South Africa’s Constitutional Court delivered its judgment on Thursday relating to the long-running mineral rights dispute involving the Sishen iron-ore mine, in the Northern Cape.

The ruling, which is still being studied by the participants, has thrown up a partial victory for the Department of Mineral Resources (DMR) and its contention that the old-order mineral right previously held by ArcelorMittal South Africa (AMSA) at Sishen had indeed reverted to the State on April 30, 2009.

However, the court also determined that the Sishen Iron Ore Company (SIOC), in which Anglo American’s Kumba Iron Ore has a majority position, was the only party competent to apply for and be granted the mining right in terms of Section 23 of the Mineral and Petroleum Resources Development Act (MPRDA).

It, therefore, directed the director-general of the DMR to allow SIOC – which held a 78.6% undivided share in the mine, with AMSA holding the 21.4% balance at due date for conversion – to apply within three months for the remaining 21.4% undivided share.

It was not immediately clear what the ruling meant for the implementation of a settlement agreement unveiled by Kumba and AMSA in November. The deal was communicated as a ‘holistic’ solution to ongoing disputes between the two JSE-listed companies, which had been raging for nearly four years. However, both companies indicated that the Constitutional Court judgment should not impede the implementation of the supply agreement, which is due to come into effect on January 1, 2014.

The matter was lodged with the country’s highest court by the DMR and Imperial Crown Trading (ICT) on April 23 – this, after the Supreme Court of Appeal (SCA) dismissed their appeals against an earlier North Gauteng High Court ruling, which set aside DMR’s granting of a prospecting right at the mine to ICT.

The courts held that the SIOC became the exclusive holder of the Sishen mining right in 2008 when the DMR converted SIOC’s old-order mining rights. The SCA held that, as of midnight on April 30, 2009, SIOC, which had hitherto held a 78.6% undivided share, became the sole holder after AMSA failed to convert its 21.4% undivided share into a new-order right in line with the rules of the MPRDA.

The Constitutional Court heard the matter on September 3, 2013, and ruled on December 12. It determined that, although AMSA’s 21.4% right remained available for allocation by the DMR, the provisions of the MPRDA meant that only SIOC was entitled to apply for that residual share.

In other words, it partly upheld the DMR’s appeal, disagreeing with the other two courts in their interpretation that the conversion by Sishen included AMSA’s old-order mining right. “Sishen did not and could not have applied for conversion of something more than its own old-order mining right, comprising its common law mineral rights of 78.6% undivided share.”

But in a separate, but related judgment, the Constitutional Court concluded that the opportunity to apply for those rights is open to SIOC only and that the company should exercise that right within three months of the December 12 order.

Full ownership by SIOC of the Sishen mine is a key outstanding condition for the implementation of the November 5 settlement, which was premised on the attainment of legal certainty that SIOC was indeed the sole holder of the Sishen mine rights.

The settlement, which was unveiled by outgoing AMSA CEO Nonkululeko Nyembezi-Heita and Kumba CEO Norman Mbazima at a briefing in Johannesburg in early November, also circumvented the need for what would have been a complex, and possibly lengthy, arbitration process to deal with a dispute over the 2001 supply agreement.

The dispute centered on the termination, on March 1, 2010, of a cost-plus-3% iron-ore supply arrangement that had prevailed since the 2001 unbundling of Iscor into separate mining and steel companies. Kumba maintained that the supply agreement had fallen away as a result of AMSA’s failure to convert its 21.4% undivided share. However, AMSA argued that it did not need to convert the rights as it effectively had a right to SIOC’s already converted right. Both AMSA and Kumba concurred, however, that the DMR had no authority to grant a prospecting right to ICT over the undivided share.

The settlement regulates, from January 1, 2014, the sale of 6.25-million tons of iron-ore a year from Kumba’s Sishen and Thabazimbi mines to AMSA’s steel mills in Gauteng, KwaZulu-Natal and the Western Cape.

The material would be supplied in line with agreed specifications and at a price derived using the cost of production at Sishen’s dense media separation plant, plus a 20% margin. A ceiling price equal to the Sishen export parity price at the mine gate had also been agreed. The pricing arrangement would endure for the life of the Sishen mine, currently estimated at more than 18 years.

The settlement also included a two-year transition period to allow Kumba to ramp up a brownfield mining plan at Thabazimbi, in Limpopo, which would otherwise have faced imminent closure.

Kumba corporate communication manager Gert Schoeman said that, while the implications of the Constitutional Court ruling were still being studied, it was unlikely to affect the settlement agreement, which the company believed was good for both companies.

Talks were also continuing with government regarding the aim of ensuring that the settlement was in line with its aspiration for higher levels of mineral beneficiation ahead of export.

SECURITY OF TENURE

In a commentary on the ruling, Webber Wentzel’s mining sector group head Peter Leon said the judgment reaffirmed the key principle of security of tenure in the South African mineral regulatory system.

“Importantly, the judgment has also made clear that only Sishen is entitled to apply for this right.  This is as a consequence of Sections 13, 16 and 22 of the MPRDA, which provide that a person may only apply for a reconnaissance permit, prospecting right or mining right respectively if ‘no other person holds a prospecting right, mining right, mining permit or retention permit for the same mineral and land’. As Sishen already holds a mining right over the land and minerals in question, granted under the MPRDA, no one else may apply for rights over such land and minerals.”

He added that the interpretation adopted by the court not only prevented the practical difficulties of two companies mining the same land and properties, but also ensured that a single entity was made responsible for the applicable social and labour plans. “This is important not only for the security of tenure of mining companies, but also for their employees and the surrounding communities,” Leon said.

Routledge Modise's head of mining Warren Beech added that the court settled what happened if the holder of an old-order right did not lodge for conversion and the right, or portion of the right, reverted to the State. The ruling determined which entity could exclusively apply for the undivided portion of the right, which was SIOC in this case. “The parties [Kumba and AMSA] will have to carefully consider the provisions of the settlement agreement and the impact of the judgment," Beech concluded.