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Royalties from the muck pile

Payment of royalties is a hot topic among quarry owners and operators as to where the value of a mined product needs to be determined in order to calculate exact payments.

In most instances disagreements with the South African Revenue Services (SARS) exists over the first point of sale at which the value of royalties needs to be calculated. This is potentially different for different operations and depends on the beneficiation of the product after it is removed from its natural state.

According to legal expert Camilla du Toit of Shepstone and Wylie Attorneys, much work still needs to be done in order to hammer out agreements on where and how the value of products should be determined in order to allow fair and equal payment of royalties across the industry.

“Some operations remove material directly from the natural state and load it onto a truck for sale, while others have to blast, transport, crush and move materials to a muck pile. Understandably the cost and price of these materials are different and may drive the cost of royalties up.On the other hand the calculations involved for each operation are complex and in some instances leads to disparity in the cost per ton price being claimed.

“The Aggregate and Sand Producers Association of Southern Africa (Aspasa) is therefore seeking simplification of the requirements of sand and aggregate quarries. In the meantime, if any Aspasa members believe that royalty calculations are incorrect we strongly advise them to first ensure that they follow the necessary steps needed to comply with the payment of royalties while simultaneously bringing the necessary applications to SARS in order to lodge a query,” says Camilla.

She explains that the industry is currently contending with various other problems relating to royalties, ranging from companies that are having difficulty even registering to pay royalties while others have had their calculations disallowed by SARS due to technical disagreements etc.Another area of some confusion is who and when parties are liable to pay royalties.

“Firstly, it is important to know that if you are the holder of the mineral rights, old order rights or lessee or are a sub-lessee of rights it is up to you to register and pay royalties. These then become due upon the transfer of minerals IE, disposal, consumption, theft destruction or loss (other than flaring.)It is important to know that in the quarrying industry the definition of minerals includes, sand, stone and clay so quarries will usually always have to pay royalties in some form or another.

“Although it is widely accepted that the payment of royalties be calculated at the muck pile there are, in some instances, extenuating circumstances where the calculations cannot be made at the muck pile, or where the muck pile is not the last mining process in a quarrying operation. 

“For this reason Aspasa is engaging SARS and Treasury in order to gain more clarity on the situation and ensure that Aspasa members are able to fulfill their obligations without falling foul of royalty and tax legislation,” concluded Camilla 

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