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Govt jitters at $6.6bn expropriation claims
David McKay
Posted: Sun, 07 Nov 2004
[miningmx.com] -- SOUTH Africa's Treasury department has produced an independent report detailing the risks inherent in potential expropriation claims from SA and international mining companies. This follows notices to the SA state, by at least six mining firms, that they reserved the right to sue for compensation.
Figures provided to miningmx show that the size of these potential claims – which relates to the transfer of mining rights – has an estimated minimum value of $6.6bn.
SA’s Minerals & Energy department believes that there’s no reason to fear compensation claims, a position iterated by mining companies. But while each party wants to avoid negative publicity in the matter there remains an unresolved question regarding whether the mining sector’s decision to reserve its legal rights constitutes a serious future liability for government.
Minerals & Energy department director-general Sandile Nogxina says that the sight of the private sector dragging
the SA government through its own courts will have a bigger fallout than the leaked mining charter. “It will make the leaking of the first charter look like a Sunday picnic.”
To make matters more delicate, there are unconfirmed reports that an international firm is preparing to sue the SA government on the basis that a bilateral investment treaty has been contravened. There are about 32 bilateral investment treaties that have a direct bearing on this aspect of SA’s mining industry. Testing the compensation claim in court would create an important precedent for overseas controlled companies such as Lonmin, Placer Dome and Xstrata plc. However, Nogxina confirms that no papers have yet been served on Government.
Impala Platinum, Xstrata and Kelgran, a granite producing company, are other firms that have joined SouthernEra, Lonmin, Placer Dome and Aquarius Platinum SA (AQPSA) in reserving their rights to future legal action. As far as can be ascertained for the
Chamber of Mines of SA, no other companies are involved in taking legal steps.
The decision by companies to reserve their rights to sue for compensation was a legal necessity, says Xstrata spokesman Marc Gonsalves. Xstrata is a British company.
Kathy Marcus, executive director at Impala Platinum, says that the company required a fall back plan if its rights were somehow restricted under the new legislation. The other possibility is that in the event of a legal precedent shareholders need to know their company’s management has made its own contingencies.
The SA government has been cool concerning dealing with expropriation claims. But it’s attracting the interest of other government departments. The SA Treasury has attempted to assess the future unquantifiable liability on government’s books, particularly as there was no need for mining companies to reserve their legal rights in the first place.
Martin Grote, the SA Treasury’s chief director for tax
policy, says that his department had completed an independent risk assessment of the potential claims for compensation by mining companies. It has subsequently submitted that assessment to government. “We’ve alerted government to the concerns relating to compensation, as raised by mining companies.”
The prospect of expropriation claims stem from the SA’s African Mineral & Petroleum Resources Development Act (Minerals Act), promulgated on 1 May. The Act asks companies to apply for new mineral rights – which government has no right to refuse provided that the applicants meet a number of conditions, including certain ownership quotas.
Mining companies point to government’s failure to timeously append regulations to Item 12 of the Minerals Act, the part that articulates the right of the private sector to claim compensation from the State.
Jacinto Rocha, chief director at Minerals & Energy, says that these regulations were published on 29 October. However, they were
published too late to stop mining companies registering their rights to sue government. That was in terms of separate legislation, known as Institution of Legal Proceedings Against Certain Organs of State Act (ILPA), which allowed companies six months to notify Government of their right to sue. That deadline expired on 1 November.
It’s a complex legal affair but the net result is that it could lead to a serious altercation between government and the private sector at a time when forward momentum is needed in the transfer of mining ownership rights.
Interestingly, Anglo American and its subsidiaries – including the world’s largest platinum producer, Anglo Platinum – have accepted government suggestions that ILPA will not apply in the case of compensation claims relating to the Minerals Act.
Moreover, the $6.6bn in potential compensation claims excludes 2 000 to 3 000 potential claims that have been lodged by members of the SA farming community.
Many farmers
owned surface mineral rights in terms of previous mineral rights legislation. However, that ownership now stands to be cancelled if they cannot comply with new mining legislation informed by a “use it or lose it” principle.
Though farmers clearly aren’t professional miners they feel that they should be compensated, since they account for mineral rights royalties in their businesses. It’s also not uncommon for a farmer to swap a bad mielie (corn) season for some speculative opencast diamond mining. As a result, one farmer has lodged a claim with government for $49m in compensation for alleged expropriation of mineral rights.
Rocha says that farmers have a way out if they can prove access to technical and financial know-how that would see these mineral rights employed to commercial ends. They can also sell their rights to a mining company, provided that it meets Minerals & Energy Department guidelines.
In the meantime, potential claims for compensation
are sapping the department’s resources. For example, new applications for mining licence conversions could be delayed by more than a month. However, mining conversions, particularly at the regional level, won’t be affected, says Rocha.
Grote declined to comment further on his department’s report, but its mere existence suggests that not everyone is as sanguine regarding the expropriation claims as Minerals & Energy Minister Phumzile Mlambo-Ngcuka. She believes that the private sector has little chance of proving expropriation. As far as government is concerned, the matter is simple.
Says Rocha: “There’s no expropriation because mining companies are being given the opportunity to apply for new mining licences. If they comply with the legislation government cannot refuse to grant new rights. What then is the loss? Where’s the expropriation then?”
However, Peter Leon, a senior partner at Webber Wentzel Bowens, disagrees. International investment treaties
are supported by up to 32 bilateral trade agreements, many with European Union-based companies. Leon says: “If the notion of State-owned mineral rights is found to be an expropriation of existing mineral rights, foreign-based companies and their shareholders could launch a host of claims for compensation against government.”
All these cases would be heard in international tribunals, Leon adds. That would place a different spin on the matter, as the level of compensation available would be much greater.
Nogxina is angry. He’s accused mining firms of “speaking with forked tongues” because they commit themselves to transformation while simultaneously preserving their right to question the fairness of the legislation.
It’s true that mining companies tread a fine line. But as companies have been at pains to carefully articulate, failing to protect themselves against future risks is just not best business practice.
Sam Coetzer, MD of Placer Dome SA, says that
the company is not focusing on putting together a legal suit. “But putting a goalie in the net doesn’t mean we’re not trying to score.”
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