Warren Beech

Beech Veltman Inc. - Mining Law

Profile

We are grateful to have Warren Beech, a leading figure in mining law and the head of the South African law firm Beech Veltman, join us for an insightful discussion. In this interview, Warren shares his expert perspective on the multifaceted legal challenges currently facing the mining sector, particularly in South Africa, and how his firm is adeptly addressing these issues.

2023 has been a tumultuous year for the mining industry, with South African mining operations particularly hard-hit. The sector has had to navigate a complex array of challenges, from cyclical demand and fluctuating exchange rates to severe infrastructural deficiencies. The situation in South Africa is further complicated by escalating criminal activity, illegal mining, rising employment costs, community activism, and protracted government bureaucracy.

Amidst these challenges, Beech Veltman remains committed to providing relevant, practical advice, grounded in an in-depth understanding of both legislative changes and their real-world impact on clients.

Warren shares his experience handling challenging cases in the mining, natural resources, and infrastructure sectors, highlighting the importance of early and ongoing stakeholder engagement to ensure successful outcomes.

Interview

Warren, as an expert in mining law, could you share your insights on the biggest legal challenges currently facing the mining sector, and how Beech Veltman is positioned to address these challenges?

2023 has been another horrendous year for the mining industry. In South Africa the challenges have been so multi-faceted and far-reaching that the South African mining industry has had to adopt crisis – style management, and this has become the normalised way of managing South African mines. At the same time, mining companies are trying to implement medium to longer-term initiatives and strategies aimed at securing sustainable mining operations. Not an easy balancing act.

In addition to the typical challenges faced by the global mining industry such as cyclical and unpredictable demand, erratic exchange rates, and increased costs of handling and shipping, South Africa is facing a crisis in relation to its deteriorating infrastructure (ports, rail, roads, water and electricity) which has had a significant impact on the South African mining industry’s ability to mine and beneficiate its minerals cost-effectively, consistently , and on a sustainable basis. Congestion at South African ports is exacerbated by constrained and deteriorating road and rail infrastructure, and inefficient management of the shipping and transportation services through State-owned enterprises. South African mines cannot get their product to market on a consistent, sustainable basis. Even where the minerals are sold locally, South Africa’s road infrastructure has deteriorated so rapidly over the last twelve to eighteen months, that it has resulted in significantly increased costs of transportation attributable largely due to increased maintenance costs of truck and trailer fleets, made worse by rising fuel costs, tolls, and costs of employment.

Additional challenges facing the South African mining industry include high levels of criminal activity, illegal mining, rising costs of employment, increased community activism in support of demands for the mines to provide municipal services (which should be provided by the South African government) and commercial opportunities , and Government bureaucracy and inefficiency, which means that applications for rights to prospect and mine, and the related environmental authorisations can take years, before they are processed and granted.

The costs of doing business in South Africa, generally, and in the mining industry in particular, have risen extensively, and with all of the uncertainties surrounding the various challenges, the South African mining industry is gearing up for retrenchments and downscaling of operations, which can only have disastrous consequences on a socio-economic level for persons working at mines, or who rely on the mining industry, more broadly. We typically apply a multiplier of ten to one, which means that at least ten persons benefit from one position at a mine, and if employees are retrenched or contractor service provider agreements are terminated, the effect is far more significant than it appears.

One of our key principles is to remain relevant to the South African mining industry and our clients. This means that we have to not only remain on top of legislative changes, but also the practical effect of these changes, including how they may impact our clients’ businesses. We spend a tremendous amount of time at our clients’ mines to ensure that we continue to understand the effect of both the legislative changes and the advice that we give. We are also fortunate to be involved in many industry initiatives, including around alternative energy sources, artificial intelligence and other technological advances, and changes to the skill sets that are required to ensure that mines of the future are sustainable. Through our practical engagement and the initiatives that we participate in, we are able to continue providing our clients with solutions – based advice.

Environmental and sustainability issues are becoming more crucial in the natural resources field. How do you integrate these concerns into your legal counsel and corporate strategies?

Environmental compliance has always been a significant element of the Mining and Natural Resources Sector, with the mining and environmental legislation requiring numerous environmental authorisations, both before mining operations commence and throughout the life cycle of the mine, including rehabilitation and closure.

Many South African mines are extremely old, which means that environmental compliance becomes far more challenging. Of great concern is the fact that there are hundreds of mines in South Africa that are “ownerless” and have been abandoned for many years. The South African government, in most instances, carries the responsibility for the rehabilitation of these old and abandoned mines, and as resources become more constrained, the ability to properly rehabilitate these old mines is becoming almost impossible. The situation is made far worse, in relation to specific types of mines, such as the old, abandoned gold mines, due to illegal mining. Illegal mining is carried out without any regard whatsoever to health, safety and the environment.

For operational mines, there are many competing interests, which impact on environmental compliance. These competing interests include increased demands from communities to be involved in the mining operations in some form or another including direct employment, commercial opportunities, and benefits under the social and labour plans. As a result of failing infrastructure, mines have to incur additional costs relating to infrastructure, with the most notable, currently, being development of on-site electricity generation facilities including solar and wind farms. There are also strong demands for significant remuneration increases. All of these costs place pressure on environmental compliance, and where mines could, in the past, include discretionary compliance spend in their budgets, many mines have reached a state of minimum compliance spend only. Where mines are able to include discretionary spend, for example, on compliance audits (internal and external), this has, in our experience, significantly enhanced the ability of the mining industry to achieve better levels of environmental compliance.

On sustainability, with the shift to a focus on Environment, Social and Governance (ESG), this has highlighted the need for sustainable operations, but it has also raised concerns because of the broad interpretational opportunities around ESG, and the lack of consistent metrics on performance against ESG principles. In our experience, there have been instances where spending on ESG has not been efficient or beneficial, and it is time for the mining industry to re-assess the metrics against which sustainability will be measured going forward.

We are actively involved in numerous programmes at our clients in the mining industry which focus on environmental compliance and sustainability. We once again focus on these elements with a strong practical interpretation. To do so we need to know what is going on both in the law and at our clients, and we spend as much time in the field, at the mines, to ensure that we are continuously aware of the impact of the legal framework and the advice that we give.

Infrastructure projects require balancing complex stakeholder interests. What is your approach to navigating these dynamics to ensure successful legal outcomes for your clients?

South Africa’s mining industry requires a delicate balancing of a range of competing stakeholder interests, to be successful. This also applies to infrastructure projects which are initiated by mines, groups of mines, and by government in its public-private partnership initiatives. These competing interests include shareholder requirements, banking and finance pre-requisites, community demands, South Africa’s ever-increasing costs of living, which translates into employee demands for exceptionally high increases, intervention by the regulators, most notably the Department of Mineral Resources and Energy and the various environmental departments, and an extremely complex mining and environmental legal framework.

Our approach is always to ensure that the clients understand the importance of engagement with all stakeholders, after a proper process of identifying the stakeholders has been carried out. Pre-engagement, ongoing communication and transparency are key tenets of our advice. Our basic philosophy is that, if a mine adopts a “radio silence” approach, or attempts to do things unilaterally, things can only end badly, and the “social licence” to mine can be lost in an instant.

Technological advancements are rapidly changing the landscape of the mining industry. How do you stay ahead of the legal implications brought on by these changes?

South Africa’s mining industry remains one of South Africa’s largest employers. In addition to being a significant employer, South Africa’s mining industry supports a number of parallel industries and funds both the local and national economies.

This presents a significant challenge to the implementation of technological advances. Understandably, new technology is met with scepticism and significant concerns surrounding whether the introduction of new technology will result in job losses.

New technology is vital to the future of mining in South Africa for various reasons, including cost efficiency, safety, and sustainability. Some technology, such as the introduction of hydrogen trucks, and the construction of electricity generation facilities, such as solar and wind, attract less resistance from stakeholders, including employee representatives, but technology, for example, that monitors operator behaviour, fatigue patterns, productivity and related aspects, typically faces severe resistance, and in some cases, active sabotage, and circumvention.

To address concerns, many of our clients have initiated comprehensive information-sharing programmes and re-skilling initiatives to meet future requirements. Unfortunately, due to South Africa’s history, many employees in South African mines, are not necessarily able to change their existing skill sets, and this remains a significant challenge.

As with all things new, resistance can be expected, and our advice typically includes information sharing, engagement and transparency initiatives.

Given the volatile nature of global politics, how do you advise clients on managing the risks associated with resource nationalism and geopolitical tensions?

South Africa has faced, and continues to face, calls for nationalisation and nationalism programmes. South Africa’s Mining Laws have tried to achieve a balance, by making the South African government the custodian of all minerals (as opposed to historical private ownership), with the minerals only being owned by companies and persons to whom rights to prospect and mine have been granted, once extracted. The rights to prospect and mine are subject to various commitments, including social and labour commitments and payment of royalties, to the South African government. Commitments under the approved social and labour plans require mines to implement programmes for, amongst others, community and other upliftment programmes. The social and labour plan commitments, together with the Mining Charter which addresses ownership by historically disadvantaged South Africans, are viewed by many South Africans, as insufficient, and there are regular demands for further nationalism programmes, and even nationalisation of South Africa’s mines.

This is a reality of doing business in the mining industry in South Africa, and always forms a key component of our advice to companies wanting to do business in the South African mining industry.

International events have significant impacts on South Africa and the mining industry, but these elements are often outside of the control of South Africa’s mining industry, and the practical focus is often more on geopolitical tensions which are closer to South Africa, including in neighbouring countries. Many of the persons engaged in illegal mining in South Africa, are reportedly non-South African citizens, which creates further tension.

These realities form a key component of any advice that we give. Without acknowledging these realities, expectations, including those of shareholders and funders, cannot be properly managed. It is only by identifying and acknowledging these risks and challenges, that they can be managed.

In your experience, what are the key legal considerations for companies looking to enter the mining and infrastructure market, and how can they best prepare to tackle these?

The South African mining industry is regulated by a complex legislative framework, which must be clearly understood by any companies wanting to participate in South Africa’s mining industry, whether directly, through extraction, or through beneficiation and other services.

The starting point is therefore always to engage with multi-disciplinary, trusted advisors, who have experience in the relevant fields.

South Africa also faces some unique challenges, given South Africa’s history, and it is vital for companies to understand the complexities surrounding ownership and participation under South Africa’s Transformation Laws. Many overseas clients will not have had exposure to such complex Transformation Laws, and unless they have a proper understanding, not only of the Transformation Laws themselves, but also the requirements that must be met, the desired business outcomes may not be achieved. Many overseas companies do not fully understand the importance of the “social licence to mine”, which is vital for any involvement in South Africa’s mining industry.

Could you describe a particularly challenging case or transaction you’ve handled in the mining, natural resources, or infrastructure sectors and the strategies you employed to navigate it successfully?

The work that we do spans health, safety, environmental, commercial, mergers and acquisitions, compliance, regulatory and criminal. With our mining industry focus, this means that every matter has its complexities, and our starting point is always to ensure that we understand our client’s business, so that we can give practical, implementable advice.

A basic philosophy that we embed in all of our advice is timeous, early engagement with stakeholders, so that they are part of the journey, or at the very least, flag issues of concern, so that they can be properly managed as the programme or project is implemented. Any attempt to participate in the mining industry, on a unilateral basis, without identifying and acknowledging stakeholder interests may lead to disastrous outcomes, and it is a key focus point of all the advice that we give.

View in Winners Edition >