Lonmin the latest victim of the DMR

[miningmx.com] — IN THE latest debacle involving South Africa’s new mining legislation Lonmin has been ordered by the Department of Mineral Resources (DMR) to stop selling base metals with immediate effect.

Base metals such as nickel, copper and chrome are closely associated with the platinum group metal (pgm) bearing reefs and all the platinum producers sell them as by-products.

Lonmin released a statement late Thursday evening that it had received a letter from the DMR on August 4 containing the order.

Lonmin CEO Ian Farmer commented, “Lonmin will contest this matter vigorously and will be seeking an urgent court ruling to overturn this order.’

As the group pointed out in its statement, the base metals in the Merensky and UG2 platinum bearing reefs “are inextricably linked to pgms in the ore body and it is not feasible nor economically viable to mine them alone.

“The previous legal framework gave miners the right to dispose of associated minerals for their own benefit while the 2002 Mineral and Petroleum Resources Development Act (MPRDA) under which Lonmin converted its mining rights in October 2006 , is silent on this matter.

“Whilst Lonmin believes it is entitled to mine and dispose of associated minerals, in order to protect its position, it filed MPRDA Section 102 applications which wouLd explicitly give Lonmin these rights. This was done in late 2009.’

Lonmin indicated former director Sivi Gounden was involved in these developments.

Gounden – previously a top civil servant and CEO of Bateman Engineering – resigned from the board on October 16 2009.

In March 2009 a “Holgoun group company’ applied for a right over associated minerals on a small portion of Lonmin’s property and was awarded that right on May 12 2010.

The Lonmin statement said, “Lonmin understands that Holgoun’s shares are held by interests associated with Sivi Gounden.

“Lonmin appealed against both the original application in March 2009 and against the award of this right on June 11, 2010 and has not yet been notified of the outcome of the appeals made,

“Lonmin has taken comprehensive legal advice on this matter and believes that the action taken by the DMR is wrong and the company will defend its interests robustly.

“Lonmin has made, and continues to make, every reasonable effort to support the transformation process espoused by the South African government.

“At the same time the company has a duty to preserve and indeed enhance the integrity and value of its operations in South Africa.’

JP Morgan analysts Allan Cooke and Steve Shepherd pointed out in a research note that there was a similar case involving Anglo Platinum in the late “90’s when there was a challenge to the group’s ownership of base metals at its Lebowa and PP Rust mines.

The analysts commented, “Anglo Platinum was able to demonstrate that it was not technically possible to mine and extract pgm from its ore bodies without removing the base and other metals that form part of the mineral package.

“It was therefore implicit in the ownership title that Anglo Platinum had the right to mine, extract and sell all the minerals extracted along with the pgm.

“Although this is a precedent set under the previous framework it’s nevertheless a pertinent one in our view.

“We’re of the layman’s opinion that any call on Lonmin’s associated minerals is most unlikely to stand up based on the fact that it’s impractical to mine and process these metals separately from the same orebody.

“We’d be most surprised if this issue came to anything. However, we’re not lawyers, so we cannot conclusively say that this is merely a storm in a teacup.’

The Lonmin action is the latest in a series of highly controversial decisions taken by the DMR in recent months.

The most prominent of these was the decision to award a prospecting right to Imperial Crown Trading over a portion of Kumba’s operating Sishen Iron Ore mine. That is now the subject of legal action by Kumba.

Last month the DMR also slapped a heavy-handed ruling onto mechanised mines operating in the North West region to stop mining until major alterations were made to the design of their bord-and-pillar operations.

That was dropped after protests by the mining companies – in particular Aquarius Platinum – with the DMR claiming that the intention of its directive was not for the affected companies to stop mining but rather to consult with the department.