early
next year, after taking into account such comments and consultations.
Reduction of rates
One of the key revisions made to this revised Bill is the significant
reduction of royalty rates compared to the proposals in the first draft.
Schedule 1 of the Royalty Bill (which classifies minerals subject to the
State royalty) provides a summary of the new (reduced) rates. For instance, the
royalty rate for diamonds has been reduced from 8,0 to 5,0% and the royalty
rate for refined platinum and refined gold are reduced to 3,0 and 1,5%
respectively. The reduction of such rates better takes into account the
lifecycle of many of the mining operations in South Africa.
The local beneficiation of mineral resources is also viewed as an important
policy objective. Therefore, in an attempt to further encourage the
beneficiation of South Africa's minerals, further reductions in royalty rates
apply to beneficiated / refined minerals.
Tax base
The significantly lower rates mitigate the impact of a tax base based on
gross sales rather than profit. This approach is an internationally accepted
one. The royalty is also tax deductible.
Marginal mine relief
A special relief system has been created for marginal mines to prevent their
premature closure. If a mine proves to be marginal as envisaged by the Bill,
that mine will be entitled to receive up to a 75% reduction in the royalty
rates otherwise applicable. A marginal mine is defined in terms of operating
costs exceeding operating income.
Small business relief
As part of government's broader initiative to encourage and support small
business development, a special relief system has been created for small
miners. Small miners, with a maximum turnover of R10 million per year, will be
entitled to receive a credit of up to R100 000 per year (i.e. R50 000 per
assessment period of six months) as an offset against state royalties
payable.
Royalty liability adjustments
This regime allows companies to transfer the royalty liability amongst each
other. In the instance of a consolidated group or a relationship between a
miner and a refiner, a mining company may shift the royalty liability to the
refiner. These provisions will therefore allow a refiner that incurs the
royalty liability to take advantage of lower royalty refined rates.
Traditional communities
A number of traditional communities currently receive royalty payments from
mining operators who mine on their land. Item 11 of Schedule II of the Mineral
Resources Development Act (Act No. 28 of 2002) (the "MPRDA") provides that
communities will continue to receive such royalties regardless of whether these
royalties are paid with respect to "old order" or "new order" mining rights. A
concern raised by some mining companies is the implication of a potential
double royalty.
In light of the above concerns government will encourage communities and
mining companies to enter into negotiations to, where appropriate, convert the
financial interest of communities into equity stakes in the operating
companies. These negotiations will require that role-players make some
concessions in order to ensure lasting and sustainable arrangements.
Comment period
The period for comment on the revised Royalty Bill will close on 31 January
2007. A final version of the Bill will then be submitted to Parliament for its
consideration in 2007.
The Bill is available for comment on http://www.treasury.gov.za and comments can be
sent to will.bautista@treasury.gov.za.
Schedule 1: royalty rates and classification
1. Minerals with a single rate
Group 1
Minerals: Unpolished natural diamond (gem and industrial), crystalline
quartz (smokey quartz, citrine, rose quartz, amethyst, rock crystal),
cryptocrystalline quartz (jasper, opal), chalcedony (blue lace agate, moss
agate, onyx, rainbow chalcedony), chalcedonic replacements (silicified wood,
tigers-eye), blue asbestos (crocodolite), beryl (emeralds, aquamarine,
morganite, heliodor, goshenite, bixbite),chrysoberyl (catâs eye, alexandrite),
corundum (rubies, sapphires), garnet (almandine, pyrope, almandine-pyrope,
grossular, spessartine, uvarovite), lolite, kyanite, sodalite, sugilite (royal
lavulite, royal azel), tourmaline, verdite (serpentine), topaz, copper minerals
(azurite, malachite, chrysocolla), enstatite, epidote, feldspar group
(moonstone, amazonite) and spinel.
Rate: 5%
Group 2
Minerals: Andulasite, asbestos, vermiculite, silliminite, kieselguhr,
calcite, granite, marble and siltstone.
Rate: 1%
Group 3
Minerals: Feldspar, fluorspar, barytes, gypsum, magnesite, mineral pigment,
sulphur, silica, talc, slate, shale, attapulgite, bentonite, flint clays,
kaolin and fire clay.
Rate: 0,5%
Group 4
Minerals: Limestone, lime and dolomite, phosphate rock, salt, quartzite,
schist, plastic clays, fire clay (construction grades), kaolin (construction
grades) aggregate and sand.
Rate: 0%
2. Minerals with two rates, unrefined and refined rates
Group 5
Minerals: Platinum Group Metals (platinum, palladium, rhodium, iridium,
ruthenium and osmium).
Unrefined rate: 6%
Refined rate: 3%
Group 6
Minerals: Chrome, manganese, silicon, vanadium, iron, cobalt, copper,
nickel, lead, zinc, antimony and tin.
Unrefined rate: 4%
Refined rate: 2%
Group 7
Minerals: Illmenite, rutile and zircon.
Unrefined rate: 3%
Refined rate: 2%
Group 8
Minerals: Gold and silver.
Unrefined rate: 3%
Refined rate: 1,5%
3. Energy
Group 9
Mineral: Coal.
Specification: Above 15% ash content.
Rate: 1%
Specification: Below 15% ash content.
Rate: 3%
Group 10
Mineral: Hydrocarbon fuel (oil and gas)
Specification: Mining in water deeper than 500 metre
Rate: 1,5%
Specification: Mining in water shallower than 500 metre
Rate: 3%
Group 11
Mineral: Uranium
Specification: Oxide (yellow cake) and uranium hexafluoride.
Rate: 1,5%
Specification: Uranium concentrate
Rate: 3%
Definitions of refined minerals
Group 5
Platinum group metals: Platinum group metals are refined once processed to
at least 99,9%% purity.
Group 6
* Chrome: Chrome is refined once processed to ferrochrome or for use in the
foundry, refractory or chemical industries.
* Manganese: Manganese is refined once processed into an alloy, ferro alloy
product or manganese dioxide.
* Silicon: Silicon is refined once processed into silicon or
ferrosilicon.
* Vanadium: Vanadium is refined once processed into ferrovanadium.
* Iron: Iron is refined once processed into pig iron, DRI iron, HBI iron or
steel.
* Cobalt: Cobalt is refined once processed into cobalt metal or cobalt
sulphur.
* Copper: Copper is refined once processed into copper metal slabs, blister
copper or cathode copper of at least 99%% purity.
* Nickel: Nickel is refined once processed into a metal or other form (e.g.
ferro nickel, nickel metal or nickel sulphate).
* Lead: Lead is refined once processed into bars and billets containing at
least 99%% pure lead.
* Zinc: Zinc is refined once processed into zinc metal, plates or slabs
containing at least 98,5% pure zinc.
* Antimony: Antimony is refined once processed into antimony oxide, metal or
any other product that has been through a process of refining.
* Tin: Tin is refined once processed into tin ingots or other related
products.
Group 7
* Illmenite and rutile: Illmenite and rutile are refined once processed into
titanium slag and sponge, ferrotitanium or pig iron.
* Zircon: Zircon is refined once processed into zirconia or zirconium
products.
Group 8
* Gold: Gold is refined once processed to at least 99,5% purity.
* Silver: Silver is refined once processed to silver metal or silver
nitrate.
Enquiries:
Thoraya Pandy
Tell: (012) 315 5944
Issued by: National Treasury
11 October 2006
