Wednesday, 18 August 2010

South Africa Upholds Imperial's Right Over Kumba Mine

South Africa upheld its decision to award part of the prospecting rights at Kumba Iron Ore's Sishen mine to a company whose biggest shareholder has been in business with the son of the country's president.

The Department of Mineral Resources was told by its legal advisers that the decision to award 21.4 per cent of the rights to Imperial Crown Trading was lawful, Mines Minister Susan Shabangu said today in the capital, Pretoria. Kumba said it will keep fighting the ministry in court.

Kumba, controlled by London-based Anglo American Plc, and Imperial Crown both applied for the Sishen rights after previous holder ArcelorMittal South Africa Ltd. missed a deadline to renew. Kumba, as a result, canceled a nine-year-old contract to supply the steelmaker with ore at prices that are below market rates. ArcelorMittal South Africa has since agreed to buy Imperial Crown for 800 million rand ($110 million).

“This is bound to be politically sensitive and we don't expect the issue to go away quickly,” Christopher Melville, an analyst at London's Menas Associates, said in an e-mailed reply to questions today. “Some level of permanent reputational damage to the South African mining industry seems inevitable, the question is now a matter of degree.”

The National Union of Metalworkers of South Africa this week asked for the cancellation of the award to Imperial, whose only asset is the prospecting right in Sishen in the Northern Cape, because it said the company has no ability to mine.

Only One

Imperial “is the only company that issued a prospecting licence application in the terms of the law,” Shabangu said. The department would consider the “implications” of the accord by ArcelorMittal South Africa to buy Imperial, she said.

It would also this month decide on an appeal by Lonmin Plc against the award of some rights for platinum byproducts near one of its mines to South Africa's HolGoun Group, Shabangu said.

South African mining companies are required by law to renew mining rights and have to show they meet targets for black ownership, employment of black managers and women and economic development of communities near their operations.

Kumba “remains of the view that its challenge against the rights granted to ICT is justified, and will continue to pursue the Court process,” it said in an e-mailed response to queries.

President's Son

Parekh is CEO of Shiva Uranium, a uranium exploration company, according to the company's website. Duduzane Zuma, son of South African President Jacob Zuma, was a shareholder in the explorer, according a spokesman at Imperial who declined to be identified because of company policy.

ArcelorMittal South Africa wasn't able to comment, spokesman Themba Hlengani said by text message.

Business Leadership South Africa, an association of chief executive officers of 80 of the largest companies in the nation, said controversies over mining rights were hurting the economy and investor security. “There is real damage being done to our economy,” Bobby Godsell, chairman of the association and former AngloGold Ashanti CEO, said in a speech in Johannesburg. South Africa is the world's largest platinum and chrome producer.

Canada's Fraser Institute, a research agency, ranks South Africa before only the Democratic Republic of Congo and Zimbabwe in terms of the ease of investment in mine exploration on the continent. South Africa's mining industry employs 491,000 people and makes up 5.2 percent of gross domestic product, according to the country's statistics bureau.


A six-month moratorium has been declared on awards of prospecting rights to audit the system and ensure it's “clean,” Shabangu said. Three ministry officials have been suspended for maladministration, she said.

The department is also undertaking an audit of all licenses, and will announce the outcomes by the beginning of next year, she added.

“It may serve to settle the nerves,” said Garth Mackenzie, a trader at Imara S.P. Reid in Johannesburg. “People are worried about what's going on there, about how rights are being awarded.”

Kumba fell 110 cents, or 0.3 per cent, to 341 rand by the close of trading in Johannesburg, while ArcelorMittal South Africa rose 0.6 per cent to 86.5 rand.

Source: Bloomberg Business Week

For more news about South Africa, please visit the Menas Associates Newsroom.

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