Round one goes to Kumba in Sishen battle
The North Gauteng High Court has ruled that Sishen Iron Ore Company (SIOC) holds 100% of the mining rights over Sishen—the country’s largest iron ore mine.
While Judge Raymond Zondo said the full judgment would only be available on Tuesday, he did indicate that when Kumba Iron Ore (KIO) applied for conversion of the right over Sishen that it was granted the full mining right and there was no such thing as a right to a portion of Sishen.
This effectively means that Imperial Crown Trading (ICT), which is politically well connected, is therefore not a holder of the 21.4% portion of Sishen previously held by steelmaker ArcelorMittal South Africa (AMSA, ACL).
Both Kumba, which is 64% held by Anglo American (AGL) and AMSA had asked the high court to overturn the decision by the mineral resources department to award a prospecting right over the portion of Sishen to ICT.
“We have long held the view that SIOC both applied for and now holds 100% of the mining right over the Sishen mine,” AMSA said in response to the ruling.
“We are pleased that today’s [Thursday] ruling confirms the position that AMSA has always held. Furthermore, the judgment of the high court serves to confirm our view that SIOC remains obliged to supply 6.25-million tons of iron ore to us at cost-plus-3% in terms of our agreement,” AMSA added.
Zondo was tasked with adjudicating between competing interpretations of the Minerals and Petroleum Resources Development Act as it applies to jointly held stakes in a single mine.
Zondo’s judgment will have a large impact on the share prices of Kumba Iron Ore and ArcelorMittal, and the personal fortunes of a host of politically connected individuals.
They include President Jacob Zuma’s son, Duduzane; Jagdish Parekh, a top lieutenant of the Gupta family, regarded as Zuma benefactors; and Gugu Mtshali, the long-term romantic partner of Deputy President Kgalema Motlanthe.
The Act, which came into effect in 2004, gave mining companies five years to convert their old mining rights into new ones. When the conversion deadline passed in April 2009, iron-ore miner Kumba, which held a 78.6% stake in Sishen, had applied to convert its stake. But steel manufacturer ArcelorMittal, which held the remaining 21.4%, had not.
Kumba and politically connected company Imperial Crown Trading 289 raced to acquire the rights to ArcelorMittal’s now-available 21.4% stake, and the department of mineral resources eventually awarded a prospecting right to Imperial.
The little-known company, whose directors include Mtshali, co-founder Phemelo Sehunelo and former Mineworkers’ Investment Company chairperson Archie Luhlabo, gained a net worth of billions overnight.
In August 2010 ArcelorMittal offered to buy out Imperial and incorporate its directors into a new black employment equity (BEE) consortium that included Duduzane and Parekh, also making them instant billionaires.
But ArcelorMittal’s buy-out of Imperial was never consummated and its subsequent appearance before Zondo to argue that Imperial should not have been awarded the right threatened to tear the new-found riches from Imperial’s grasp.
The civil case before Zondo, which was brought by Kumba, concerns whether the department interpreted the law properly and administered the awarding of the prospecting right to Imperial fairly.
It should not to be confused with criminal proceedings kick-started by police raids of Imperial and the department’s Kimberley offices by the Hawks in July. The Hawks are investigating whether Imperial directors or department staff committed forgery by copying parts of Kumba’s application.
Zondo has sifted through thousands of pages of legal papers, poring over the arguments of the four main protagonists, since the court hearing in August.
Kumba is opposing the award to Imperial, alleging that in its haste to grab the lucrative stake it had submitted “incomplete, manipulated and fraudulent” documentation to the department.
Kumba also disputes the process through which the department awarded Imperial a prospecting right over the 21.4% stake, arguing that Kumba already held a right to mine at Sishen that could not be superseded by a prospecting right in the same area.
If Zondo agrees, Kumba will be lords of all they survey with a right to mine 100% of Sishen.
ArcelorMittal argues that its minority stake in Sishen was an undivided one and when Kumba converted its majority stake it also converted the steel manufacturer’s minority stake on its behalf.
Kumba’s subsequent attempt to acquire ArcelorMittal’s stake was “a very late stab in the back in the dark”, the company argued.
If Zondo agrees, ArcelorMittal will be back in the saddle with a 21.4% stake in Sishen. It will also be in a stronger position to renegotiate a favourable iron-ore supply agreement with Kumba, which the latter cancelled in February 2010.
Imperial argues that it was entitled to apply for the 21.4% stake left vacant by ArcelorMittal’s failure to convert its old-order mining right.
It also claims that Kumba prejudiced its right to apply for the stake by doing so a day before ArcelorMittal’s ownership expired. It alleges that Kumba fiddled the dates on its application for the soon-to-be-available stake to steal a march on other potential bidders.
Imperial also argues that it applied for a prospecting right over an area that incorporates more than the immediate vicinity of the Sishen mine and intended converting it into a full mining right in due course.
If Zondo agrees, the net worth of Imperial’s directors will again soar, because they will be free to negotiate with whoever they choose for the best possible deal on the Sishen stake. The criminal case against its directors will also be weakened.
Department of mineral resources
A decision in favour of Imperial would vindicate the department, which argues that the Act provides for the redistribution of mineral wealth to the previously disadvantaged. Former deputy director general Jacinto Rocha was responsible for approving the prospecting right applications.
If Zondo agrees, the department will breathe a huge sigh of relief and feel justified in awarding a prospecting right to Imperial rather than a mining right to Kumba. The criminal case against staff in the Northern Cape regional office who handled both Kumba and Imperial’s applications for ArcelorMittal’s stake is also likely be weakened.
Timeline of events that led to the court case
- 2001: Ownership of the Sishen mine is split, with a 78.6% stake held by mining company Kumba Iron Ore and 21.4% by steel manufacturer ArcelorMittal.
- May 2004: The New Minerals and Petroleum Resources Development Act comes into effect. Companies have five years to convert their mining rights to comply with the new Act.
- Thursday April 30 2009: Kumba applies to the department of mineral resources for the conversion of its old-order mining rights. ArcelorMittal fails to do it.
- May 1 to May 3 2009: A public holiday and a long weekend. According to critics, this gave the department and Imperial Crown Trading 289 time to collude in grabbing ArcelorMittal’s stake.
- May 4 2009: Both Kumba and little-known Imperial submit applications—Kumba for a mining right and Imperial for a prospecting right—to what they believe is the vacant 21.4% slice of Sishen mine.
- November 2009: The department hands the right to prospect at Sishen to Imperial on the basis that both applications arrived simultaneously on May 4 and that Imperial has superior empowerment credentials to Kumba.
- February 2010: Kumba cancels its agreement with ArcelorMittal to supply the steelmaker with iron ore at the favourable rate of cost-of-production plus 3%, arguing that the steel manufacturer no longer holds a stake in Sishen. The cancellation has ramifications as the cost of steel rises for downstream industries.
- May 2010: Kumba applies to the North Gauteng High Court in Pretoria to have the department’s awarding of the prospecting right to Imperial invalidated.
- August 2010: On condition that Imperial obtains a mining right at Sishen, ArcelorMittal agrees to buy out Imperial and incorporate some of its shareholders into a new BEE structure called the Ayigobi Consortium. Duduzane Zuma and the Guptas are cut into the deal.
- May 2011: ArcelorMittal applies to the court to be admitted as an applicant, with Kumba, in opposing the award of the 21.4% stake to Imperial.
- July 2011: The Hawks swoop on Imperial and the department, looking for evidence that the company colluded with government officials in May 2009 to commit forgery of Kumba’s application for the stake.
- August 2011: Judge Raymond Zondo hears five days of legal argument from Kumba, ArcelorMittal, Imperial and the department.
- October 2011: ArcelorMittal announces that its proposed BEE deal, which would have incorporated some of Imperial’s directors as shareholders, is dead. Its buy-out offer to Imperial hangs in the balance.