Constitutional Court rules in Kumba’s favour on Sishen rights
SISHEN Iron Ore Company, which already has a 78.6% share of the right to mine the Sishen mine in the Northern Cape, was the only entity competent to apply for, and be granted, the remaining 21.4% right, the Constitutional Court ruled on Thursday.
Before the Mineral and Petroleum Resources Development Act came into force, Sishen and ArcelorMittal SA were co-owners of the mineral rights at the Sishen mine, holding 78.6% and 21.4% respectively. When, under the act, they were required to convert their old order rights to new order rights, Sishen did so successfully, but ArcelorMittal SA failed to apply.
The ruling in effect gives the Kumba Iron Ore subsidiary, itself majority owned by global mining conglomerate Anglo American, the 100% mineral right to the mine. This means the Sishen Iron Ore Company has defeated appeals by the Department of Mineral Resources and politically connected Imperial Crown Trading, after the department had earlier controversially transferred ArcelorMittal SA’s old 21.4% partial mining right at Sishen to the little-known empowerment group.
But while the judgment primarily ends a long legal wrangle between Kumba Iron Ore, Sishen, ArcelorMittal SA, the department and Imperial Crown Trading, it has also underscored a new supply agreement between Kumba and ArcelorMittal SA signed last month, which was conditional upon Kumba having the 100% right.
ArcelorMittal SA would now get up to 6.25-million tonnes of iron ore a year for up to $20 less per tonne than it had been recently paying. This was after it drew a line with Kumba under a long, acrimonious and separate arbitration dispute that began when Kumba halted supply to the steel maker of iron ore at cost plus 3% after the steel maker let its old order right at Sishen lapse.
This ultracheap iron-ore supply deal had previously been mandated by the state after the unbundling of former state steel entity Iscor’s mining and steel divisions from about 2000, as part of the government’s drive to achieve a “developmental” steel price in South Africa. The upshot of the highest court’s decision on Thursday is that the state will now not easily get this discount for its proposed R4-trillion infrastructure programme.
“The settlement and supply agreement concluded by ArcelorMittal and (Sishen Iron Ore) in November 2013 is not affected by the above mentioned judgment,” ArcelorMittal SA said on Thursday.
The Constitutional Court judgment resoundingly puts Imperial Crown Trading out of the picture. But legally and technically, Sishen Iron Ore is not yet the 100% holder of the right. It may still have to jump through some hoops to get there as the department may impose conditions if they are permissible under the Minerals Act, according to the ruling.
However, a spokeswoman for Kumba, Yvonne Mfolo, said yesterday it would “continue as if we are (the) 100% owner”.
“So the new (pricing) agreement (with ArcelorMittal SA) will kick off (on January 1) as planned. If things change in the long run, then we will reconsider our position, should the need arise.”
Department spokeswoman Ayanda Shezi said yesterday it was still drafting a statement. “As soon as I get it I will send it through. If not this evening, it will be early tomorrow,” she said.
Mark Cutifani, the CEO of Anglo American, which holds 70% of Kumba, said the ruling was “a great story for SA”. He said it demonstrated that “legitimate” mining companies that had “put their claims in appropriately will be protected by the courts”.
As the arbitration proceedings between Kumba and ArcelorMittal SA continued, ArcelorMittal SA also stepped into the court fray. It said it had never needed to apply to convert in the first place because when Sishen made its application to convert, what it received was a 100% mining right.
The high court and the Supreme Court of Appeal agreed. But not the Constitutional Court judges. Justice Chris Jafta said the lower courts had “erred” in the way they had characterised an “old order” and “divided mining right” under the Minerals Act.
The court said that, generally, if someone failed to apply for a conversion and it lapsed, it would be open to the state — as custodian of SA’s minerals — to reallocate the right. This could be done in a way that would enhance objectives of the Minerals Act, including broadening the pool of beneficiaries of mineral wealth.
However, where there were these divided rights, only the party that had one share could apply for the rest, said Justice Dikgang Moseneke. “In my judgment, where an old order right was formerly held by X and Y in undivided shares, and X has converted its old order right but Y has failed to do so, the state may not grant Y’s undivided share to Z,” he said. “This case is unlikely to establish a precedent.”
