BUSINESS DAY TV: Outcome of Aquila case lifts investor confidence
Patrick Leyden is director at Herbert Smith Freehills.
BUSINESS DAY TV: Mining investment in SA remains in the doldrums and it’s little wonder if the legal battle between little-known manganese outfit Aquila Steel and the Department of Mineral Resources (DMR) is anything to go by.
In a nutshell, Aquila Steel has prevailed in a lengthy court case against the DMR over (a) disputed ... prospecting right to a property in the Northern Cape which involved former mines minister, Ngoako Ramatlhodi, his predecessor Susan Shabangu and an entity called the Pan African Mining Development Company (PAMDC), a company created in 2007 ... which at one time boasted a director who was then appointed a director-general at the DMR.
Joining us now on News Leader to discuss the judgment is Patrick Leyden, he is a director at law firm Herbert Smith Freehills. Patrick ... clearly it’s a victory for Aquila Steel, is this a victory for the mining sector in general?
PATRICK LEYDEN: Yes ... if I could just briefly touch on the factual background of the case it kind of gives a nice introduction to where the court ended up. So essentially, as you put it, what happened was Aquila Steel applied for a prospecting right in 2006. It was granted, it conducted prospecting activities pursuant to that prospecting right and it incurred substantial amounts of investment in proceeding with prospecting.
It then applied for a mining right and a number of years later it was subsequently informed that its mining right application was (frozen) ... due to the fact that there was an existing mining right or existing prospecting right held by a company called Ziza Limited. Now Ziza Limited was, in fact, incorporated in 1893 and it was owned by the Zimbabwean and the Zambian governments and Ziza applied for a prospecting right back in 2005 and it was granted based on the fact that it held an unused old order right because it owned large tracts of land.
So it applied, it was accepted and the prospecting right was granted. Now you essentially have two competing rights with both rights quite far down the line. So the court was essentially tasked with who had the valid or the better rights. The court had to look specifically at the queuing system which the MPRDA (Mineral and Petroleum Resources Development Act) allows for where first come, first served which is quite an open and transparent system. Then whether in terms of section 16, which sets out the requirement for the regional manager to accept a mining right application, were complied with.
So that’s essentially the background to the case and what makes this case so interesting is that the court went very far, in that normally under what was a review application, what can normally happen is that the judge and court has quite broad discretion as far as to what remedy they can give. In this case the judge went so far as to say that given the institutional competence on display ...
BDTV: ... of the DMR?
PL: Of the DMR, it actually stepped into the shoes of the decision maker and actually substituted the original decisions made to grant the rights to Ziza with the right to grant ... and granted the mining right.
BDTV: You highlight the manner of the judgment and something that was also highlighted was the implication of the DMR in potentially what could be labelled extortion of Aquila. Is this then a turning point for the industry as a whole because it puts the DMR’s actions under more scrutiny than ever before, one assumes?
PL: It certainly assists with investor confidence, it goes to the rule of law and shows the courts are willing to uphold and will uphold the rule of law, even in circumstances where the PAMDC, which I didn’t explain earlier, but essentially what happened with Ziza and the PAMDC was formed as a joint venture between (the) Zimbabwe, Zambia and the South African governments. And even in circumstances where there is a state-owned mining company involved that the courts will uphold the rule of the law in circumstances where it believes the rule of law was flouted or the law was flouted.
BDTV: We picked up the story from David McKay’s Miningmx and he wrote that the judge in the matter just stopped short of describing the DMR guilty of institutional bias. Can you explain what that is and whether that’s also significant?
PL: Sure. What was also highlighted in the judgment is that the DG, Mr Ramontja, at the time was previously the chairman of PAMDC. Now the DMR contended that he actually resigned before he took up his position as the DG. Now clearly, if he had retained that position there would have been a conflict of interests where he is essentially adjudicating an application on behalf of his own company, which he was affiliated with. And so that’s what the court was talking about as far as institutional bias is essentially you can’t be the player and the referee and the court found that there wasn’t necessarily institutional bias but that’s what he was looking at when he was talking about it.
BDTV: What do you see being the implications for other court battles over prospecting and mining rights? Is this precedent setting?
PL: Yes, I would say so, specifically around section 16 where in the queuing process or in clarifying the situation where if you submit your mining right application or ... prospecting right application it doesn’t meet the requirements. Essentially, you’re not given the opportunity to necessarily remedy them but your application is kicked out and the next one in the queue must then be heard. But basically it gives a lot of mining companies that may feel that the law has not specifically been followed or there may have been delays or there may have been omission of action that they believe was procedurally unfair and it shows that there is recourse through the courts.
BDTV: Just quickly, we have form in this regard because the whole court case between ArcelorMittal and Kumba and Imperial Crown Trading, which was an off-the-shelf company back in 2009, Lonmin and HolGoun, which was another company which had prospecting rights over Lonmin property ... we’ve seen these cases before but are they diminishing in number and are we arriving at a more overall transparent mining sector do you think?
PL: I believe overlapping rights is quite a common thing. Many times it’s simply an administrative oversight that needs to be rectified, especially with old order rights where they’ve been converted to new order rights and the cadastral system was quite complicated at the time of moving everything onto a new system. So there were certainly administrative issues which are normally quite easily resolved. The other issue, as you mentioned, where they might be some behaviour which is not necessarily above board, where there are competing rights in respect of the same minerals ... as we discussed, the online system certainly assists ... the Samrad (South African Mineral Resources Administration) system, where you can apply online, certainly assists in some transparency in this regard. It has had its problems but it will generate printouts and will tell you whether there are existing rights which is very helpful.