Impact of the South African mineral resource royalty on cut-off grades for narrow, tabular Witwatersrand gold deposits

Abstract

A mineral resource royalty is payment to the holder of mineral rights for the utilization of the mineral resource. In South Africa, this payment is made to the State as holder of the mineral rights (The Mineral and Petroleum Resources Royalty Act of 2008). The principle purpose of this research paper is to identify if the State is benefitting from the mineral resource royalty by considering its impact on seven individual Witwatersrand gold mines. For this study, a simple financial optimiser model was created in Microsoft Excel that links the ore flow, block listing and the cash flow (excluding or including the cost of the mineral resource royalty). Mixed integer linear programing (the Excel Solver function) is utilised to optimise either profit or NPV (at 9% and 12%) by adjusting the cut-off grade. The impact on each of the seven mines mine was different but overall R7.9 billion is estimated to be paid in mineral resource over their expectedremaining lives. Due to the cost of the mineral resource royalty andincreasing the cut-off grades, the total revenue decreases by R10 billion. Asignificant portion of this lost revenue would have been paid to the State int he forms of other taxation including company income tax which decreasesb y R2.8 billion. It is recommended that an industry wide investigation beconducted to determine if the resource royalty is adding to the State'sr evenue, or destroying value including premature job losses.