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The twelfth player?

March 2015

In 2007, Sir Alex Ferguson,  commenting on the biased performance of the referee during a soccer match between Roma and Manchester United, claimed that Manchester United was playing “against 12 men”.  We have heard these types of complaints often when referees are perceived to have favoured one team over another. Would the state, as the custodian of our mineral resources, become the 12th player when it awards mining rights to a state-owned mining company?  In 2013, the Constitutional Court answered the question of whether the change in our mineral law dispensation amounted to expropriation. However, with the recent proclivity of the Department of Mineral Resources to award rights to mine or prospect minerals to state-owned companies, we believe the position should be reconsidered.

The Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) took effect on 1 May 2004. It brought about a fundamental change in mineral ownership. No longer were the minerals of this country capable of private ownership as we knew it. In terms of section 3(1) of the MPRDA the state became the custodian of the mineral wealth, because it was the common heritage of all the people of our country. 

At common law, the land owner held anything above and below the land including minerals (AgriSA para [7]). Under the Minerals Act 50 of 1991, the land owner still held the mineral rights unless they were severed from the land and registered in the deeds office (AgriSA para [12]). Once the MPRDA came into effect, all rights vested in the state, but the previous holders under the Minerals Act became holders of old order rights (Items 7 and 8 of schedule II of the MPRDA), which included rights under the common law (Table 3, schedule II of the MPRDA). Their old order rights had to be converted within a transitional period. Under the Minerals Act, holders had the ability to prospect, mine, sell, lease or sterilise mineral rights. Holders of old order rights who could not convert their rights under the MPRDA lost their rights completely. 

To some, this sounded a lot like expropriation.  After all, private citizens were no longer capable of holding mineral rights and disposing of them for private gain.  This challenge was made in the Constitutional Court by Agri South Africa (AgriSA) against the Minister of Mineral Resources (Agri South Africa v Minister for Minerals and Energy Case CCT 51/12 [2013] ZACC 9) claiming that the MPRDA expropriated mineral rights from its private owners.

In answering the expropriation question, the first issue was whether a mineral right constituted property. The court held, among others, that because the holder could choose to sterilise the minerals, by not exploiting them, mineral rights under the Minerals Act were property.

The second issue was whether the effective deprivation of property by the MPRDA amounted to expropriation.  Deprivation of property in this context relates to the sacrifices that holders of private property may have to make without compensation, or the extinguishing of such property rights. Expropriation, however, entails state acquisition of the property in the public interest and must always be accompanied by compensation. The court held that for deprivation to become expropriation, a claimant must prove that the state acquired the substance or core content of that which the private citizen was deprived.  

The court held that there can be no expropriation where deprivation does not result in property being acquired by the state. The state, as the custodian, is not seeking or supposed to be a co-contender with citizens for the rights to exploit the minerals. The state is a facilitator or conduit through which broader equitable access to mineral and petroleum resources can be realised.  This was the pivotal determination by the court as to why the MPRDA's effective deprivation of property did not amount to expropriation.

But what if the state awarded itself mining rights – has it not then completed the expropriation?

African Exploration Mining and Finance Corporation (SOC) Limited (AEMFC), is a state-owned company.  The company's business is to acquire, hold and develop exploration and mineral rights on behalf of the state.   AEMFC has the Vlakfontein Mine in current operation and is conducting feasibility studies for the Klippoortjie Mine and the T Project coal mine.  AEFMC also holds a number of prospecting rights in various areas, namely Mpumalanga, KwaZulu-Natal and the North West. 

The AEMFC, in applying for and being awarded mining rights, competes with other entities to secure such mineral rights and to derive the benefit of the exploitation of the rights. 

The AgriSA judgment decided that mineral rights are property and that the MPRDA was a law of general application that did not arbitrarily deprive the mineral right holders of their rights when it was promulgated. Moreover, for deprivation to become expropriation there must also be the compulsory acquisition of rights in the property by the state for a public purpose or in the public interest subject to compensation.

When, in terms of section 5 of the MPRDA, the Minister awards a prospecting or mining right to AEMFC as a state-owned entity, the state then acquires those mineral rights as these become limited real rights and the holder has the exclusive rights to mine and dispose of the minerals. 

However, this may not immediately constitute expropriation.  The MPRDA did not at its commencement expropriate any mineral rights.  It provided for transitional periods during which used and unused old order rights could have been converted.  In AgriSA, it was held that these transitional periods were introduced to "prevent expropriation". Although a counter argument may be that a failure to have applied for the conversion of the old order rights amounted to a waiver of these rights, it remains that once the state awards itself the mining rights, the state becomes a player in the game.

Regardless of the finer arguments, AgriSA's judgment runs counter to the state's intention as expressed at the launch of AEMFC when President Zuma stated , "Today we are making a firm statement of how we as a government intend to manage our mineral resources. We have to use these resources to benefit our people and our country in the years ahead… The role of the State cannot merely be confined to that of a regulator. The State must actively participate in the mining industry to ensure that our national interest is protected and advanced… The company (AEMFC) has a critical role to play in the State's efforts to strategically manage our mineral resources and ensure that South Africa and its people benefit from our rich mineral empowerment" (our emphasis).

It is quite clear from the President's speech that AEMFC was incorporated for a public purpose, in the public interest and to become a player in the mining industry. In one breath, the state perhaps unintentionally destroyed the fundamental reasoning of the AgriSA judgment and opened the door to a further argument in favour of expropriation, at least in respect of the rights awarded to and exercised by AEFMC.

The unintended consequence of the Minister becoming the twelfth player by awarding mining rights under the MPRDA to AEFMC or any other state-owned entity is that the state possibly converts the deprivation caused by the MPRDA to expropriation and may accordingly be liable to pay compensation.

It will be interesting to see how our courts approach a conundrum of this nature, should it be challenged.

The team

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