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Deadline on $6bn expropriation claims looms Posted: Mon, 18 Sep 2006 [miningmx.com] -- ANOTHER legal deadline is approaching which could trigger more trouble between the mining industry and the South African government over possible compensation claims in respect of mineral rights. That is May 1 next year which will mark three years from the date of introduction of the country’s new mining legislation. The significance of the date lies in the laws surrounding the prescription of claims for compensation. Such claims must be made within three years of the date on which the loss or damage is deemed to have taken place, otherwise the party making the claim will lose the right to do so. Miningmx reported in November 2004 that the South African treasury department warned in an independent report of the risks inherent in potential expropriation claims from South African and international mining companies. The report followed notices earlier in 2004 to the South African state, by at least six mining firms, that they reserved the right to sue for compensation. Figures provided to miningmx showed that the size of these potential claims – which relates to the transfer of mining rights – had an estimated minimum value of $6.6bn. The controversial issue is whether an expropriation of mineral rights took place on introduction of the new mining legislation. Government says it did not, but corporate lawyers are currently warning mining company directors of their exposure to legal action by aggrieved shareholders. Directors would be exposed if their company suffered a loss due to the effects of the new legislation and the company lost its right to compensation because its claim had been prescribed. Adding to the pressure on directors and lawyers are delays by the Department of Minerals and Energy (DME) on the conversion of "old order" mining rights to "new order" mining rights. Specialist mining lawyer Hulme Scholes, a director at South African attorney Werksmans, commented: "The dilemna facing mining company directors is they have a legal duty to protect the value of shareholders’ investments. "If they do nothing and it then transpires that company mineral rights have, in fact, been expropriated then their right to claim compensation will have been prescribed." "Even if the conversion of old order rights is granted, mining companies may still have a claim for compensation because of expropriation. "However, the granting of the conversion will mitigate that situation and, as a result, the companies which have had their rights converted will be less likely to sue government." The issue first surfaced in October 2004 when more than 6,000 mineral rights holders - including major mining groups such as Lonmin, Impala Platinum and Xstrata - gave notice to the South African government of their intention to institute action for expropriation of mineral rights. These mineral rights owners acted in response to another deadline - October 31, 2004 - which was six months after the introduction of the new mining legislation. That deadline arose from the provisions of the Institution of Legal Proceedings Against Certain Organs of State Act (ILPA) of 2002 which state that any party wanting to claim compensation had to give notice of intention to do so within six months of the date of the loss taking place. The South African government’s attitude is that no expropriation of mineral rights has taken place through the introduction of the new mining legislation. Then minister of minerals and energy, Phumzile Mlambo-Ncguka, also advised the Chamber of Mines in writing that the ILPA act would not apply to any claims for compensation that might arise as a result of the new Mining Act. Anglo American accepted this assurance and decided not to give notice. Others were more wary. Impala Platinum executive director Cathie Markus said at the time: "The law is the law. When you identify a risk you have to act." Asked about the prescription deadline Markus said: "It is correct there is a three year prescription period on claims for compensation. We are mindful of this issue but we are not focused on it.Free news alerts: click here to subscribe
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