ESG and compliance in the mining sector

In general, although the restrictions around Covid-19 resulted in an initial decrease in production, the easing of lockdown rules and the concomitant reopening of mines, resulted in mining production in South African increasing by 21.3 per cent year-on-year in May 2021, with platinum group metals (PGMs), gold, iron and manganese ore being the largest positive contributors. There is no doubt that targeted action against government corruption and state capture has also played a role in stabilising the sector and the economy.

Further, Minister of Mineral Resources and Energy Gwede Mantashe emphasised the role of the mining sector in the recovery and reconstruction of South Africa’s economy at the same time as giving a timeline to the shift away from coal-fired energy generation. Mantashe envisages that by 2030 South Africa would have moved from around 75% of coal-fired generation to less than 60%.

The Constitutional Court, for a second time, dismissed the coal mining company, Uthaka Energy, from intervening in a lengthy court battle involving proposed underground mining in the Mabola area in Mpumalanga, which is a critical wetland water conservation zone. The mining and minerals company planned to start operations at Yzermyn earlier this year and applied to the Constitutional Court for leave to appeal an interdict order granted in the Pretoria High Court in March. The interdict prohibits mining at Yzermyn until six high court matters to various approvals have been resolved. The company is only allowed to continue with survey pegging of the mining area and the wetland.

The original interdict application was brought by a coalition of eight civil society and environmental organisations opposing the mine since 2015. The proposed mine lies within a Strategic Water Source Area in the grasslands and wetlands of the Wakkerstroom area, one of only 22 areas that together produce more than 50% of South Africa’s freshwater. The proposed area was categorised as a protected environment area under the Protected Areas Act until January 2021. Mpumalanga environment MEC Vusi Shongwe in January revoked Mabola’s protected area status, effectively allowing the proposed coal mine to proceed without the joint ministerial permissions. This permission is one of the six authorisations being challenged by the coalition. In a short judgement, the Con Court stated: “The Constitutional Court has considered the application for leave to appeal. It has concluded that the application should be dismissed as it is not in the interests of justice for this Court to entertain it at this stage.”

The six high court cases that still need to be resolved before the interdict can be lifted are:

  • A review of the Mpumalanga MEC’s decision to revoke the protected area status of the four Mabola properties that Uthaka Energy proposes to mine;
  • A review of the environmental authorisation for the project issued by the Mpumalanga Environment Department;
  • A review of the granting of the water use licence for the mine;
  • An appeal against a decision by the Water Tribunal to dismiss appeals against the granting of the water use licence;
  • A review of the land use planning approval by the local authority; and
  • A review of the granting of the mining right.

 

The mining sector, more than most industries, is under continued pressure to show commitment to responsible environmental management and to the sustainable development. The Uthaka Energy saga speaks to increased awareness of environmental law in every aspect of decision making which might have an impact on the environment. Mining companies operating within the South African environmental sphere have an obligation to adhere to the legal obligations, norms, standards, principles and guidelines as contained in South Africa’s multifaceted network of environmental legislation.

Further, the Uthaka-case highlights another important issue: ESG.

It has become vital for companies to obtain strategic environmental legal advice in this unique field. LNP attorneys provide clients in the mining sector with a cradle to conclusion solution; offering expert legal assistance on environmental law and compliance through the initiation, planning, execution, and project closure phases.

In previous reflections, we have highlighted the importance of ESG performance. The focus on ESG has grown recently and it is now a priority for most investors since ESG performance positively impacts the long-term sustainability of companies. Improving ESG performance requires an appropriate level of understanding and skills which are needed to ensure that companies transform efficiently into sustainable, ESG-compliant enterprises. LNP has geared its efforts for some time now in providing legal assistance underpinned by comprehensive experience in this area.

With the focus on economic recovery, the importance of ESG has been recognised in the mining sector. The industry is expected to move beyond independent reporting requirements in terms of the current framework and develop mining specific ESG standards. Further, with the increased focus on renewable energy, mining becomes increasingly important as several mined metals (including platinum, lithium and manganese) are used as part of renewable energy projects. This will ensure the continued growth of the mining sector in South Africa.

LNP aims to accelerate the ESG efforts of South African companies.

Further, although government has not yet adopted specific ESG guidelines for projects, there are some incentives built into legislation that encourage certain activities in the mining sector, including the incentives in the Income Tax Act of 1962. However, the advantages of proactively increasing ESG performance go beyond tax incentives and appeasing stakeholders. A robust ESG program can mean accessing capital, strengthening corporate brands, and promoting sustainable long-term growth. We look forward in helping you reap these benefits and are delighted to work with you to achieve this.