SA’s controversial mining dispute around iron ore mine’s ownership heading to the highest court
The Constitutional Court may soon have to answer a question that goes to the heart of the entire transformation agenda: does massively enriching a few black individuals really constitute transformation?
South Africa’s largest and most controversial mining dispute, involving about 21.4% of the Sishen iron ore mine, is heading to the country’s highest court in September (see sidebar).
According to court papers filed for both Mineral Resources Minister Susan Shabangu and Imperial Crown Trading (ICT), practically the entire transformation project depends on the Sishen Iron Ore Company, a subsidiary of Kumba Iron Ore, ceding the 21.4% to ICT.
The protracted dispute is being recast as the question of whether transformation in the form of black ownership trumps everything else in the Minerals and Petroleum Resources Development Act (Resources Act).
Both the minister and ICT are lodging appeals against judgments by the North Gauteng High Court and Supreme Court of Appeal (SCA) that scrapped ICT’s controversial prospecting right over the 21.4% of Sishen once owned by the steel giant ArcelorMittal South Africa (Amsa).
Their appeals are largely based on the Constitutional Court’s recent judgment in the AgriSA matter, where it defended the act’s measures for the transformation of the country’s mining regime.
Depending on who you ask, the Constitutional Court is now either being asked to save that transition from becoming a “dead letter”, or being asked to defend fraud to enrich a “few individuals” with an “unearned windfall”.
A fortune hangs in the balance as the court’s decision could result in an effective 21.4% of the country’s single richest mine either going to ICT in the form of dividends, Amsa in the form of cheap iron ore, or staying with Kumba Iron Ore.
Sishen is lashing out at the very suggestion that giving ICT a share in its considerable profits can even be regarded “transformation”.
It argues in its own papers that the appeal is just a unique commercial dispute dressed up as a far-reaching constitutional issue.
ICT, in its arguments, claims the 21.4% is worth “R150 billion in net profits over the next 30 years”.
ICT justifies its appeal with “the immense public interest in ensuring that the mineral rights in one of the largest iron ore mines in the world are accessible to all the people of South Africa”.
According to ICT, it is not “realistically possible to achieve the transformative objectives of the (Resources Act) . . . without lifting the (SCA’s) effective moratorium on allocating mining rights in relation to the Sishen mine to historically disadvantaged individuals”.
Otherwise, “the only way in which historically disadvantaged persons can benefit from the vast mineral wealth is to buy out incumbents”.
ICT further says: “The material means to do this is clearly beyond the reach of the very people whose interests the act seeks to promote. On the (SCA’s) approach, the Resources Act accordingly becomes a dead letter and mineral rights become sterile – because the state may not allocate them.”
According to Shabangu’s papers, she is fighting “a precedent which binds the state parties . . . and counteracts the act’s transformative agenda”.
According to the minister, the SCA judgment “constrains the state in all comparable situations”.
She says: “The question is not limited to the mining sector. It applies equally to all sectors, especially sectors which have previously been closed to all but a few South Africans.”
Shabangu lashes out at Amsa and Sishen’s “alacrity in protecting their vested interests against ‘newcomers’”, saying: “The effect is that ‘newcomers’ would hardly ever benefit from the act’s transformative agenda.”
The crux of Sishen’s, and its unwelcome ally Amsa’s, counter-argument is that there are no comparable situations.
Their situation, they argue, was so unique that it couldn’t raise legal issues for any other dispute again. Sishen says: “The applicants have not been able to point to any other case in which one holder of an undivided share in an old order mining right has converted that right whilst the other holder has not.
“The SCA’s decision has no material consequences for the transformative agenda of the Constitution or the (act), let alone any other legislation.
“ICT appears to take the view that its status as a historically disadvantaged (entity) entitles it to participate in the income stream of an existing mine without an investment on its part.”
Sishen says further that the act “does not contemplate transformation which involves only the opportunity to share in the income of an existing mine, which is what the applicants seek to preserve”.
If ICT got the right to Sishen, it would have no effect on the various other aspects of mining law that include employment, economic growth, social welfare and the development of mineral resources, they argue.
“What do the applicants have to say about the provisions of the (Resources Act) identified above? The short answer is nothing at all.”
Sishen also slams the state’s “complete disinterest in the allegations of fraud”, which it has levelled against ICT and which were being investigated by the Hawks’ Glynnis Breytenbach before her controversial suspension.
Breytenbach’s investigation had drawn the ire of Shabangu after surprise raids on offices of the department of mineral resources in 2011.
The National Prosecuting Authority’s official reason for suspending Breytenbach is that she had an “inappropriate” relationship with Sishen’s lawyer, Mike Hellens.
The investigation related to ICT apparently using copies of documents in Sishen’s mining rights application in its own application.
“The applicants’ view that in the event of a mining right being granted to ICT, Sishen should simply accommodate ICT by entering into a supply agreement with it of the kind concluded with Amsa entirely overlooks the fact that, given the fraud perpetrated by ICT in making its prospecting right application, it would be highly inappropriate – and indeed unlawful – for Sishen to conclude such an agreement,” says Sishen in its papers.
HOW THE EVENTS UNFOLDED
The Sishen iron ore mine used to belong to the state-owned Iscor, which was split into Kumba Iron Ore and Amsa in 2001.
The two companies both received licences for the mine under South Africa’s old Minerals Act – Kumba got a licence for 78.6% and Amsa for 21.4% undivided shares.
The purpose of Amsa’s share was to secure its supply of 6.25 million tons of iron ore per year at cost plus 3%.
The mining law was repealed and replaced by the Resources Act in 2004.
It gave holders of mining licences five years to convert their rights to new order rights, which Kumba did in 2008.
Amsa never did and when the April 2009 deadline arrived, Kumba applied for that share as well.
ICT did the same thing and won a prospecting right for 21.4% of Sishen.
ICT, it subsequently emerged, is heavily politically connected and half-owned by Phemelo Sehunelo, the former municipal manager of Kimberley.
Meanwhile, Kumba used the lapse of Amsa’s old rights to cancel its ore supply agreement with the steel maker.
When it realised that ICT had received Amsa’s old right, it appealed and ultimately challenged the decision in court.
Kumba won the case in the high court and again when ICT and the department of mineral resources appealed it in the SCA earlier this year.
At the same time, it has been battling Amsa in private arbitration around whether or not it could actually cancel the ore supply agreement.
Amsa is also fighting
ICT is not the only one heading for the Constitutional Court in a last attempt to claim the Sishen stake.
South Africa’s dominant steel producer, Amsa, has joined the fray to try and win back its massively valuable entitlement to 6.25 million tons of ore per year at cost price.
It also justifies its case as being in the public interest, arguing that the final loss of the contract by way of an ICT victory “would have placed Amsa in a position where it could not operate at a profit and would have had devastating implications for the entire South African steel industry”.
While the high court and SCA have both upheld Sishen Iron Ore Company’s entitlement to the entire Sishen mine, it did so on a legal basis that does not help Amsa get back its ore.
Kumba abruptly cut off Amsa’s cheap ore in 2009, arguing that the steel maker should have converted its old 21.4% share of the Sishen rights under the country’s previous mining rights regime.
Amsa devotes most of its arguments to showing that there is no way the new mining law allows this kind of divided mining right. It is hoping the court agrees – which would bolster its arbitration case against Kumba, where the steel maker still hopes to get back its cheap ore deal.
If the court agrees with Amsa, then the steel maker would also be due for a massive payback for the higher prices it has been paying for ore since 2009.
Amsa supports Sishen in some respects, but is seeking an outcome that would hurt the mining company just as much as a victory for ICT would.
Sishen and Amsa repeatedly stress that, as far as anyone knows, there are no other cases like the Sishen case.
The old Minerals Act only allowed two mineral rights on the same land in exceptional cases and the current act doesn’t even mention it.
That counters the argument that the case has massive implications for transformation in the industry.
The mineral resources minister and ICT both argue the steel giant has no standing. – Dewald van Rensburg
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