DMR suffers devastating defeat in Aquila Steel court battle

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SOUTH Africa’s Department of Mineral Resources (DMR) has suffered a devastating defeat in the High Court (Pretoria) which has potentially far-reaching implications for other court battles over prospecting and mining rights.

The court’s judgement involves Aquila Steel South Africa, a subsidiary of China’s Baosteel, which was contesting a decision by the DMR in 2015 to set aside its mining and prospecting rights in the Northern Cape province.

What’s crucial about the High Court judgement, delivered by Judge NB Tuchten on November 21, is that the court has stepped in to make its own award of prospecting and mining rights.

Astonishingly, the judgement also implicates the DMR in an attempt to force Aquila to pay rent or to cut a deal in order to secure the prospecting and mining rights it was seeking to enforce.

Furthermore, Judge Tuchten found the DMR to have committed “a high degree of institutional incompetence” and “a lack of energy” which arose from that incompetence. He stopped short of describing the DMR guilty of “institutional bias”.

Finally, the judgement potentially opens up hundreds of hectares of exploration ground which the DMR had argued belonged to PAMDC or Pan African Mineral Development Company, an entity that was incorporated in 2007.

HISTORY

In September 2015, Aquila elected to call for a judicial review after its appeal against a ministerial decision to set aside its mining and prospecting rights had failed. It had spent 20 months prior to September arguing the matter.

Then mines minister, Ngoako Ramatlhodi, set aside Aquila’s Avontuur prospecting right in the Northern Cape. He also decided not to award Aquila a mining right for Gravenhage, a manganese project on which the firm had spent about R150m. The issue preceded Ramatlhodi as former mines minister Susan Shabangu had taken a similar position.

In respect of Gravenhage, the minister upheld Shabangu’s decision to grant an overlapping mining right to a company called ZiZa which Aquila said at the time “… appears to be connected with PAMDC”.

ZiZa, which was owned by the governments of Zimbabwe and Zambia, was incorporated in 1893 under the name The Bechuanaland Railway Company after land grants were made to it by the government of the Cape Colony to Cecil John Rhodes.

The PAMDC was subsequently created by the governments of South Africa, Zambia and Zimbabwe so that ZiZa’s historical mineral rights could be transferred to it, perhaps illegally. (However, Judge Tuchten found that ZiZa’s mineral rights were old order and it had not acted to convert them to new order rights.)

Aquila argued at the time that the PAMDC’s overlapping prospecting right was executed on 19 November 2011, which was over five years after a prospecting right over parts of the same areas was granted to Aquila.

“The alleged grant was also almost one year after Aquila’s Mining Right Application was accepted by the DMR, on 22 December 2010,” the company said in September 2015.

Prior to its takeover by Baosteel, Australian junior, Aquila Resources, was considering investing up to $480m in South Africa of which $180m would be on the proposed 1.5 million tonne/year (mtpa) manganese mine, and between $215m and $300m on Thabazimbi, an iron ore prospect containing an estimated 37.1mt in measured resources.

JUDGEMENT

In terms of November’s judgement, the ZiZa prospecting right was set aside while the Aquila prospecting right was upheld. Aquila’s mining right application was also granted by the court, subject conditions by the mines minister. The DMR was also granted leave to appeal. Both sides were ordered to pay their legal respective costs.

Whilst the sight of the DMR losing a mining or prospecting right contest in court is nothing new, it’s the manner of the judgement and its consequences that have particular relevance.

For instance, Judge Tuchten said in his judgement that since neither the PAMDC, nor ZiZa, had ever conducted prospecting activities on the ground over which they had ostensibly obtained rights “… their purpose in this litigation has been to obstruct the exercise by Aquila of the rights which it has acquired and seeks to acquire”.

The purpose for doing this was “… no doubt in the hope that its capacity to obstruct will drive Aquila commercially to cut PAMDC or one or more of those associated with PAMDC into its operation or to pay PAMDC a sum of money obstructing the process,” he said.

The judgement also set aside claims PAMDC made over land that extended beyond the areas Aquila contested which is thought contain some 577,000 hectares of potentially mineral-rich land.

The High Court judgement also raised an interesting question regarding the involvement of former DMR director-general (DG) Thibedi Ramontja who had been a director of PAMDC since October 2008.

Although Ramontja resigned this post prior to becoming DG, a copy of his resignation letter, which had been promised to Aquila during the period of the contest, was never produced, the High Court found. (Incidentally, it was the minister who heard Aquila’s appeals after the DMR first acknowledged Ramontja was “conflicted”.

The High Court decision is another body-blow to the DMR which was found by Labour Court Judge Andre van Niekerk to have ignored the notion of “proportionality” when it issued a Section 54 notice shutting AngloGold Ashanti’s Kopanang mine.

In layman’s terms, the DMR including the acting chief inspector of mines, Xolile Mbonambi, had acted wrongly in shutting the entire mine when transgressions of the act had only occurred on level 44 which employed 2% of Kopanang’s entire 4218 employees, the Labour Court said.

2 COMMENTS

  1. Finally we have evidence (a finding by a judge, that is) that DMR officials engage in the “double granting” of prospecting rights in order to force the investor with money to cut the other (connected crony) party into the deal. This is proof that DMR officials (all they way up to the Minister) are prepared to deliberately cause problems for an investor in order to get that investor to pay to make the problem go away. Devastating indeed! Who would be a foreign investor in SA? – thankfully we do have independent courts, but in the 6 years it took to get this far the commodity cycle has turned and the opportunity may have ebbed away.

    Note this is a Chinese investor – so much for the government’s commitment to BRICs.

  2. Well Done Judge Tuchten! The DMR has engaged in rent seeking with it’s quasi governmental partners and ex directors with abandon for years. More snakes in the Northern Cape than the rest of Africa combined…

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