Lonmin faces community showdown
The Bapo Ba Mogale community claims that the mining giant Lonmin has fudged its profits and owes them millions in royalties, writes Heidi Swart.
Mining giant Lonmin is not only in the spotlight for the recent Marikana shootings. The community that hosts Lonmin's platinum mines plans to take the multinational company to court to recover up to R100-million in royalties they claim the mining giant owes them.
The lawyer representing the Bapo Ba Mogale community in North West claims that his clients lost these royalties as a direct result of Lonmin actions – firstly, a secret deal between its subsidiaries and, secondly, Lonmin also refused to negotiate royalty increases. Lonmin denies both allegations.
The following is not disputed: Lonmin's two operating subsidiaries, Eastern Platinum Limited and Western Platinum Limited, have been mining since 1989 on the Bapo's land near Rustenburg. Eastern Platinum only mines on community land. Western Platinum mines on the farm Wonderkop, which belongs to the community, but also on land that doesn't belong to the Bapo.
The dispute is over the royalties the community believes the mine should pay it. The Bapo people are supposed to receive 12% in royalties from the taxable income on the mining activities on their land.
But, the community's lawyer, Hugh Eiser, said an agreement between Eastern and Western Platinum –made without the Bapo's knowledge or input – has led to a significant loss in royalties to the community. "The community knew nothing about this," he said.
In 2002 Eastern Platinum entered into a formal agreement with Western Platinum to sell its concentrates (or processed ore, which has a higher concentration of platinum than raw ore) to the latter.
Before this agreement, Eastern Platinum mined ore, put it through its own concentrator and then sent it to Western Platinum's smelter. It was then sent to Lonmin's precious metals refinery and Eastern paid Western Platinum and Lonmin for these services. Next Eastern Platinum sold the final product – platinum group metals – at market-related prices.
But after the 2002 agreement, Eastern Platinum sold its concentrate to Western Platinum, which then sold the final product on the open market. This, said Eiser, meant that Eastern Platinum lost 8% to 10% of its income, leading to the same percentage decrease in community royalties. Instead, that profit went to Western Platinum. Eiser said the result of this was that the community could have lost up to R20-million plus interest, which he estimates could be as high as another R10-million.
But Lonmin spokesperson Sue Vey said: "This agreement was not done secretly … formalising the agreement did not prejudice the Bapo."
A larger loss for the community allegedly stems from negotiations initiated by Lonmin in 1998, whereby the community was offered an increase in the 12% royalties. Before an agreement could be reached, the government announced the imposition of a state royalty.
By mutual agreement, the negotiations were put on hold until the outcome of the legislation governing state royalties was finalised. But, said Eiser, once the state royalty was known, Lonmin refused to restart negotiations with the community.
Vey said this was incorrect and that once the state royalty rate was confirmed the parties started negotiating the conversion of the Bapo royalties to equity in 2008.
She said Lonmin had detailed minutes of these meetings with the Bapo as well as correspondence from Eiser referring to the negotiations. But, said Vey, the negotiations were complicated because of confusion about who the legitimate representatives of the Bapo community were. "At least on one occasion the Bapo themselves requested that negotiations be suspended relating to this issue."
Eiser said, however, that negotiations to convert the royalty to equity were separate from the royalty increase. "If the community was allowed to negotiate for higher royalties, which Lonmin refused to do, they would be able to obtain more equity."
He admitted the suspension of the conversion negotiations was caused by upheaval in the community, but said this did not detract from Lonmin's refusal to negotiate the increase in royalties. What is more, he said, during negotiations between 2006 and 2008 to convert the royalties to equity, Lonmin allegedly gave the community false information with the intention of reducing the value of its royalties. He said Lonmin only gave the community credit for 7% of the ore body under Wonderkop. But Mineral Corporation, consultants for the community, did an assessment and found that this was incorrect.
Vey said Lonmin had not acted in bad faith. "When it came to light that this information was inaccurate, Lonmin apologised and provided corrected information and paid certain wasted expenses incurred by the Bapo as a result of the information being inaccurate."
But Eiser disputed this: "Leaving out 93% of an ore body was no error."
The Bapo are also outraged by what they allege was another attempt from Lonmin to avoid royalty payments. Bapo leaders believed that Western Platinum had secretly mined under their land in Wonderkop for more than three years.
A member of its tribal council, Israel Moerane, said the community suspected that Lonmin was mining under Wonderkop and accessing the platinum deposit there from an adjacent farm, Middelkraal, which does not belong to the Bapo.
Eiser said Lonmin denied this when it was challenged. "When the denials no longer withstood scrutiny, Western Platinum suddenly admitted this and commenced paying royalties with interest to cover the arrear payments.
"Out of the blue came a cheque for R18-million and by now the community has received well over R100-million in royalties from mining on Wonderkop since 2003."
Eiser said he doubted whether any of this would have been paid if Lonmin had not been pressured.
But Lonmin denied any knowledge of the allegations of secret mining, saying all its royalty payments were audited by external auditors.
However, Eiser said he confronted Lonmin directly about the alleged secret mining and provided the Mail & Guardian with correspondence and minutes of meetings reflecting this. The records also show that Lonmin denied mining in secret on community land.
Overpayment of royalties
Lonmin added that the Bapo themselves had conducted audits on the royalty payments over the years. "If anything, there has been an overpayment of royalties relative to the provisions of the notarial mineral lease," Vey said.
However, Eiser said neither he nor the community had been given the opportunity to look at the results of these audits.
Just how much in royalties the community is entitled to is difficult to calculate. Lonmin said it had paid out R370-million in royalties to the community so far.
But Eiser said that, because Lonmin's operations on Wonderkop were not run as a separate business, as is legally required by the 1977 mining lease, it was not known how much money Lonmin had made from mining there. "We don't even know if those accounts exist."
In addition, said Eiser, Lonmin was paying royalties from Wonderkop to the community through Eastern Platinum, instead of paying it directly. This is in terms of an agreement allegedly entered into secretly and unlawfully in 2003 between Eastern Platinum and Western Platinum.
Lonmin rejected the allegation, but Eiser is sticking to his guns: "The experience has been that in years [when] Eastern Platinum has made a loss, Wonderkop money is gobbled up in Eastern Platinum. That's theft."
The 1969 agreement: Bapo Ba Mogale community's Lonmin woes
The Bapo Ba Mogale first entered into a notarial lease agreement with Lonmin in 1969.
It allowed Lonmin to mine on community land and, in return, the company had to pay the Bapo community a 10% royalty on its taxable income from its operations on community land. Royalties have since been upped to 12%.
This appears to be a win-win situation.
But a closer look at the agreement creates doubt as to whether the community really knew what they were getting themselves into.
Firstly, the Bapo did not sign the agreement themselves. In the 60s, during the height of apartheid, black people were not allowed to register land in their own names. This meant they could not sign the lease agreement with Lonmin. The minister of Bantu administration and development, then the Bapo's trustee, was responsible for this, and the agreement was signed on his behalf. Today, the premier of the North West is still the Bapo's trustee.
However, it appears that the clan headmen and chief at the time, Fred Mogale, did sign a separate document agreeing to the lease. The community leaders were glad that the riches under their land were to be exploited to their people's benefit.
Some of the older Bapo members still remember the signing of a document in which clan leaders agreed to the lease with Lonmin. Bapo member Oupa Koapeng said his father was one of the signatories of a document in which the community leaders agreed to the lease. But he is adamant that signatories were illiterate or had received little schooling. He said that, in all likelihood, the Bapo leaders did not understand the legal jargon of the agreement. "They knew nothing."
Lonmin spokesperson Sue Vey said the company was unable to comment on the matter as it could not access the relevant documents and witnesses before the deadline stipulated by the Mail & Guardian.
The right to mine
Certain clauses in the agreement and the devastating events that struck the community after the deal was signed, suggest that Koapeng was right.
For one, the agreement allows Lonmin to remove any buildings, erections, or works "necessary or desirable in the exercise of its right to mine, exploit, and turn the properties to account." There is also a clause stipulating that Lonmin is not allowed to interfere with or cause damages to existing water supplies, habitations, cemeteries, fences, kraals or lands without the Bapo's written consent.
Despite the safeguard, many Bapo families suffered disastrous consequences.
One man who remembers the damage done, is Bapo born and bred George Mogale. He is nearly 68 years old and in the early seventies he was a young, working man taking care of his family. He said around 1971 and 1972, four villages were displaced to make room for mining operations and related activities. He believes that the Bapo did not give Lonmin permission to move their homes, and Lonmin never compensated the families.
The four villages were Ranteni, Braamkop, Tabantswana and Marulakop.
The biggest village was Tabantswana. Mogale estimates that there were at least 500 homes there.
Along with losing their homes, people also lost large tracts of farmlands surrounding their villages. They were dependent on these farms to make a living.
Mogale, who lived in Braamkop, clearly remembers what happened. "I was crying. I was working in Joburg and had to ask my boss for three days off to move my family. Who was going to pay? It took me time to get sink (to build a shack)." He said his family home that was destroyed was made of brick, as were many of the Bapo houses. Some of the people whose brick houses were demolished in the 70s, said Mogale, are still living in sink homes.
Mogale and various other community members said that they believe that the community never gave Lonmin written permission to tear down the villages. "The Bapo would never have agreed to those movements," Mogale said.
Lonmin spokesperson Sue Vey said that Lonmin did not have any knowledge of the allegation that villages were displaced and farmland was lost to the community, and that questions sent by the M&G marked the first time the matter had been brought to their attention. Vey said that the company could not respond given the time constraints.
However, Lonmin has been questioned on the matter before, at least in part. Earlier this year the M&G did ask Lonmin whether it compensated the community for the loss of farmland.
Barnard Mokwena, executive vice president of human capital and external affairs at Lonmin, said at the time that "Lonmin has a Notarial Lease Agreement with the Bapo which clearly outlines the terms and conditions agreed by the parties. We pay Royalties to the Bapo in line with this agreement."
To add insult to injury, much of the land where their homes once stood lay bare for more than a decade before Lonmin started any construction, according to Mogale. The rest of the land was never used. He estimated that Lonmin only started to build structures on parts of the vacated land in 1987. Lonmin Shaft 1 was built next to the site where the Ranteni village was and a hostel for migrant mine workers was built at Marulakop.
While Braamkopo is still an unoccupied, open piece of land, Mogale said that informal settlements grew where Tabantswana and Ranteni once was. "There are now squatter camps because there was not enough room in the hostel," Mogale said. Hostels were built for miners who were mostly migratory workers. "It is a village again. There is even a (municipal) counsellor. These people have taken over our land."
Community water supplies
Lonmin said it needed more information to comment on the allegation.
But the Bapo's woes did not end with lost homes and farms.
The 1969 agreement stipulates that Lonmin's operations are not to interfere with the community's water supplies. Montey Mafate (63) is the head of the Bapo's Serametja clan. In his backyard, there is a well that his parents built to draw pure groundwater from the earth.
"My parents built this well when I was at school. It was there since the late 50s. This is the best water," he said.
Mafate still drinks from the well, but he is fortunate: In many Bapo communities wells have dried up, he said. His nephew, Abbey Mafate, said that there was very little or no water in the wells in several Bapo settlements, including Wonderkop, Legaopeng, Oustat, Segwaelane and Newtown. "I'm sure there is also nothing in Skoolplaas," he said. Montey Mafate suspects it is due to mining activities. "Just immediately after the mines came, some pit water disappeared. There is very little pit water left," he said.
Vey said that Lonmin was not able to investigate this allegation within the tight timeframe given to respond.
The agreement also compels Lonmin to provide free drinking water to the Bapo's livestock should the water supplies be sufficient. However, it clearly states that Lonmin is under no obligation to guarantee that this water will be fit and pure for consumption. The community was to use it at their own risk.
Vast capital expenditure
When asked comment, Vey responded: "To quote the lease agreement: 'The lessee does not warrant that any water supplied as aforesaid shall be pure or fit and suitable for livestock and all water supplied by the lessee shall be accepted and used by the members of the Tribe entirely at their own risk.'"
Finally, perhaps the worst aspect of the original lease agreement, as far as the Bapo people are concerned, is the terms on which the parties are allowed to terminate the lease. The original lease allows Lonmin to walk away with relative ease. The Bapo, on the other hand, have a few hoops to jump through before they can give Lonmin the boot.
The original agreement allows Lonmin to cancel the lease agreement at any time, without reason, as long as it issues the Bapo with a 90 day notice period. However, the agreement does not allow the community to do the same.
Should Lonmin not stick to the agreement, the company still has a chance to redeem itself. The community has to issue Lonmin with a written notice, specifying what the breach is and calling upon Lonmin to remedy the situation, or to pay compensation. Lonmin then has 60 days to either fix the problem, or, if it so chooses, to pay the community "reasonable" compensation. If the 60 days are up before Lonmin can step up to the plate, the community can terminate the lease on condition it gives the company 90 days written notice. The community can only proceed to cancel the lease with the written approval of the Minister of Bantu Administration and Development.
But Vey said the company believed this to be fair, since mining involved vast capital expenditure before operations could begin. "No responsible mining company would spend this capital upfront without having security of tenure," Vey said.
For now, it seems, the Bapo Ba Mogale are stuck with the lease agreement – and with Lonmin.
Heidi Swart is the Eugene Saldanha fellow for Social Justice reporting.