South Africa's DRC moment?

The government risks giving South Africa the same reputation as the war-torn Democratic Republic of Congo (DRC) when it comes to mining investments, legal expert Peter Leon warned this week. Leon's comment followed the high-profile legal wrangling between the Department of Mineral Resources and two international companies that have had prospecting rights over their existing mining operations awarded to politically connected rivals.

The first is the case of Imperial Crown Trading, awarded prospecting rights -- the precursor to a mining right -- over an area that is already mined by the Sishen Iron Ore Company, a subsidiary of Kumba Iron Ore. The second concerns platinum miner Lonmin. Business Day reported last week that a company called Keysha Investments, a member of the HolGoun Group headed by former public servant Sivi Gounden and his wife Vanessa, had been awarded prospecting rights over Lonmin's platinum interests. Keysha was granted rights over associated minerals, including nickel, copper and chrome, which Lonmin mines as an ancillary operation.

According to the Department of Mineral Resources, the prospecting right was issued on the grounds that, when Lonmin converted its old-order mining rights to new-order mining rights under the Minerals and Petroleum Resources Development Act, it failed to include associated minerals. Lonmin only did this in December last year, long after the conversion of its mining rights to the platinum group metals two years ago. "At the time when Keysha lodged its prospecting application in respect of the so-called associated minerals, no other application existed," the Mineral Resources Department said this week. Lonmin announced on Thursday, however, that the department had rescinded the order to stop selling the associated minerals, and had processed all of its applications except the "small area which is subject to the prospecting right issued to Keysha".

Peter Leon, a partner at law firm Webber Wentzel, said "Section 16(2) of the Act prohibits the processing (and thus the grant) of a prospecting right application for the same mineral and land over which there is an existing mining right. "In my view, the department should never have accepted, let alone granted, a prospecting right for iron ore to Imperial Crown Trading over the Sishen iron ore mine," he said. However, the Lonmin case was different. "The grant of a prospecting right to Keysha Investments … over a small portion of Lonmin's property does not, on the face of it, appear to have been unlawful, as at the time in question Lonmin did not have the right to exploit the 'associated minerals'," said Leon.

But he said that in the Lonmin case, "it is troubling that the department did not engage more effectively with the company last week and only belatedly granted Lonmin's application after huge ructions in the market … a spate of negative media publicity and considerable collateral damage to South Africa's reputation as an investment destination. "This should not be allowed to happen again, as it risks putting South Africa in the same mining category as the DRC."

The department did not respond to the M&G's questions.

Source: Mail & Guardian