The Constitutional Court has settled one of South Africa's most complex, protracted and bitter mining rights disputes in favour of Kumba subsidiary, Sishen Iron Ore Company (Sioc).
A two-part judgment delivered by Justice Chris Jafta and Deputy Chief Justice Dikgang Moseneke found that Sioc “is the only party competent to apply for and be granted a mining right” to a disputed 21.4% of Sishen, one of the biggest opencast iron ore mines in the world situated in the Northern Cape.
The judgment dealt blows of varying severity to each of Sioc's adversaries – giant steel manufacturer Arcelor Mittal South Africa (Amsa), politically-connected Imperial Crown Trading 289 (ICT) and the department of mineral resources.
Before the new Mineral and Petroleum Resources Development Act came into play, Sioc held a mining right under the old law which entitled it to 78.6% of Sishen. Amsa held a separate, or “undivided”, old order mining right to the remaining 21.4%. Practically speaking, Sioc mined the iron ore and supplied it to Amsa at a negotiated discount.
The new Act gave all old order right-holders five years to apply to convert their rights into new order rights. At the expiry of the conversion deadline, midnight on April 30 2009, Sioc had converted its right to the 78.6% stake but Amsa had not converted its 21.4%.
Sioc then applied for a new order mining right over the 21.4% stake that Amsa had failed to convert, something which Amsa's lawyers would later complain was “a very late stab in the back in the dark”, believing that its minority stake in Sishen had been secured once Sioc had converted its majority stake.
Another company lurking in the dark after the conversion deadline was ICT, which lodged an application for a prospecting right over the unconverted 21.4% stake.
ICT was an unknown shelf company which later transpired to include heavy-hitters such as then-president Kgalema Motlanthe's partner Gugu Mtshali, as well as former Kimberley city manager Phemelo Sehunelo.
A key lieutenant of the Gupta business empire, Jagdish Parekh, would later acquire a stake in the company, and President Jacob Zuma's son Duduzani became a potential empowerment beneficiary via a proposed tie-up with Amsa. The tie-up never materialised.
The department rejected Sioc's mining right application over the 21.4% and granted the prospecting right to ICT, a decision which triggered the legal battle that the Constitutional Court has now drawn to a close.
The case before the Constitutional Court must be viewed separately from the court battles around criminal charges which Sioc and ICT laid against one another, alleging fraud, forgery and corruption over the lodging of their respective applications for the 21.4% stake at the department's Kimberley regional office.
When Sioc challenged the department's decision to award ICT a prospecting right over the 21.4% stake, Amsa joined proceedings and argued that when Sioc converted its majority stake, it automatically converted Amsa's minority stake on its behalf.
The high court in Pretoria ruled that when Sioc applied to convert its majority stake, it was awarded a sole and exclusive right of 100%.
ICT and the department appealed the high court judgment in the Supreme Court of Appeal, where it was upheld, and they then appealed to the Constitutional Court.
Jafta, in the first part of the judgment, found that both lower courts had erred: “If an old order mining right was not converted, it ceased to exist”.
“Sishen's right was the first to cease to exist when it was lodged … Amsa’s old order mining right ceased to exist at midnight on April 30 2009 due to its failure to convert within the period of five years. There is no legal basis for concluding that Amsa's loss became Sishen's gain.
“The interpretation favoured by the high court and the Supreme Court of Appeal would lead to [Sioc] acquiring Amsa’s old order mining right in circumstances not sanctioned by … the Act or any of its provisions.”
The second part of the judgment, written by Moseneke, ruled the department was not entitled to award ICT a prospecting right over the same area of land after the conversion deadline had expired.
“In my view, where an old order right was formerly held by X and Y in undivided shares, and X has converted its old order right but Y has failed to do so, the state may not grant Y's undivided share to Z.
“Where a right already exists in relation to the same mineral on the land in question, the state may not grant a right to anyone other than the existing right-holder … the A[ct] simply does not contemplate two right-holders in respect of the same mineral and land.
“Before the minister approved conversion of [Sioc]'s old order rights, it had to meet the [Act]’s stringent requirements for conversion … The grant by the minister of a prospecting or mining right to another person in respect of iron ore over the Sishen mine would necessarily interfere with [Sioc]'s ability to perform in terms of its mining work programme, its environmental management programme and its social and labour plan.”
Moseneke also concurred with Jafta that the unconverted old order right of Amsa did not accrue to Sishen: “It lapsed.”
Old and new rights
He pointed out that Amsa should have converted their 21.4% stake themselves: “I accept, as the Supreme Court of Appeal did, that if Amsa had renewed its undivided share of 21.4% in the old order right timeously, it would have been entitled to be a co-holder of the mining right under the MPRDA, issued in respect of the Sishen mine, to the extent of its undivided share.”
“The director general of the department of mineral resources is directed to allow Sishen Iron Ore Company (Pty) Limited to apply again within three months from the date of this order for the remaining 21.4% undivided share.”
In a further blow to Amsa, Moseneke ordered that it pay 50% of Sioc's costs, and 50% of the department's. ICT was ordered to pay Sioc's other half.
Amsa recently concluded another negotiated iron ore supply discount arrangement with Sioc – albeit much less favourable to it than the agreement that stood in 2009.
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