Courting a mess to end all messes

[] — IT’S a sign of how fraught, almost paranoic, mineral tenure has become in South Africa that Exxaro Resources CEO Sipho Nkosi is reticent to engage the department of mineral resources (DMR) about dividing a mining right.

The plan is that in order to secure project finance for up to 50% of Exxaro’s R9.5bn Grootegeluk Medupi Expansion Project (GMEP), bankers are hoping to divide the mining title at Grootegeluk to isolate the new revenue the expanded section will produce. The finance can then be derisked against revenue generated from the supply of up to 14.6 million tonnes (mt) per year of coal to Eskom’s Medupi power station.

Nkosi told Miningmx last week that his preference is to avoid taking on project finance for the capital cost not covered by the R4.5bn loan syndication Exxaro already has in place. He would rather use cash resources. Although project finance can be found in other ways for GMEP, the point is that Nkosi – a well connected, influential mining boss if ever there was one – is hesitant to risk that kind of discussion with the DMR, at least in the current climate.

The current climate is that the Minerals and Petroleum Resources Development Act (MPRDA) of 2004 is vague in parts and needs amendments. The amendments were expected this week in tandem with Mines Minister Susan Shabangu’s budget speech, but they will not be forthcoming, not right now, says Sandile Nogxina, the DMR’s outgoing director general.

While South Africa’s mining industry waits for these crucial clarifications of law, the mayhem that is the dispute between ArcelorMittal SA and Kumba Iron Ore has been stepped up another gear.

“Nothing can occlude the basic cause of this entire predicament, which is that Amsa forgot to convert its 21.4% old mining right into a new order mining right.”

The dispute is about ownership of a 21.4% stake in Sishen Iron Ore Company (SIOC), a subsidiary of Kumba. Amsa had the stake from when it was a stablemate of Kumba in Iscor, but failed to protect it by not applying for a new order mining licence. The hitherto unknown company, Imperial Crown Trading (ICT), successfully applied for a mining licence over the stake . Kumba said its near simultaneous application for Amsa’s stake in SIOC should have been the successful one, hence the court action.*

Amsa’s latest position is that it wants to convince the courts Kumba converted its right in the Sishen Iron Ore Company (SIOC) on its behalf when it renewed its mining rights 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. In other words, Kumba’s couldn’t have converted its mining licence without simultaneously converting Amsa’s stake.

The undivided share structure thing can get complex, and is probably worthy of a PhD in mineral law for someone. For the purposes of this column, however, it’s worth simply pointing out that there are lots of instances of co-ownership in an undivided share structure that have been subsequently converted. Anglo Platinum and African Rainbow Minerals co-own Modikwa mine, and successfully applied for a single, new order mining right.

The difference in the case of Amsa and Kumba, however, is that the two companies had been awarded separate (old order) mining rights. Kumba had remembered to renew its right. But Amsa hadn’t. It wants us to think it didn’t have to, but isn’t there an emperor’s clothes analogy here? Isn’t it true that Amsa just forgot? In football terms, the goalkeeper has allowed the ball to trickle through his legs; he desperately scrambles to retrieve the ball but the slow motion replay reveals the gaffe in all its terrible splendour.

And then there was another administrative error.

This seems little known, but has since emerged in respect of Amsa’s latest position on its claim to retain its stake in SIOC. Amsa is claiming that not only did Kumba renew on its behalf, but that this can be proved because Kumba was awarded a 100% right over SIOC.

As it turns out, this 100% award was a mistake on behalf of the DMR. The DMR should have awarded 78.6% of SIOC to Kumba, not 100%. Although an administrative error, it should be allowed to stand in law that Kumba owns 100% of SIOC. That’s what Amsa is hoping for anyway. Certainly it’s the avenue in court it is now pursuing.

Of course, the flip side of this coin is that if Kumba has this 100% right granted to it – if that is proved to be so in court – then neither Amsa nor ICT should lay any claim over SIOC. It’s a mess to end all messes.

Nothing, however, can occlude the basic cause of this entire predicament – which is that Amsa forgot to convert its 21.4% old mining right into a new order mining right. The ball crossed the line and hapless Amsa will have to pay for its misjudgement, forgetfulness, or whatever led to this current tornado which is ripping up fences in South Africa’s mining industry.

* ICT’s application to mine the SIOC property has been accepted – presumably to receive revenues on an attributable basis since Kumba already mines it. However, Amsa subsequently offered to buy the SIOC stake for R9bn as part of an empowerment deal that also involved a black-owned consortium with known business consorts of none other than President Jacob Zuma.