A Primer – Mineral And Petroleum Resources Royalty Act

The Mineral And Petroleum Resources Royalty Act, No 28 of 2008 (MPRRA) imposes compulsory royalty payments that must be paid by any person who transfers a mineral resource that was extracted in South Africa (section 2). The royalty is paid to the South African Government (section 2).

The registration of persons that must make royalty payments, and the administration of the royalty payments, are regulated in accordance with the separate Mineral And Petroleum Resources Royalty (Administration) Act, No 28 of 2008 (MPRRAA).

Imposition of Royalty Charges

A royalty is imposed on an extractor when:

  • there is a transfer;
  • of a mineral resource;
  • that was extracted within South Africa (section 2).

The point where the royalty is imposed is on the “transfer”, not the extraction, of the mineral resource (section 2). “Transfer” is defined as the first instance that the mineral resource is disposed of, consumed, stolen, destroyed, or lost (section 1).

This definition ensures that a royalty is imposed only once on the first transfer, even in cases where there are a series of transfers after the minerals extraction.

Royalty Rate

There are two different royalty rates that may be applied, one applicable to refined mineral resources, and the other applicable to unrefined mineral resources (section 3). The two rates are:

  • refined mineral resources:
    • 0.5 + [earnings before interest and taxes / (gross sales in respect of refined mineral resources X 12.5)] X 100;
    • maximum rate of 5% (section 4(1) as read with section 4(3)(a)).
  • unrefined mineral resources:
    • 0.5 + [earnings before interest and taxes / (gross sales in respect of unrefined mineral resources X 9)] X 100;
    • maximum rate of 7% (section 4(2) as read with section 4(3)(b)).

The MPRRA sets out specific formulas that must be used when calculating earnings before interest and taxes (“EBIT”) and gross sales (section 5 and 6 respectively). These formulas excludes the inclusion of certain expenditures, and may result in different results being reached compared to the use of the traditional accounting formulas.

The MPRRA also includes provisions that may exempt certain extractors, or provide relief under certain circumstances.

Exemption for Small Business

The MPRRA exempts small business extractors from royalties if they comply with various requirements (section 7).

An extractor is exempted from royalties if:

  • the gross sales of the extractor is R10 million or less;
  • the royalty that would be imposed for that year is R100,000 or less; and
  • the extractor is a resident of South Africa for income tax purposes (section 7(1)(a) to (c)).

This exemption does not apply if:

  • the extractor holds more than a 50% interest in another extractor;
  • any other extractor holds a right to participate in more than 50% of the profits of the extractor;
  • any person holds the right to participate in more than 50 per cent of the profits of the extractor and any other extractor; or
  • the extractor is an unincorporated body of persons (section 7(2)(a) to (d) as read with section 4 of the MPRRAA).

Exemption for Sampling Activities

An extractor is exempt from paying royalties on samples won in the course of prospecting or exploration operations for the purposes of testing, identification, analysis, and sampling, provided that the gross sales of those mineral resources doesn’t exceed R100,000 (section 8).

Rollover Relief for Transfers between Extractors

When mineral resources are transferred from one extractor to another, the transfer will be exempt from royalties if:

  • both extractors are registered to pay royalties in terms of the MPRRAA; and
  • both extractors agree in writing that the rollover relief will be applied (section 8A).

Rollover Relief for disposals involving Going Concerns

When there is a transfer of a mineral resource between two extractors as part of a disposal of a business as a going concern is not regarded as a transfer for purposes of payment of royalties.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Primer – National Water Act

The National Water Act, No 36 of 1998 (NWA) was enacted to ensure that water resources are protected and conserved in a sustainable and equitable manner (sections 2 and 3). The entitlement to use water is regulated by requiring a user to acquire a water use licence before commencing with various activities.

Definition of “Water Use”

“Water use” is defined broadly in the NWA, and includes:

  • taking water from a water resource;
  • storing water;
  • impeding or diverting the flow of water in a watercourse;
  • discharging of waste water into a water resource;
  • altering the bed, banks, course or characteristics of a watercourse; and
  • removing or disposing of water found underground (section 21).

Requirement for a Water Use Licence

A water use licence is required is for any water use unless the water use:

  • falls in the list of permissible uses that are set out in schedule 1;
  • is permitted in terms of a general authorisation that are published by notice in the government gazette; or
  • was a continuation of an existing lawful use prior to the commencement of the NWA (section 22).

A person is not automatically entitled to use water for prospecting, mining, exploration or production solely because a right has been granted for the activity in terms of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA) (section 5(3)(d)). The use of water for these activities are still regulated by the Water Act and a separate water use licence is needed if the water use falls outside of the scope of the general authorisations under the NWA.

The general authorisations issued in terms of the NWA allows prospecting, mining, and quarrying companies, and other “small industrial users”, to use and store certain quantities of groundwater and surface water without needing a water licence (item 1.7 of GN 399 in GG 26187 of 26 March 2004).

The specific quantities are allowed, are however, dependant on the drainage regions where the activities will take place, and are subject to the water use not being excessive or detrimental to other water users.

Even if the water use falls within the authorisation and a water licence is not required, a water user may still be required to register as a water user.

Before commencing with any activities that may need water, it is necessary for a person to determine if the use of water is regulated by the NWA, and if so:

  • are the activities exempted from requiring a water licence because the quantities fall within the thresholds set out in the general authorisations;
  • is registration as a water user required even though a separate water use licence is not needed?

This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Primer – National Environmental Management Waste Act

The National Environmental Management: Waste Act, No 59 of 2008 (the “Waste Act“) is a complimentary act to the National Environmental Management Act, No 107 of 1998 (NEMA). It aims to regulate waste management in order to protect health and the environment through the minimisation of the consumption of natural resources and generation of waste, ensuring the treating and safe disposal of waste, and the prevention of pollution and ecological degradation (section 2(a)).

The act sets certain standards and requirements that are applicable to all waste. The act also lists certain waste management activities cannot be conducted by any person unless the activity is conducted in accordance with the prescribed standards and a waste management licence is issued if required for the activity (section 20). To determine whether a waste management licence is needed the following questions must be answered.

Definition of “Waste”

Is the substance a “waste” regulated in terms of the act?

Waste is defined very broadly in the act, and includes:

  • any substance or material that is unwanted, discarded or abandoned or is intended to be discarded or disposed of;
  • all substances listed in schedule 3 of the act; and
  • any other substance the minister identifies as waste by notice published in the government gazette (section 1).

Listed Activities in terms of the Waste Act

If the substance is waste, is the intended activity listed as an activity that requires a waste management licence? The listed activities are, again, listed broadly and include a wide range of activities such as storage, recycling, treatment and disposal of waste, and the construction of facilities to accomplish these activities (GN 921 in GG 37083 of 29 November 2013).

The requirement to get a licence before conducting these activities may depend on the place where the activity is conducted and the volumes that are involved (GN 921).

For the mineral and petroleum industry the regulation of residue stockpiles and residue deposits as waste is particularly significant. These activities were previously excluded from regulation under the Waste Act (repealed section 4(b)). The act was, however, amended in 2014 as part of the effort to create a single environmental management system to regulate environmental management in South Africa. Residue stockpiles and residue deposits, defined to include all waste resulting from exploration, mining, quarrying, and physical and chemical treatment of minerals, are now a listed waste for the purposes of the Waste Act (sections 1 and schedule 3).

Depending on the activities that are conducted by mineral and petroleum companies, a waste management licence may have to be obtained in respect of stockpiles and deposits. This is in addition to the general requirement that all stockpiles and deposits must be managed in the manner prescribed by the act and deposited on a site designated for that purpose in the applicable environmental management plan or programme (the EMP) (sections 24S of NEMA, and sections 1 and 43A of the Waste Act).


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Primer – National Environmental Management Biodiversity Act

The National Environmental Management: Biodiversity Act, No 10 of 2004 (NEMBA) is a complimentary act to the National Environmental Management Act, No 107 of 1998 (NEMA). NEMBA aims to provide for the management and conservation of South Africa’s biodiversity within the framework of NEMA. These objectives are promoted by giving protections to ecosystems and species that are threatened or in need of protection (section 51).

Numerous species of flora and fauna have also been identified as a threatened or protected species, and two hundred and twenty five threatened ecosystems have already been identified in terms of NEMBA (sections 52, 56 and GN 1002 in GG 34809 of 9 December 2011).

NEMBA Restrictions

A permit must be acquired before conducting any “restricted activities” involving any protected species of flora or fauna (section 57(1)). These restricted activities include:

  • cutting, chopping off, uprooting, damaging or destroying any specimen; and
  • conveying, moving or trans-locating any specimen (section 1).

NEMBA doesn’t have any exemptions for the mineral and petroleum industry, and may have an impact on planned prospecting, mining, exploration or production activities.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Primer – National Environmental Management Protected Areas Act

The National Environmental Management: Protected Areas Act, No 57 of 2003 (NEMPAA) is a complimentary act to the National Environmental Management Act, No 107 of 1998 (NEMA). NEMPAA aims to provide for the protection and conservation of ecologically viable areas that are representative of South Africa’s biological diversity. This objective is accomplished through the declaration and management of protected these identified areas (section 2).

The restrictions on the development of protected areas in NEMPAA are in addition to any restrictions placed on prospecting or mining of minerals, or exploration or production of petroleum resources, in terms of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA). In the event of any conflicts between these two acts, the provisions of NEMPAA will prevail if the conflict concerns the management or development of protected areas (NEMPAA section 7(1)(a)).

The MPRDA prohibits any right for the prospecting or mining of minerals from being granted over residential areas, public roads, public railways, public cemeteries, land being used for public or government purposes or over any other area identified by the Minister of Mineral Resources, unless the minister is satisfied that the granting of the right is in the national interest, the operations will take place within the framework of the national environmental policies and the interests of other holders of prospecting or mining rights will not be adversely affected (section 48).

Restrictions Imposed by NEMPAA

In addition to the restrictions under the MPRDA, NEMPAA could potentially affect the mineral and petroleum industry in two ways. First, despite being granted the required mineral right in terms of the MPRDA, no person may conduct prospecting, mining, exploration or any related activities in any:

  • nature reserve or national park;
  • protected environment without the prescribed permissions;
  • world heritage site;
  • marine protected area; or
  • protected forest areas, forest nature reserves and forest wilderness areas that have been declared in terms of the National forests Act, No 84 of 1998 (section 48(1) and 48A(1)(g)).

Further, if an area has been or is proposed to be declared as part of a national protected area or as part of a national park after a mineral right is granted, the responsible minister is empowered to expropriate or cancel a mineral right, servitude or any other privately held right in the land (sections 80, 81, 82 and 84). When cancelling or expropriating any rights the provisions of the Constitution of the Republic of South Africa and the Expropriation Act, No 63 of 1975, are applicable. These require the right holder to be compensated for the expropriated right.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Primer – National Environmental Management Act

The National Environmental Management Act, No 107 of 1998 (NEMA) is the principle act that governs environmental management in South Africa. NEMA was enacted with the objectives of ensuring sustainable development and use of natural resources. This act is complimented by other specific environmental management acts, each regulating more specific environmental concerns. These complimentary acts include the NEMA: Protected Areas Act, NEMA: Biodiversity Act and the National Water Act.

During 2013 and 2014 NEMA and the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA) underwent a series of amendments. These amendments sought to remove all of the provisions regulating environmental management from the MPRDA and insert provisions to regulate the mineral and petroleum industry into NEMA. This created a single environmental management system that now regulates environmental management in South Africa.

Environmental Authorisations in terms of NEMA

The key provisions in NEMA that are applicable to the mineral and petroleum industry are that must be considered is the requirement to obtain regulatory approval before commencing with certain listed activities (section 23 and 24). Before any prospecting, mining, exploration or production of mineral or petroleum resources, or any other incidental work, can be undertaken a person must granted an environmental authorisation in terms of NEMA in addition to the permit or right required in terms of the MPRDA (section 5A(a) and (b) of the MPRDA and section 24 of NEMA).

The application for the required environmental authorisation is done as part of the application for a right or permit in terms of the MPRDA. When submitting an application for a right or permit in terms of the MPRDA an applicant is required to submit an environmental management programme (section 24N(1A) of NEMA), also referred to as an EMP, within the following periods once an application has been accepted:

  • Prospecting Right: 60 days (section 16(4)(a) of the MPRDA);
  • Mining Right: 180 days (section 22(4)(a) of the MPRDA);
  • Mining Permit: Simultaneously (section 27(2) of the MPRDA);
  • Reconnaissance Permit: 60 days (section 74(4)(b) of the MPRDA);
  • Exploration Right: 120 days (section 79(4)(b) of the MPRDA);
  • Production Right: 180 days (section 83(4)(b) of the MPRDA).

It must be kept in mind that NEMA regulates more than just the mineral and petroleum industry. As a result, some activities that are conducted as part of the mining or production operations might be regulated separately under NEMA. Depending on the circumstances the EMP that is submitted as part of the MPRDA application procedure might have to be extended to address these additional incidental activities or a separate environmental authorisation might need to be considered. Some of the additional listed activities that could be applicable to the mineral and petroleum industry are:

  • the construction of infrastructure for the generation of electricity;
  • the construction of coal storage facilities;
  • construction of facilities for the bulk transportation of sewerage or storm water;
  • construction of canals, bridges, dams, reservoirs and bulk storm water outlets;
  • earth moving activities in, or within one hundred meters of the sea, an estuary or littoral active zone;
  • construction of roads with a reserve wider than thirteen and a half meters or without a reserve wider than eight meters;
  • the physical alteration of more than twenty hectares of undeveloped land for industrial use;
  • construction of railway lines; and
  • the bulk transport of dangerous goods.

Additional Provisions in NEMA to Consider

In addition to the requirement to obtain authorisation to conduct certain activities, NEMA also regulates the following matters that should be taken into consideration:

  • the requirement to provide a “financial provision“, such as a bank guarantee, that can be used to undertake rehabilitation and mine closure (section 24P);
  • performance monitoring and assessment (section 24Q);
  • the management of residue stockpiles and residue deposits, including discard, tailings, dumps and waste rock (section 24S); and
  • the continuing environmental obligations and mine closure requirements (section 24R).

This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Primer – Mineral and Petroleum Resources Development Act

Since 1 May 2004 the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA) has been the principle piece of legislation that regulates the South African mineral and petroleum sector. This act will generally be applicable to any project that involves the any prospecting for or mining of minerals, or any exploration for or production of petroleum resources.

The MPRDA was enacted with the objectives of promoting local and rural development, ensuring equal access to minerals, and eradicating discriminatory practices in the industry, while still guaranteeing security of tenure to participants in the industry and increasing the industries international competitiveness.

One of the fundamental changes that were brought about by the MPRDA was the abolishment of the right for persons to privately own minerals and petroleum rights. The state is now the custodian of all mineral and petroleum resources and these resources are held by the state for the benefit of all South Africans (section 3(1)). To ensure security of tenure for holders of mineral and petroleum rights that were held under the previous mineral regime, these holders were granted a five year period to convert their rights to a right issued in terms of the MPRDA.

The Requirement to be granted a Licence for the Intended Activity

Before conducting any prospecting or mining of minerals, or exploration or production of petroleum resources, a person must first be granted a permit or right from the Department of Mineral Resources authorising the intended activity.

The MPRDA regulates minerals and petroleum as defined in the act. These terms are defined broadly but the definitions do contain exceptions.

A mineral is defined as any solid, liquid or gaseous substance occurring naturally in or on the earth or in or under water that was formed by or subjected to geological processes. Importantly, the definition of “mineral” includes sand, stone, rock, gravel, clay and soil, and all minerals in residue stockpiles or residue deposits (including dumps, debris, discard, tailings and slimes) (section 1). The definition of mineral excludes water and peat (section 1).

Petroleum is defined as any liquid, solid hydrocarbon or combustible gas existing in a natural condition in the earth’s crust. The definition excludes coal, bituminous shale, stratified deposits from which oil can be obtained by destructive, distillation, and gasses rising from marshes or other surface deposits (section 1).

The Licence Application Procedure

Before conducting any prospecting or mining of minerals, or exploration or production of petroleum resources, a person must:

  • be granted a right by the Minister of Mineral Resources authorising the intended activity in terms of the MPRDA (section 5A(b));
  • be granted an environmental authorisation in terms of the National Environmental Management Act (NEMA) (section 5A(a));
  • conduct consultations with all landowners and other persons that could be interested in, or affected by, the intended operations; and
  • give the landowner or occupier of the land at least twenty one days’ notice of the intended activities (section 5A(c)).

The application procedure for a right is designed to ensure that the objectives of the MPRDA are promoted by ensuring that all interested and affected parties are notified of the application and that the black economic empowerment objectives in the MPRDA are also promoted.

All interested and affected parties must be notified of the pending application and are called upon to raise any objection that they may have against the application (section 10). The applicant is also required to hold consultations with the landowners and occupiers of the property and all other interested and affected parties (sections 16(4)(b), 22(4)(b) and 27(5)(a)).

Broad Based Black Economic Empowerment Requirements (Local Participation)

The black economic empowerment objectives in the MPRDA are promoted during the application procedure. The empowerment objectives require the promotion of access to resources and the expansion of opportunities for disadvantaged persons, women and communities to enter into the mineral and petroleum industry.

Before a prospecting right, mining right, exploration right or production right is granted the minister must be satisfied that the granting of the right will substantially and meaningfully expand the opportunities for these groups (sections 17(1)(f), 23(1)(h), 80(1)(g) and 84(1)(i) as read with section 2(d)).

The empowerment requirements are expanded on in the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Metals Industry that was published in 2010. The charter has various elements that must be complied with to ensure that the project will satisfy the empowerment requirements and qualify for a licence.

Generally, in order for the empowerment objectives to be satisfied and the application to be granted a minimum of twenty six per cent of the project should be owned by historically disadvantaged South Africans, and historically disadvantaged South Africans should participate in the management of the company.

Categories of Licences that can be granted in terms of the MPRDA

The following licences can be granted in terms of the MPRDA:

To prospect for minerals:

  • A reconnaissance permission:
    • Granted for a non-renewable period of 1 year (section 14).
    • Allows only for the search of minerals by geological, geophysical and photo geological surveys or through the use of remote sensing techniques (section 5A as read with section 1).
  • A prospecting right:
    • Granted for a maximum period of 5 years (section 17(6)).
    • Renewable for 1 further single period that can’t exceed 3 years (section 18(4)).
    • Allows for prospecting by any means, including methods that disturb the surface or subsurface of the earth, whether on land, under sea or under water (section 5A read with section 1).
    • Diamonds and bulk samples of other minerals that are found during the prospecting operations can only be disposed of with the consent of the minister (section 20(2)). This consent is typically granted in the form of a bulk sampling permit.

To mine for minerals

  • A mining right:
    • Granted for a maximum period of 30 years (section 23(6)).
    • Renewable for further periods. Each further period may not exceed 30 years (section 24(4)).
  • A mining permit:
    • A mining permit is intended for small scale mining operations and may only be issued if (i) the mineral can be mined optimally in 2 years; and (ii) the area is 5 hectares or less.
    • Granted for a maximum period of 2 years (section 27(8)(a)).
    • May be renewed a maximum of 3 times. Each renewal may not be longer than 1 year (section 27(8)(b)).

To explore for petroleum

  • A reconnaissance permit:
    • Granted for a non-renewable period of 1 year (section 74(4)).
    • Allows only for the search of petroleum by geological, geophysical and photo geological surveys or through the use of remote sensing techniques (section 5A as read with section 1).
  • A technical cooperation permit:
    • Granted for a non-renewable period of 1 year (section 77(4)).
    • Allows the holder to conduct a technical cooperation study and grants the holder the exclusive right to later apply for an exploration right over the area (section 77(4) and section 78(1)).
  • An exploration right:
    • Granted for a maximum period of 3 years (section 80(5)).
    • May be renewed a maximum of 3 times. Each renewal may not be longer than 2 years (section 81(5)).

To produce petroleum

  • A production right:
    • Granted for a maximum period of 30 years (section 84(4)).
    • Renewable for further periods. Each further period may not exceed 30 years (section 85(4)).

This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

A Guide to the Mineral and Petroleum Industry in South Africa

What laws apply to the mineral and petroleum industry in South Africa? What potential pitfalls must a person look out for when they consider entering into these industries in South Africa?

Unfortunately this isn’t an easy or quick question to answer because the applicable laws and regulations will depend on the projects scope and characteristics – the intended mining or production activities, infrastructure requirements and the project location. But there are two acts that can serve as a starting point. The principle act regulating the mineral and petroleum sector is the Mineral and Petroleum Resources Development Act (MPRDA), and the principle act regulating environmental management is the National Environmental Management Act (NEMA).

In any project it may, however, be necessary to consider various other laws and regulations. The purpose of this note is to give a starting point for a more in depth exploration of the laws applicable to the mineral and petroleum industry.

The following list has links to discussions on some of the acts and regulations in South Africa that may be considered. This list is unfortunately incomplete and non-exhaustive.

Mineral and Petroleum Licensing and Permitting

Environmental Management

Water Management

Taxation

  • Income Tax Act, No 58 of 1962 (Income Tax Act);
  • Mineral and Petroleum Resources Royalty Act, No 28 of 2008 (Royalty Act);
  • Mineral and Petroleum Resources Royalty (Administration) Act, No 29 of 2008 (Royalty Admin Act).

Industry Specific Legislation:

  • Diamonds Act, No 56 of 1986 (Diamonds Act);
  • Petroleum Products Act, No 120 of 1977 (Petroleum Products Act);
  • Precious Metals Act, No 37 of 2005 (Precious Metals Act).

This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

The Perils of Shareholders Agreements in South Africa

How enforceable are the clauses in your company’s shareholders agreement?

Unfortunately, for many shareholders an investigation into the legal aspects regulating shareholders agreements will lead to the conclusion that many of the provisions in their shareholders’ agreements are void.

When buying shares in a private company or forming a new private company, it is common practice to enter into a shareholders agreement with company’s other shareholders. The shareholders agreement is intended to regulate the important internal governance structures of the company like the appointment of directors and the calling of directors and shareholders meetings, and in many instances give important protection mechanisms to minority shareholders.

In many cases shareholders agreements are concluded without the shareholders considering the impact that the company’s constitutional documents (the company’s memorandum of incorporation (MOI) might have on the validity of the shareholders agreement.

This means that it is common for a company’s MOI to render many clauses in a shareholders agreement void and unenforceable if there is a dispute between the shareholders.

To understand why, I will briefly explain how the practice of concluding shareholders agreements without the necessity to consider the company’s MOI developed in terms of the old Companies Act (Act No 61 of 1973), and the significant changes that the new Companies Act (Act No 71 of 2008) had on this practice.

The Historical use of Shareholders Agreements

Under the old Companies Act a company’s constitutional documents were its memorandum of association and articles of association. These documents, and any amendments to them, had to be registered at the Registrar of Companies and became public documents that were open to inspection. An amendment to the articles of association needs to be registered, and this makes the provisions that regulate the company’s internal affairs public.

A shareholders agreement was, however, a private contract that didn’t need to be registered. It could be concluded between the shareholders at any time, even after the company’s incorporation, and it was enforceable between the shareholders and the company even though it was not registered.

A shareholders agreement could be used to regulate important aspects of the company without amending its articles of association and making those provisions public.

Provisions in the shareholders agreements were often in direct conflict with the company’s articles of association. To counteract this a shareholders agreement would typically include a clause stating that if there was any conflict, the shareholders agreement would be the document that takes precedence. Under the old Companies Act a provision like this, making a private shareholders agreement trump the company’s public registered constitutional documents, was permitted in law.

Practically this lead to a situation where a private company’s constitutional documents could effectively be ignored by its shareholders, and the shareholders would merely regulate the affairs of the company through a shareholders agreement.

Changes to Shareholders Agreements under the New Companies Act

The new Companies Act has, however, dramatically changed the possible scope and effectiveness of shareholders agreements in two ways:

  • it has altered how conflicting clauses the MOI and a shareholders agreement are resolved; and
  • it has curtailed what the shareholders are entitled to regulate in a shareholders agreement by now providing that some issues can’t be changed or regulated at all (unalterable provisions), and that some issues can be regulated but only if they are regulated in the MOI (alterable provisions).

The New Companies Act: Conflicts between the MOI and Shareholders Agreements

Shareholders agreements aren’t prohibited under the new Companies Act, but it does limit the potential ambit of shareholders agreements by requiring that any shareholders agreement must be consistent with the provisions of the act and with the company’s MOI (section 15(7)).

If there is any inconsistency between the shareholders agreement and either the Companies Act or the company’s MOI, then the conflicting provision in the shareholders’ agreement is void and will be unenforceable (section 15(7)).

A clause in a shareholders agreement that provides that the shareholders agreement will take precedence over the memorandum of incorporation if there is a conflict is void, first because the clause would itself be a provision that is inconsistent with the act (section 15(7)), and secondly because it would fall afoul of the acts anti avoidance provisions by attempting to defeat or reduce the effect of the acts prohibitions or requirements (section 6(1)). These types of provisions would not provide any assistance to the shareholders if they attempt to enforce a conflicting provision in a shareholders agreement.

Under the new Companies Act shareholders are still entitled to enter into shareholders agreements, but they must now inspect the company’s MOI before concluding these agreements to make sure that the shareholders agreement doesn’t conflict with the MOI.

If there is a conflict between what is in the MOI and what is in the shareholders’ agreement, the clause in the shareholders’ agreement is void and gives the shareholders’ no protection.

The New Companies Act: Unalterable and Alterable Provisions

A legal aspect that is related to the requirement that a shareholders agreement must be consistent with the company’s MOI, is the introduction of the concept of “unalterable” and “alterable” provisions by the new Companies Act.

The new Companies Act contains provisions and principles that are stipulated as unalterable. A company’s MOI can’t contain any clause that negates, restricts, limits, qualifies, extends or alters the substance or effect of an unalterable provision (section 15(2)(d)). Any attempt to alter these unalterable provisions in the MOI will be void (section 15(1)).

Likewise, these unalterable provisions of the Companies Act can’t be negated or altered by the shareholders in a shareholders agreement because these provisions in the shareholders’ agreement would be contrary to the act, and void (section 15(7)).

Opposed to unalterable provisions, the new Companies Act contains provisions and principles that are specifically stipulated as being alterable. These alterable provisions may, however, only be altered if they are expressly altered by the company in its MOI (section 19(1)(c)(ii)). (A company did have a two year transitional period to update its MOI, but this period ended on 30 April 2013. I have previously written an overview of the Companies Acts transitional period for shareholders agreements here.)

Any attempt by the shareholders to alter an alterable provision by concluding a shareholders agreement will be void because these provisions in the shareholders’ agreement would be contrary to the act (section 15(7)).

Limitations Placed on Shareholders Agreements

A shareholders agreement:

  • can’t be used to alter an unalterable provision in the Companies Act; and
  • can’t be used to alter an alterable provision in the Companies Act; and
  • can’t conflict with any provision in the company’s MOI.

These legal restrictions didn’t exist under the old Companies Act, meaning that shareholders agreements prepared according to the old Companies Act could be void under the current act. Also, it means that when preparing new shareholders agreements care should be taken to ensure that the new shareholders agreement complies with the new Companies Act.

Unfortunately it is not possible to give a complete list of unalterable and alterable provisions in this article, but a list of the most common clauses that are found in shareholders agreements, that may be void because they conflict with the Companies Act are briefly discussed.

Unalterable Provisions

The following provisions can’t be altered at all, and any clause in a shareholders agreement that conflicts with them will be void:

  • A private company must restrict the offer of shares to the public (section 8(2)(b));
  • A private company must restrict the transferability of its shares (section 8(2)(b));
  • If a company has more than 2 shareholders, a meeting may not begin or a matter may not be decided, unless 3 or more shareholders are present (section 64(3);
  • Private and public companies must provide for the election by shareholders of at least 50% of the directors, and 50% of any alternate directors (section 66(4)(b));
  • A company may only pay remuneration to its directors for their service as directors if the remuneration has been approved by special resolution within the previous 2 years (section 66(8) and (9));
  • The Companies Act takeover regulations apply to private companies if the percentage of the issued securities of that company that have been transferred within the period of 24 months immediately before the date of a particular affected transaction or offer exceeds the prescribed percentage (section 118(1)).

Categories of Provisions that are Alterable Only in the MOI

These are alterable provisions that can only be altered in a company’s MOI. An attempt to regulate these matters in a shareholders agreement will be void.

These aspects of a company and its management can only be regulated in the MOI:

  • Management of the Company:
    • the removal of the boards power to make binding interim rules that are incidental to the governance of the company (section 15(3));
  • Amendment of the MOI:
    • the change in the requirements that must be met to amend the company’s MOI (by default the MOI can be amended by a special resolution which may be proposed by shareholders that hold 10% of the voting rights) (section 16(1) and (2));
  • Shareholders Rights and Protections:
    • the addition of shareholders rights to access information relating to the company and its management (by default only certain listed information and documents can be accessed by shareholders) (section 26(3));
    • the addition of an obligation for a private company to have its annual financial statements audited (section 30(2)(b));
    • the alteration of shareholders rights to appoint concurrent proxies, and the proxies right to further delegate authority (section 58(3));
  • The Regulation of Shareholders Meetings:
    • the right to call a shareholder meeting (section 61(3), (4) and (11));
    • the location of shareholder meetings (section 61(9));
    • the notice period required for a shareholder meeting (section 62(1));
    • participation at a shareholder meeting by electronic communication (section 63(2));
    • quorums (section 64(1) and (2));
    • meeting adjournments (section 64(4), (5) and (6));
  • Regulation of the Board of Directors
    • the minimum number of directors to be appointed (section 66(2) and (3));
    • the procedure used to appoint directors (section 66(4) and 68(2));
    • minimum qualifications and grounds of ineligibility or disqualification of directors (section 69(6));
    • the power to appoint board committees (section 72(1));
  • The Regulation of Directors Meetings:
    • the right to call a directors meeting (section 73(1));
    • participation at a directors meeting by electronic communication (section 73(3));
    • the notice period required for a directors meeting (section 73 (4));
    • quorums (73(5)(b))
    • voting of directors (section 73(5)(c) and (d));
    • casting votes (section 73(5)(e));
  • Company’s Shares
    • the classes of shares that a company is permitted to authorise, and the rights attaching to the shares, must be contained in the MOI (section 36(1));
    • the board has a wide discretion regarding the company’s securities, including:
      • the power to alter the authorised share capital of the company, classify, and reclassify shares (section 36(3));
      • the power to issue secured or unsecured debt instruments (section 43(2));
      • the power to issue debt instruments that may grant the holder grant special privileges, such as voting at general meetings, and the allotment of shares (section 43(3));
      • the power to issue any of the company’s shares as capitalisation shares (section 47(1))
  • Boards Power to Issue Securities Other than Shares:
    • The board has the power to issue secured or unsecured debt instruments at any time.
    • The board has the power to issue debt that grants special privileges, which may include the privilege to (i) attend and vote at general meetings; (ii) appoint directors; or (iii) allotment of securities, redemption by the company, or substitution of the debt instrument for shares of the company (section 43(3)).
  • Boards Power to Give Financial Assistance for the Subscription of Securities (section 44)
  • Boards Power to Give Loans and Financial Assistance to Directors and Related Parties (section 45)

Ensuring that the Shareholders Agreement complies with the Companies Act

When buying shares in a private company or forming a new private company, it is important to ensure that when a shareholders’ agreement is entered into, that the shareholders agreement is fully valid.

A comparison between the shareholders’ agreement and the company’s MOI must be done:

  • no changes can be made to an unalterable provision of the Companies Act at all;
  • if the shareholders want to change the application of any alterable provisions, this must be done in the MOI because the provision will be void if it is only in the shareholders’ agreement;
  • if there is any inconsistencies between the MOI and the shareholders’ agreement, the provision in the shareholders’ agreement will be void.

An important observation to take away from this discussion is that the MOI, not the shareholders’ agreement, should be the primary focus for shareholders.

How enforceable are the clauses in your company’s shareholders agreement?


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

When the Minister of Mineral Resources Ignores You

If a commercial transaction is concluded with a person that holds a right issued by the Department of Mineral Resources (“the department”) care must be exercised to ensure that the required regulatory approvals needed for the implementation of the transaction has been granted. Examples of commercial transactions that need ministerial approval in terms of the Mineral and Petroleum Resources Development Act No 28 of 2002 (MPRDA) before they can be implemented include agreements that would result in:

  • a transfer a prospecting right or mining right, for example a sale, cession or donation of the right;
  • a transfer any interest in prospecting right or mining right, for example the transfer of an undivided share in a right; and
  • a transfer a controlling interest in a company holds a prospecting right or mining right, for example a sale of shares agreement or an issue and allotment of new shares resulting in a change of control (section 11(1) of the MPRDA).

To get consent to implement these transactions a formal application must be submitted to the department. Unfortunately, the legislation does not provide any maximum time limits that are applicable when considering the application. In most cases an application submitted to the department is approved without too much delay, but in some cases months, if not years, may pass without the application for consent being considered.

Delays in the approval process can have drastic consequences on commercial transactions because without the required consent they can’t become effective and can’t be implemented by the parties. What can a person do if there is a significant delay in the approval process after the application for ministerial consent has been submitted? The most common answer is for a person to bring an application to court, and ask the court to grant an order forcing the department to perform its duty. This court relief is referred to as a mandatory interdict, or a mandamus. In many situations this relief would be a sufficient; the matter is referred back to the department for consideration within a court specified time line.

The purpose of this article is, however, to explore alternate legal remedies that could be used if there is a significant delay in the approval process. Particularly:

  • Can a person bring a court application for a court order granting an application that was submitted in terms of the MPRDA, without the need to refer the matter back to the minister for consideration?

The General Right to Just Administrative Action

Any action taken by an organ of state must be (i) lawful; (ii) reasonable; and (iii) procedurally fair. If an action does not meet with these requirements a person who has been affected by the action has the right to approach a court to “review” the infringing action, and ask the court for appropriate relief. This right of judicial review stems from the Constitution of the Republic of South Africa 1996 (the Constitution), and is given effect by the Promotion of Administrative Justice Act 3 of 2000 (PAJA) (in particular see section 33 of the Constitution).

Both actions and inactions of the government can be reviewed by a court. This is because an “administrative action” is defined to include any decision taken, or the failure or refusal to take a decision, by an organ of state when exercising a public power or performing a public function in terms of legislation (the definition of “administrative action” as read with the definition of “failure” contained in section 1).

A court has wide powers when reviewing an administrative decision (see section 8 of PAJA). In cases where the government’s administrative action amounts to the failure or refusal to take a decision, then the court may grant any order that it just and equitable, including an order:

  • directing the taking of a decision; or
  • declaring the rights of the parties in relation to the taking of a decision.

Accordingly, if the minister fails to consider an application that has been submitted by a person in terms of the MPRDA, the ministers inaction will be “an administrative action”, and falls within the ambit of PAJA. Under these circumstances a person should be able to approach the court for appropriate relief.

The right to approach a court directly for relief in terms of PAJA is, however, curtailed if the applicable legislation, such as the MPRDA, contains an internal appeal procedure (section 6(2)(g) and 7(2)(a) of PAJA).

Court Action Versus the Department’s Internal Appeal Process

A person’s right to approach the court to review an administrative decision in terms of PAJA is not unlimited. A person can’t approach a court until any internal appeal process in the applicable law, such as the MPRDA, has been exhausted (section 7(2)(a) of PAJA). It is intended that a person’s first port of call should be the legislated internal appeal procedure. A person can only approach a court if the applicable act doesn’t have an appeal procedure, or after the appeal procedure has been followed. Exceptions to this rule do, however, exist, and a person is entitled to approach the court directly without first exhausting the internal appeal procedure is there are “exceptional circumstances” (section 7(2)(c) of PAJA).

To phrase these requirements differently, a court can be approached to review an administrative action if:

  • an internal appeal was submitted but it was unsuccessful (section 7(2)(a) of PAJA); or
  • the particular law has no internal appeal procedure that is applicable; or
  • the particular law has an internal appeal procedure, but there are exceptional circumstances that are applicable, the court exempts the applicant from having to follow the internal appeal procedure (section 7(2)(c) of PAJA).

What is the correct legal process if the minister fails to consider an application that has been submitted by a person in terms of the MPRDA? This will depend on whether the MPRDA contains an internal remedy that can be relied on when the minister fails to take any action.

Can the MPRDA’s Internal Appeal Procedure be used when the Minister Fails to Take a Decision?

Is there an internal appeal in situations where the minister fails to take a decision, or does the internal appeal procedure in the MPRDA only apply to decisions that have actually been taken? Is it correct to argue that the internal appeal procedure must be followed in a situation where the minister fails to make a decision in terms of the MPRDA?

If the internal appeal procedure doesn’t apply to a failure to take a decision then there will be no requirement to institute an internal appeal. In these circumstances a person will be entitled to approach the court immediately without having to prove that there are exceptional circumstances that allow the court to exempt the person from the internal appeal requirements.

In order to answer this question the internal appeal procedure that is set out in the MPRDA must be examined.

The Internal Appeal Procedure in terms of the Mineral and Petroleum Resources Development Act

The MPRDA has an internal appeal process that can be relied on in some circumstances (section 96). This internal appeal process can be summarised as follows:

  • A person is prohibited from applying to court for the review of an “administrative decision” of the department until they have exhausted the remedies set out in the MPRDA (section 96(3)).
  • A person whose rights or legitimate expectations have been materially and adversely affected, or who is aggrieved by any “administrative decision”, may appeal within 30 days of becoming aware of such administrative decision (section 96(1)), setting out:
    • the actions appealed against; and
    • the grounds on which the appeal is based (regulation 74(2)).
  • A copy of the appeal will be dispatched by the department to:
    • the person in the department responsible for the administrative decision, who must then within 21 days submit written reasons for the administrative decision appealed against (regulations 74(5)(a) and 74(6)); and
    • any other person, whose rights may be affected by the outcome of the appeal, who must then within 21 days submit a replying submission indicating the extent and nature of his or her rights, and how they will be affected by the appeal (regulations 74(5)(a) and 74(7)).
  • The department will then dispatch the written reasons and any replying submissions that it received to the appellant, and the appellant is then afforded 21 days to reply to these reasons and submissions (regulation 74(8)).
  • Within 30 days from the receipt of the appellant’s response, the minister or director-general must either:
    • confirm the administrative decision concerned;
    • set aside the administrative decision concerned;
    • amend the administrative decision concerned; or
    • substitute any other administrative decision for the administrative decision concerned (regulation 74(9).
  • The lodging of an appeal does not suspend the administrative decision, unless it is suspended by the director-general or the minister (section 96(2)(a)).

Does this Procedure Apply when the Minister Fails to Take a Decision?

As discussed, a person does not have the right to approach a court to review any administrative action unless any internal appeal procedure in the MPRDA has been exhausted or unless there are exceptional circumstances that allow the court to exempt the person from the internal appeal requirements.

The MPRDA does have an internal appeal process (section 96), but does the MPRDA’s internal appeal procedure apply in situations where the minister fails to take a decision?

An “administrative action” is defined in PAJA to include the failure to take a decision, but the MPRDA’s appeal procedure doesn’t use this term. The MPRDA’s internal appeal procedure states that it applies to “administrative decisions”, a term that is not defined.

The wording and context of the internal appeal procedure supports a conclusion that the term “administrative decision” can only relate to decisions that have actually been taken, and doesn’t apply to a failure to take a decision:

  • The MPRDA requires that any “decision taken” must be taken within a reasonable time, must be in writing, and must be accompanied by written reasons for the decision (sections 6(1) and (2)). In a situation where the minister has failed to consider an application there will be no “decision” taken. This non-decision is not capable of being reduced to writing, and similarly it will not be possible to give any reasons for the non-decision.
  • An internal appeal must be lodged within 30 days of becoming aware of the administrative decision (section 96(1)). It is impossible to comply with this requirement if no positive action is taken, especially when the MPRDA does not prescribe a fixed duration during which the decision must be taken. If the minister has an indeterminable amount of time to consider the application, when must this 30 day period be calculated from?
  • The internal appeal procedure is worded to apply to an administrative decision that “was taken” (section 96(1)(b)). The language of the section clearly implies that there must have been some form of act by the minister, not just a failure to take a decision.
  • The internal appeal procedure does not automatically suspend the decision that is appeal against (section 96(2)(a)). In a situation where there has been no decision at all, this provision can’t be applied because there is nothing to suspend.
  • As part of the internal appeal procedure, a person must be provided with written reason by the person who took the decision that is appealed against (regulations 74(5) and 74(6)). In a case where no decision has been taken at all, it is not possible for the department to comply with the regulation and give “written reasons for the administrative decision”.

The conclusion that the term “administrative decision” can only relate to decisions that have actually been taken, and not to a failure to take a decision, can also be demonstrated by considering what the final appeal procedure could be if the term “administrative decision” did include the failure to take an action.

  • What would the legal situation then be if the minister either failed or refused to consider the appeal in the required time lines?
  • An internal appeal would be submitted, and it would request that the minister either (i) amends the department’s failure to take a decision; or (ii) substitutes the failure to take a decision with a positive decision to grant the application (regulations 74(9)(c) and (d)).
  • What would the legal situation then be if the minister ignored an application that was submitted an internal appeal would have to be lodged with the department against this failure to take a decision.
    • Would this failure to consider the appeal fall also under the definition of an “administrative decision” in terms of the MPRDA? Would a person be prevented from applying to a court to review the failure to consider the appeal until the internal remedies in the MPRDA have been exhausted, requiring the appellant to lodge a second internal appeal against the ministers failure to determine the first appeal (section 96(3))?
    • Must the person now bring an application to court, and ask the court to grant an order forcing the minister to perform their duty and determine the first appeal (ie a mandamus)? If so, then the person has now expended considerable time and resources to bring a court action just to place it in the same position where it was immediately after lodging the appeal, namely its appeal has been lodged and the minister is now compelled (in terms of the court order this time) to comply with the required time lines.
  • When the minister considers the appeal, the minister may decide that the appeal fails, and to substitute the failure to take a decision with a decision to refuse the application.
    • In this case the person will then have to lodge an internal appeal against the ministers decision to refuse the application.
    • Once the internal appeal procedure has been exhausted, the applicant would then only be entitled to approach a court to review the administrative action.

This process is a far cry away from that an internal appeal process should achieve; a quick and cost effective method to resolve irregularities before instituting legal action.

I would submit that the term “administrative decision” in terms of the MPRDA has a narrower definition than “administrative action” under PAJA, and that this term should not be interpreted to include situations where there has been a failure to take a decision, but only to include situations where a decision has indeed been taken which is prejudicial.

The Alternative: Reliance on Exceptional Circumstances to Bypass an Internal Appeal Process

Even if the above argument is rejected, PAJA allows a person to bypass any applicable internal appeal process if there are exceptional circumstances that would allow the court to exempt the non-compliance with the internal appeal procedure (section 7(2)(c)). It would be prudent for any person who wants to bring a court action without first lodging an internal appeal to ask the court to grant an exemption from having to lodge in internal appeal, as an alternative to the argument that there is no internal appeal.

The “exceptional circumstances” that are typically accepted by the courts when granting an exemption from complying with internal appeal procedures are discussed in the next section.

Appropriate Legal Action and Possible Relief

If the minister ignores an application that has been submitted and does not consider it at all, an affected person will be able to approach the court in terms of PAJA directly without first exhausting the internal appeal procedure because the internal appeal procedure will not be applicable in these circumstances. As an alternative, an affected person can ask the court for an exemption from the internal appeal process if there are exceptional circumstances that are applicable.

An affected person can approach the court as soon as there has been an unreasonable delay in taking a decision (sections 6(2)(g) and 6(3)(a) of PAJA). It is possible to ask the court to grant any order that it just and equitable (section 8(2) of PAJA), including an order:

  • substituting or varying an administrative action (section 8(1)(c)(ii)(aa));
  • directing the taking of a decision (section 8(2)(a)); or
  • declaring the rights of the affected person (section 8(2)(b). (It might be noted that the legal action listed has relief in terms of both sections 8(1) and 8(2) of PAJA, even though the failure to take an administrative action falls in the ambit of section 8(2). I submit that the wording of section 8(2), permitting the grant of any order that is just and equitable, would not preclude the court from substituting its decision where the minister has failed to act. See the discussion by C Hoexter (Hoexter, C. 2012. Administrative Law in South Africa. Cape Town: Juta, at pg. 557) for further argument in support of this submission).

There has been a lot of recent discussion about the legal doctrine of the separation of powers; how the courts (judiciary) should not overstep its role and perform acts that fall into the realm that should be occupied ministers (the executive). PAJA does, however, directly empower the court to come to the aid of a person when the executive acts unlawfully, and allows the court to effectively make a decision on behalf of the minister when the minister fails to take a decision in a reasonable time (see sections 8(1)(c)(ii)(aa) and 8(2)(a) of PAJA; de Ville, JR. 2003. Judicial Review of Administrative Action in South Africa. Durban: LexisNexis Butterworths, at pg. 370; Hoexter, C. 2012. Administrative Law in South Africa. Cape Town: Juta, at pg. 552).

There are four situations where a court will be prepared to substitute its decision with the decision of the minister, without referring the matter back to the minister for decision. These are:

  • when the end result is a forgone conclusion;
  • when any further delay will cause unjustifiable prejudice;
  • when the original decision maker has exhibited bias or incompetence; or
  • where the court is as well qualified as the original authority to make the decision (Hoexter, 2012, pgs. 552 – 557).

For many applications the MPRDA doesn’t allow the minister to use any discretion when considering the application. The power granted to the minister is not a discretionary power; the minister must grant consent if the requirements for transfer are complied with. If the requirements are met the result is a forgone conclusion; the minister must grant the application.

Applications where the minister is compelled to grant a compliant application include applications for consent to transfer a right (section 11(2)), applications for prospecting rights (section 17(1)) and applications for mining rights (section 23(1)).

For these categories of applications it can be argued that, (i) the court is as qualified as the minister to make the decision, and (ii) that the end result of the application is a foregone conclusion. Once the court has had the opportunity to review and consider the application that was submitted, the court will be as well qualified as the minister to determine if the application placed before it meets the objective criteria the applicable section, and grant the application if all the requirements are met.

In addition to meeting these two requirements for substitution of a decision by the court, a person may also be able to advance reasons to show the court that further delay will cause unjustifiable prejudice.

Based on these considerations I submit that a person would be entitled to approach a court for direct relief and ask the court to substitute its decision with the minister’s decision.

Conclusion (Too Long; Didn’t Read)

What should be done if an application has been submitted to the Department of Mineral Resources, and the department has failed to take any action or consider the application?

  • If time is not of the essence in the underlying commercial transaction, a court application can be brought asking for an order to force the department to perform its duty. The matter would then be referred back to the department for consideration within a court specified time line.
  • If time is of the essence, a person can approach a court for direct relief and ask the court to grant the application, effectively substituting its decision with the minister’s decision. In order to be successful it must be argued that:
    • the MPRDA’s internal appeal process does not apply to situations where the minister fails to take a decision, alternatively that there are exceptional circumstances that would allow the court to exempt the non-compliance with the internal appeal procedure; and
    • the end result is a forgone conclusion; or
    • when any further delay will cause unjustifiable prejudice; or
    • when the original decision maker has exhibited bias or incompetence; or
    • where the court is as well qualified as the original authority to make the decision.

Related Reading:


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.