The South African mineral and petroleum resources royalty act—Background and fundamental principles

After a prolonged drafting and consultation process, South Africa has introduced a new royalty charge to holders of mineral development rights. Deciding on an acceptable royalty is a complex process, especially when it targets deceptive economic rents. This is achieved with a variable royalty rate that slides in tandem with mine profitability. The base is sales revenue and to compensate for the need to charge for the mineral in its unprocessed form, refined production is charged at a lower rate. The aim of this paper is to discuss the Royalty Act in the context of its background, the underlying theory and fundamental principles. This paper argues that the fundamental principles on which the Act is based are sound, but raises a concern on potentially high compliance and reporting costs.