End of Sishen saga cast in iron
None of the parties involved in a protracted legal battle over the rights to mine some of South Africa’s most valuable mineral deposits has emerged from the clash looking good.
The dispute over the right to mine part of the Sishen iron ore mine in the Northern Cape has been marked by controversy, allegations of backstabbing and fraud, and seemingly it came to an end when judgment was handed down in the Constitutional Court on December 12.
The court found that the Sishen Iron Ore Company, an operating company of Anglo American’s Kumba Iron Ore, is the only party eligible to apply for the disputed new-order mining rights pertaining to a 21.4% stake of the Sishen mine and relevant properties as it already has the rights to mine the other 78.6%.
However, there may be one last twist should the department of mineral resources find reasons to reject Sishen’s application or attach conditions to the granting of the mining right. (See "Things could get awkward".)
ArcelorMittal South Africa came off worst financially and was slapped with a costs order to pay half of the department’s legal bills and half of Sishen Iron Ore’s for all three court cases. The company did not respond to a question asking for an estimate of the costs but Peter Leon, head of Webber Wentzel’s mining sector group, said "the bill is going to be staggeringly high".
Imperial Crown Trading (ICT), a politically connected shelf company that applied for the rights to the 21.4% stake, must pay the other half of Sishen’s legal costs.
"I don’t think anybody who had much to do with this is looking great," said Peter Major, a mining analyst at Cadiz Corporate Solutions.
"There is nobody squeaky-clean here."
But Kumba said it was "delighted" with the outcome, and the department said the judgment has confirmed the constitutionality of the Mineral and Petroleum Resources Development Act.
"Financially, ArcelorMittal lost the most and ICT is likely to disappear into the wind," Major said. "The DMR [department] came out looking a bit confused and unsure – although who wasn’t in this case? – and Kumba probably lost some goodwill with a few important parties."
In 2001, ArcelorMittal SA’s predecessor, Iscor, unbundled and sold 78.4% of the mining business to Sishen but retained a minority shareholding. The department granted both Sishen and ArcelorMittal authorisations to mine, which would have been valid until 2032.
But the new minerals Act required holders of permits to convert their rights to new-order ones within five years to avoid losing them. Sishen converted its share but ArcelorMittal did not. This released Kumba from an agreement to supply ArcelorMittal with ore at a preferential price of cost plus 3%, and both Sishen and ICT applied for ArcelorMittal’s rights to the stake just days after the deadline lapsed.
ICT received mining rights but Kumba filed criminal charges against the company in May 2010 when it emerged the ICT application was stamped by the department as received on May 4 2009, but the signature on the application form was dated May 5.
In August 2010, ArcelorMittal offered to buy out ICT and its mining rights and incorporate some shareholders in a new black economic empowerment structure. Duduzane Zuma, a son of President Jacob Zuma, and the Gupta family were cut into this deal. ArcelorMittal believed the deal would help it to regain preferential prices and possibly even direct access to iron ore, but some of its shareholders questioned the ethics and transparency of the proposed deal.
When Kumba brought a review application to the North Gauteng High Court, ArcelorMittal, seemingly having jumped ship, joined it as an applicant and sought an order declaring that Sishen sought the conversion of 100% of the undivided share in the right to iron ore and quartzite, including the 21.4% that was held by ArcelorMittal.
The court granted the order and reasoned that Sishen could not mine only 78.6% of the ore and, as joint owner of a right to a mineral, Sishen was entitled to mine the whole area. The court also set aside the grant of a prospecting right to ICT.
The minerals department and ICT appealed to the Supreme Court of Appeal but the matter was dismissed with costs. The court also concluded that, when ArcelorMittal’s rights lapsed, Sishen became the sole holder of the mining right.
But the Constitutional Court held that both courts had erred and concluded Sishen is the only party eligible to apply for the rights to mine the 21.4% portion and was granted three months to do so.
ArcelorMittal secured another supply agreement with Kumba last month, which regulates the sale of up to 6.25-million tonnes of iron ore a year at a preferential price of cost plus 20%. The agreement is subject to the Sishen Iron Ore Company achieving 100% ownership of the rights.
Things could get awkward
After three-and-a-half years of litigation, the Constitutional Court has laid the issue over disputed mining rights at the Sishen iron ore mine to rest, but the department of mineral resources could have one last card up its sleeve.
In his judgment, Deputy Chief Justice Dikgang Moseneke said that, although the Sishen Iron Ore Company is the only one eligible to apply for the disputed 21.4% rights, the minister may attach conditions to granting them, especially relating to concerns that Sishen’s monopoly could be to the detriment of the local steel industry – but provided they are permissible under the Minerals and Petroleum Resources Development Act.
This followed remarks by the department’s director general, Thibedi Ramontja, who said there was the danger that Sishen would choose to dispose of its entire production on an export basis to the detriment of the local steel market is a real one.
But steel industry associations do not share this concern as there is currently an oversupply of the metal and iron ore producers are highly exposed to exchange-rate fluctuations. Kumba also said its new supply agreement with ArcelorMittal commits it to continue supplying the local steel industry with iron ore at preferential rates "significantly below what the company could get for iron ore on the export market".
The department of trade and industry has misgivings about the cost advantage not being passed on. "To the best of our knowledge there is no security of supply issue," said Garth Strachan, the department’s chief director of industrial policy. "Our concern is that a cost-plus advantage accrued to ArcelorMittal has not been passed on to the manufacturing sector."
Peter Leon, head of Webber Wenzel’s mining sector group, said: "The only thing that could go wrong, and I think it would be unlikely, is that the DMR [department] will impose some conditions on the mining rights that are unacceptable to Sishen."
In a statement issued by ICT’s lawyer, Ronnie Mendelow, he said the department could refuse Sishen’s application in light of claims that it has breached environmental regulations. – Lisa Steyn