Sishen showdown set to commence

[miningmx.com] — THE mayhem that is the dispute over Kumba Iron Ore’s Sishen mine will come to a head from Monday when the protagonists square off in the North Gauteng High Court over a 21.4% right in a world-renowned mineral asset.

It would be difficult to overstate the significance of the case. When Kumba in March 2010 cried foul over the Department of Mineral Resources’ decision to grant the minority prospecting right to then unknown, but politically connected, Imperial Crown Trading 289 (ICT), it set in motion a chain of events that made the Gupta family and Duduzane Zuma household names. It also instigated the current overhaul of the Mineral and Petroleum Resources Development Act (MPRDA) and was most recently the subject of an unprecedented raid by the Hawks on the state attorney’s office.

The right previously belonged to ArcelorMittal SA (Amsa), which had failed to convert it to a new order right prior to the April 30 2009 deadline.

Mineral Resources Minister Susan Shabangu readily admitted that the incident delivered a hard blow to the credibility of South Africa’s mining legislation. The fact that a mineral right over an existing operation had been awarded to a new party most concerned North American investors – even more so than nationalisation – during a roadshow which Shabangu embarked on in March this year.

She told Miningmx during an interview in June: “We’ve got to accept that when the original drafting (of the MPRDA) happened, no one thought it would be possible to lose a mining right (this way). It was something, in my own view, which the rest of the world has never experienced.

“In terms of the application of the law as it stands we’ve done the right thing. We can’t apply the law in a way we want, we’ve got to do it in terms of how it stands. But we allude to the weakness (of the MPRDA); there is a gap there and it is one of the issues we will address.’

According to court papers filed by Kumba, which always had the remaining 78.6% right over Sishen, it will ask the court to set ICT’s prospecting right aside, and allege ICT’s submission was a forged replica of Kumba’s application. The iron ore giant will also claim that, in terms of the MPRDA, it is the only entity entitled to apply for the 21.4% mining right.

There are many more issues that would hinge on the outcome of Zondo’s judgment.

In an effective u-turn on an earlier decision to buy ICT and the 21.4% right it had lost, Amsa will try to prove to Judge Raymond Zondo that Kumba had converted the steelmaker’s right in the Sishen mine on its behalf when Kumba renewed its 78.4% mining right in 2008. Amsa’s view stems from its contention that the MPRDA does not allow for mineral rights to be co-owned in an undivided share structure. Essentially, Kumba couldn’t have converted its mining licence without simultaneously converting Amsa’s stake.

For its part, ICT would argue the DMR’s decision to award it the prospecting right was the correct one; that it has been the subject of dirty tactics by Kumba and that it should be allowed to start benefitting economically from its right in Sishen.

OTHER ISSUES

There are many more issues that would hinge on the outcome of Zondo’s judgment.

For one, the unrelated arbitration process on the price of ore supply from Kumba to Amsa would be settled one way or the other. Amsa wants to enforce an earlier agreement whereby Kumba supplied it with ore at cost plus 3%; a right which Kumba said had lapsed when Amsa failed to renew its right in Sishen.

Also, government is hell bent on seeking a deal that would allow all the country’s steel producers to source ore from Sishen on the terms which Amsa had previously enjoyed.

Cabinet spokesperson Jimmy Manyi said in July an inter-departmental task team would come up with concrete proposals end-September; but it would be difficult to see it could force Kumba’s hand if the firm was to be effectively awarded the entire mineral right by the court.