Legal tug-of-war shutters one of SA’s richest chrome mines

A chrome-rich Limpopo mine remains shuttered while court cases rage on, leaving community members frustrated by the lack of work opportunities. Meanwhile, who benefits?

A chrome mine in Limpopo, potentially one of the richest in South Africa, has sat idle while a series of arcane court battles ensue between local and Chinese business interests.

A development agency tasked with bringing employment to the area has lost its stake in the mine, and some 1 200 employees have lost their jobs. While many parties must shoulder parts of the blame, indifference by the national department of mineral resources and energy appears to have contributed.

The Dilokong Chrome Mine is in the mineral-rich Burgersfort district, north of the border between Limpopo and Mpumalanga and west of the Kruger National Park.

The mine previously conducted operations under the joint ownership of the Chinese government’s Eastern Asia Metals Investment with 60%, and the Limpopo Economic Development Agency (Leda) with 40%.

The mine’s woes can be traced back more than five years. It went into business rescue in March 2016 and ceased operations. This followed some two years of industrial action and a decline in the price of chrome.

Since then, there have been interminable court battles between Leda, the business rescue practitioners and another Chinese-controlled company, Cheetah Chrome South Africa, Dilokong’s purported new owner.

Leda challenged the rescue practitioners’ 2017 sale of Dilokong to Cheetah. Leda claimed its 40% stake in Dilokong’s holding company should give it a similar stake in the mining right held by Dilokong.

This matter is at the Supreme Court of Appeal after the Johannesburg high court dismissed Leda’s claim, calling it opportunistic.

The rescue practitioners have since tried to revoke the sale to Cheetah and this is now facing arbitration.

And Cheetah successfully interdicted the rescue practitioners from selling a valuable tailings dump at the mine.

How the saga began

Dilokong went into business rescue on 24 March 2016, following two years of sit-ins and strike action from the National Union of Mineworkers, 50 days of lost production due to health and safety notices from the department and a seven-month decline in the price of chrome.

In 2017, the rescue practitioners sold the mine to Cheetah Chrome for R456-million in a bid process in which Leda participated.

Leda had offered R450-million for the mine.

In March 2019, Cheetah and Dilokong jointly petitioned the mineral resources department for the transfer of Dilokong’s entire mining right to Cheetah.

This was despite the opposition of two Leda board members who sat on the six-person Dilokong board. They were still on the board as Cheetah had not yet – and to date has not – taken control.

Leda’s acting head of marketing and communications, Patrick Monkoe, told amaBhungane that a dispute arose because the rescue practitioners refused to accept Leda’s contention that it had a claim on 40% of the mining right – and that this needed to be recognised in the sale.

Monkoe explained that the Leda directors objected to the transaction. Other correspondence shows that Leda was particularly aggrieved that the minister of mineral resources did not support their claim, despite repeated requests for clarification on the mining right.

On the contrary, on 1 November 2019, the director-general, on behalf of the minister, granted unconditional consent for the mining right to be ceded to Cheetah alone, cutting the legs from under Leda.

This was two weeks before the Johannesburg high court heard the case, leading Cheetah to argue in court that this aspect was now moot – that is, no longer in contention.

Leda has subsequently appealed, to the minister, the director general’s decision to consent to the transfer of the mining right. There is no outcome yet.

In the high court

Leda brought the high court application on 13 November 2019, arguing that a clause of the mineral right allocation delivered by the minister in 2014 promised Leda a 40% stake in the mining right.

Leda argued this promise bound the rescue practitioners and governed the sale of the mine to new owners.

Judge Phillip Coppin disagreed and dismissed the case with costs on 29 January 2020.

Coppin found that Leda adopted a literal reading of the minister’s 2014 allocation which, the judge said, purported to give the minister powers that he didn’t enjoy.

Leda’s ownership, he said, extended only as far as having a 40% share in Dilokong’s holding company, which did not directly own the mining right. “Leda is being opportunistic and is, literally, clutching at straws.”

Coppin also ruled, by extension, that Leda could not veto the sale to Cheetah.

Clash with the ministry

The dispute has highlighted the unusual clash between Leda and the ministry.

Leda’s Monkoe said the department’s approval of the mining right transfer before the matter could be heard last year “severely compromised” Leda’s case.

“More so as such granting was made in total disregard of our attorneys’ letters to the [department].  We expected the [department] at the very least to inform us if they didn’t share our interpretation of the mining right as an organ of state,” he said.

Leda has taken the matter to the Supreme Court of Appeal, which is expected to clarify mining right law – and the minister’s right to set a condition allocating part of a mining right in the way Leda contends.

In a legal briefing for Thabo Mokone, the MEC for the Limpopo economic development department, under which Leda falls, Leda’s lawyers argued the mining minister in 2014 “saw it fit to also ‘hardwire’ that 40% stake” in the Dilokong mining right.

The lawyers said it was “unusual” for the department to specify such a condition – arguing that this “signifies the importance of Leda’s 40% stake”.

They also argued that the stake was strategic: “The loss of Leda’s 40% stake … would not only threaten the development of the Limpopo Province and the country as a whole but also jeopardise the development of Musina Makhado Special Economic Zone…

“Without control of the minerals the [zone] will be of very little benefit to the inhabitants of this country… Leda will have no say whatsoever in the running of the affairs of the holder of the Mining Right and/or the business affairs to be conducted in the [zone].”

This special economic zone is earmarked for a massive, environmentally destructive heavy industry development, a Chinese led initiative which seemingly enjoys solid support from the Ramaphosa administration.

The briefing said it was concerning that in 2019 the department had chosen to boycott proceedings before the high court, notwithstanding the fact that it was in the best position to explain the meaning of the original mining right award.

So why did Leda get no support from the department in its bid to retain a strategic toehold in what would be one of the key feeder mines for the special economic zone?

There may be more to the dispute than meets the eye.

Making China happy?

The briefing notes that Eastern Asia Metals Investment is a subsidiary of Chinese state-owned multinational Sinosteel Corporation. Eastern Asia is the 60% owner alongside Leda’s 40% of ASA Metals, which was Dilokong’s holding company before the disputed sale of Dilokong to Cheetah.

The lawyers raise questions about allegations that the rescue practitioners sold the assets of ASA to related parties, notably a smelter and the Dilokong mine itself.

“We are advised that Tubatse Chrome is a consortium comprising … Sinosteel and Samancor Chrome Limited. Tubatse Chrome purchased the ferrochrome smelter for approximately R350-million in circumstances where the aggregate debt of ASA was approximately R5-billion.

The lawyers also claim that Cheetah itself “is a Chinese company and affiliated to or is a subsidiary of Sinosteel”.

It is understood that Leda briefed its lawyers to argue the somewhat tenuous position that all major Chinese companies are all various forms of Chinese state-owned enterprises even though they compete against each other.

Cheetah’s lawyer, Stephen Thomson, denied the alleged association between his client and Sinosteel, telling amaBhungane that a private individual owned Cheetah’s parent company, Xinganglian Metallurgical.

Sinosteel had not responded for comment by the time of publishing.

The department and the rescue practitioners declined to comment on the grounds the matter is sub judice.

While the court battles rage on and the mine remains shuttered, the community surrounding the mine has yet to derive any benefit from its sale.

“It’s a torrid situation” said National Union of Mineworkers regional secretary Philip Mankge about the closure of Dilokong.

Asked whether the union felt responsible for the mine entering business rescue in 2016, Mankge said:

“You must remember that the strike only took place for four days [in 2015] … It was a coincidence that the mine had a lot of creditors that they owed. The mine used the strike as a way to retrench workers.”

Although some have found work elsewhere, said Mangke, most of the mine workers who have not worked for four years are waiting for the new owners of Dilokong to reopen the mine.

“We are hopeful now that the court matters are resolving and that the mine might open soon.”


BRPs and Cheetah Chrome bare their claws at each other

Despite successfully bidding for the mine three years ago, Cheetah Chrome South Africa does not yet have control of Dilokong Chrome Mine and has been unable to commence operations.

Cheetah and the business rescue practitioners reached an impasse over whether Cheetah should make a R241-million milestone payment, part of the R456-million purchase price.

According to a leaked business rescue report, Cheetah had not met the amended conditions of the sale of the mine, which included the payment.

The Dilokong rescue practitioners first instituted legal proceedings to compel payment, and then, on 17 August this year, cancelled the sale. This in turn is being challenged by Cheetah.

“[Cheetah] initiated an application to enforce the sale agreement with the [rescue practitioners] for the purchase of Dilokong Chrome Mine after the [practitioners] purported to cancel the agreement on specious grounds,” said Cheetah’s attorney, Stephen Thomson.

“The real purpose for cancellation was to allow the [practitioners] the opportunity to sell … the valuable tailings on-site … which formed a significant part of the assets purchased in terms of the sale agreement. The cancellation of the sale agreement is in dispute and has been referred to arbitration.”

The tailings dam is mineral rich with not only chrome, but platinum, palladium, rhodium, gold, silver, nickel, and cobalt.

Cheetah has already won its first round against the Dilokong’s business rescue practitioners.

On 16 November 2020, Judge Neil Tuchten of the high court in Pretoria ruled in favour of Cheetah, confirming the tailings were part of assets registered as security for a R180-million bond registered in favour of Cheetah in return for cash advanced by Cheetah during the business rescue process.

As such, they could not be sold without Cheetah’s permission, whether the sale was cancelled or not.

Thomson said that Cheetah intends to conclude the sale and to take control of the mine and its assets pursuant to its rights under the sale agreement.

Lawyers for the business rescue practitioners, Dilokong and the department of mineral resources and energy declined to comment. – Gemma Ritchie