TRANSACTION PAPER

The 2007 South African Mineral and Petroleum Resources Draft Royalty Bill: An independent analysis

F.T. Cawood

School of Mining Engineering, University of the Witwatersrand

SYNOPSIS

This paper reviews the third Draft Mineral and Petroleum Resources Royalty Bill of 2007, and this analysis identifies potential areas for further consideration by the National Treasury before the new regime becomes official. At its basic level, a royalty regime consists of two elements: the base and the rate that must be applied to the base. Deciding on an acceptable royalty rate is complex and can be done only after understanding the base and after an extensive analysis of all variables affecting the competitiveness of the regime. The proposed royalty rate of the third Draft is calculated by means of a formula that provides for a sliding rate depending on the profitability of the mine. The base is a sales revenue definition that approximates net smelter return. The regime proposed in the third Draft Bill is a significant improvement on previous drafts and, with minor refinements, should stand the test of time.

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