Department of Mineral Resources faces heavy criticism by South African courts again

On 4 November 2016, the Labour Court handed down its judgment (unreported case number J2459/16) in the matter between AngloGold Ashanti Limited, the Acting Chief Inspector, the relevant Principal Inspector, and the Inspector that issued an instruction in terms of section 54 of the Mine Health and Safety Act 29 of 1996 (MHSA) (the AngloGold Ashanti Judgment), in favour of AngloGold Ashanti.

In its judgment, the Labour Court was particularly critical of the manner in which the relevant representatives of the Department of Mineral Resources (DMR), through its Mine Health and Safety Inspectorate, applied and administered the MHSA, and in particular, the manner in which the so-called "stop notices", were issued, under section 54 of the MHSA.

Following hot on the heels of the AngloGold Ashanti Judgment, the High Court of South Africa (Gauteng Division), issued its judgment (case number 72248/15) in the matter between Aquila Steel (South Africa) Limited, the Minister of Mineral Resources, the Director General (DMR), Deputy Director General (Mineral Regulation Department), Regional Manager: Northern Cape Region (DMR), Pan African Mineral Development Company Proprietary Limited and Ziza Limited ("the Aquila Judgment")

In the Aquila Judgment, the court was highly critical of the DMR, finding that the DMR had acted irrationally, incompetently, and had obstructed the very thing that it was meant to facilitate under the provisions of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), namely investment in the South African mining industry. 

The circumstances giving rise to the review application brought by Aquila Steel (South Africa) Limited (Aquila) are all too familiar: lengthy delays in relation to applications for prospecting and mining rights, double-granting of rights, lengthy delays in relation to internal appeals in terms of section 96 of the MPRDA and misinterpretation of the provisions of the MPRDA. 

The court in the Aquila Judgment was required to address a number of critical aspects including the interpretation and application of the transitional arrangements in Schedule 2 of the MPRDA, (in particular those relating to unused old order rights), the nature and duration of the exclusivity given to holders of old order rights under the transitional arrangements, the effects on the status of exclusivity and the unused old order right in circumstances where the application (in this case for a prospecting right) did not comply with the provisions of the MPRDA, the consequential effect on other applicants who had submitted applications, that is the so-called "queuing system", the effect of a de-registration of a holder of a right, the requirements to register a right, once granted and the effect of non-registration, and the various responsibilities placed on the functionaries of the DMR, in the decision-making process. 

In addition, the court was required to address the complexities associated with internal appeals under section 96 of the MPRDA, reviews under the Promotion of Administration Justice Act 3 of 2000 (PAJA), and the interaction between the provisions of the MPRDA and PAJA. 

It is beyond the scope of this alert, to go into extensive detail, on the facts giving rise to the matter, before the court. In summary, Ziza Limited (Ziza) was the holder of unused old order rights. In its capacity as the holder of unused old order rights, Ziza was provided with an opportunity, under Schedule 2 of the MPRDA to apply for a new order prospecting right within a one year period, which expired on 30 April 2005. Ziza submitted various applications, including an application for a prospecting right in respect of manganese in the Northern Cape, in April 2005, prior to the expiry of the one year period. The application did not comply with the provisions of section 16 of the MPRDA (as they then were). 

Aquila, a subsidiary of an Australian resources company, submitted an application for a prospecting right on 18 April 2006, almost a year after the Ziza application was submitted, but before the granting of a prospecting right in the name of Pan African Mineral Development Company Proprietary Limited (PAMDC).

Despite the application submitted by Ziza (the Ziza Application), not complying with the provisions of section 16 of the MPRDA, the Regional Manager (of the DMR) did not return the application to Ziza and advise Ziza, that the application did not comply, as required under section 16 of the MPRDA. Instead, after a delay of four months, the Regional Manager purported to accept the Ziza Application, on 17 August 2005. After acceptance, the Ziza Application remained pending for a lengthy period, before it was finally granted on 26 February 2008. The prospecting right granted to Ziza (the Ziza Prospecting Right) was registered in the name of PAMDC, despite PAMDC not being the applicant for a prospecting right, and in the absence of any application to transfer the prospecting right from Ziza to PAMDEC in terms of section 11 of the MPRDA. 

Ziza did not, once the prospecting right was granted, attempt to exercise its rights under the Ziza Prospecting Right, and carried out no prospecting activities. In addition, Ziza did not demonstrate that it had the necessary financial resources or the technical ability to carry out the prospecting or mining. 

On 28 February 2007, the DMR executed a prospecting right in favour of Aquila (the Aquila Prospecting Right). It was registered in the Mineral and Petroleum Titles Registration Office (by Aquila) on 17 July 2007. It was common cause, that there was an overlap between the properties which formed the subject of the Ziza Prospecting Right, and the Aquila Prospecting Right. 

Aquila identified a large manganese resource, during its prospecting operations. Aquila submitted an application for a mining right to the DMR on 14 December 2010. The DMR accepted the Aquila mining right application in a letter dated 22 December 2010.

In the interim, there had been further activity in relation to Ziza – on 9 November 2010 Ziza was dissolved and deregistered. In terms of section 56(c) of the MPRDA, the Ziza Prospecting Right automatically lapsed on the deregistration of Ziza. 

Despite the correspondence from the DMR to Aquila on 22 December 2010, that it would consider Aquila's mining right application by 31 December 2011, the DMR did not do so, until July 2015, and only after Aquila had compelled the DMR to do so, by bringing a mandamus application. Prior to bringing the mandamus application, there had been various engagements between Aquila, the DMR, and PAMDC, which did not lead to a resolution of the matter. This included communication from the DMR to Aquila that due to the double-granting of the prospecting right the DMR could not consider the mining right application submitted by Aquila. In addition, the internal appeal submitted by Aquila, was not being processed. 

As mentioned above, the facts are far more complex, but for present purposes, the summary above, will suffice. 

The key findings of the court were: 

  • The coming into force and effect of the MPRDA abolished the entitlement of a right holder to sterilise the mineral right in question.
  • The preamble of the MPRDA specifically reaffirms the state's commitment to guaranteeing security of tenure in respect of prospecting and mining operations and emphasises the need to create an internationally competitive administration and regulatory regime.
  • The queuing system contemplated in the MPRDA means that, if a compliant application is submitted, that applicant has the right to have their application adjudicated first. Should the application of the applicant first in the queue be granted, the other applications cannot be considered in relation to the same land and the same mineral. Should a second application be granted despite the existence of a pending application of the applicant first in the queue, then the grant of the second application will be unlawful and susceptible to being set aside.
  • The queuing system was subject to certain exclusive rights granted under the transitional arrangements (Schedule 2), to the holders of old order rights. 
  • In an application that has been submitted, does not comply with the requirements (as was the case under section 16 of the MPRDA), the return of the application to the applicant does not entitle the applicant to supplement or correct its application at its leisure, thereby preventing other aspirants in the queue from having their applications considered, because this would result in a potential sterilisation of the right to prospect for the mineral and on the land in question. The return of an application by a Regional Manager under section 16 of the MPRDA is equivalent to a rejection of such application. If the applicant resubmits an application, the application is treated as a new application, and given a place in the queue as such, rather than giving it the status of a pending application, enjoying first place in the queue.  
  • The decision of the DMR to accept the Ziza Application was "irrational and resulted in a sequence of events which led to the present dispute".
  • The registration of the right in the name of PAMDC was "irregular and should never have been effected".
  • There was no basis on which a prospecting right could have been granted to PAMDC. The prospecting right had been granted to Ziza, and had not been transferred to PAMDC (as required under section 11 of the MPRDA). In addition the prospecting right granted to Ziza had lapsed, and at the time that the DMR purported to grant PAMDC a prospecting right, Aquila already held a prospecting right over the relevant properties.
  • The purpose articulated in Item 2 of Schedule 2 to the MPRDA is to give the holder of an old order right an opportunity to comply with the MPRDA. The holder is given exclusivity for a period of a year. No person other than an old order right holder is given any exclusivity, which prevents other aspirant right holders from even joining the queue. Only an old order right holder is placed in the privileged position that no other person may, during the year of exclusivity, even join the queue for consideration. Item 8 of Schedule 2 to the MPRDA, properly interpreted, means that the exclusivity could only run until 30 April 2005. Thereafter other aspirant right holders could join the queue. A distinction must be made between continued validity of the unused old order right, and its place in the queuing system. The exclusivity that was conferred on Ziza, simply enabled Ziza to apply for a prospecting right or mining right in terms of the MPRDA. An old order right holder which has exercised the right to exclusively apply in terms of the MPRDA is obliged to comply with and be subject to the MPRDA in relation to prospecting or mining rights. An old order right does not remain valid forever, that is if an application has been submitted, which is defective, the old order mining right lapses.
  • The exclusivity afforded to Ziza as the holder of an unused old order right to queue for rights under the MPRDA, expired on 30 April 2005. From that date, Ziza had to be treated like any other applicant, and other applicants could lawfully join the queue for rights under the MPRDA.
  • In any event, the Ziza Prospecting Right had lapsed, because of its deregistration, under section 56 of the MPRDA. The restoration of Ziza to the company register did not have the effect of re-vesting Ziza with the Ziza Prospecting Right. The restoration had no legal effect on the Aquila Prospecting Right.
  • The only ground advanced by the Minister for rejecting the application for a mining right by Aquila was the existence of the Ziza Prospecting right. Based on this, and the various delays experienced, and the prejudice to Aquila, the court substituted its decision for that of the Minister and directed that the Minister grant Aquila the mining right for which it applied, and directed the Minister to determine, within a specified time, appropriate conditions to which the mining right should be subject.
The step taken by the court, to substitute its decision for that of the Minister was exceptional , in the circumstances, and appears to have been influenced, significantly, by what the court described as the "tardiness" of the DMR.

It is hoped that, as with the AngloGold Ashanti Judgment, the Aquila Judgment will promote careful consideration and a level of caution when addressing applications for rights under the provisions of the MPRDA. 

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