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.

Moratorium

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

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South African Mining Investment Risk Grows as Anglo, Lonmin Lose Rights

Anglo American Plc and Lonmin Plc, who employ 100,000 people in South Africa, say the government has deprived them of mine rights, threatening investment and job creation in the country's biggest export industry.

The disputes over the rights, some of which are now in the hands of former government officials, add to investor concern that their investments in South Africa aren't safe. The ruling African National Congress (ANC) is preparing to discuss mine nationalization at a September congress.

“These could be the first indications of a worrying trend,” said Chris Melville, an analyst at London's Menas Associates. “The key question is whether the government looks to resolve this uncertainty and close the loopholes or whether we begin to see politically connected individuals and companies systematically exploiting them.”

South Africa, which boasts the world's biggest platinum and chrome deposits, is already struggling to attract foreign investment as laws to redress the inequalities of apartheid compel the sale of stakes in mines to black South Africans, increasing investment costs. Canada's Fraser Institute, a research agency, ranks the country ahead of only the Democratic Republic of Congo and Zimbabwe in terms of the ease of mining exploration investment in Africa.

The ANC's youth wing and labor unions, the groups that propelled Jacob Zuma to the presidency last year, are calling for the country's citizens to benefit more from mineral resources, valued by Citigroup Inc. at more than $2.5 trillion. At stake is investment in an industry that employs 491,000 people and accounts for 5.2 percent of the country's gross domestic product, according to Statistics South Africa.

Employing Black Managers

The disputes have arisen as companies renew mining rights to comply with laws that stipulate targets for black ownership, the employment of black managers and women, and the economic development of communities near their operations. They form part of legislation designed to make up for the use of cheap black labor during white rule in the country's mining industry.

“It's a piece of legislation that's still being tested in application,” said Sandile Nogxina, director general of the government's Department of Mineral Resources, in an interview. “I don't believe it should frighten investors away as we have courts of law in the country to deal with disputes.”

Anglo and Lonmin say they have been wronged.

Prospecting Rights

In March, the department awarded a fifth of the prospecting rights in London-based Anglo's Sishen iron ore mine to Imperial Crown Trading, prompting a lawsuit from Anglo subsidiary, Kumba Iron Ore Ltd. Imperial's biggest shareholder, Jagdish Parekh, has been involved in contract mining and uranium investment with Zuma's son, Duduzane. The other five shareholders include ANC members and a former ANC employee.

While Pretoria-based Kumba said in an e-mail that “it is the only company that should be granted these rights,” Imperial maintains it has done nothing wrong. Jacinto Rocha, a former department official, said Kumba's application was improperly submitted.

In May, London-based Lonmin lost the prospecting rights to some of the metals mined alongside platinum to a unit of HolGoun Group, led by a former Public Enterprises Ministry director general and Lonmin director, Sivi Gounden, his wife, Vanessa, and Miriam Sekati, an official in South Africa's Security Ministry. Lonmin said the award of the rights was “wrong.” Vanessa Gounden said by e-mail the company had acted “with integrity and within the ambit of the law.”
No History in Mining

Both Imperial and HolGoun are closely held, partly black- owned, and don't control any operating mines in South Africa.

The new holders aren't well known because black South Africans were barred from investing during apartheid. The fact that some are followers of the ANC is irrelevant because many people belong to the party, said Nogxina of the government's Department of Mineral Resources.

“South Africa is trying to promote the entry of historically disadvantaged people into the economy,” he said. “Of course, they will have no history in mining.”

Already the new owners are benefiting. Last week, Imperial agreed to sell its Sishen rights to ArcelorMittal South Africa Ltd., which previously lost the rights after failing to renew them on time, for 800 million rand ($110 million). At the same time ArcelorMittal South Africa agreed to sell a stake to black investors including a group lead by Duduzane Zuma.

“Why should someone benefit to the tune of 800 million Rand because of the exploitation of an oversight?” said Peter Davey, head of mining research at London's Ambrian Capital Plc. “That there are similar names that keep appearing is worrying.”

'Terrible Message'

Lonmin was also temporarily banned from selling byproducts from all of its platinum mines after the department said it missed a deadline to renew some of its rights. Platinum group metals are mined from the same orebody as gold, nickel, chrome and copper.

Lonmin shares fell 5.1 percent in London on Aug. 6, the biggest decline in five weeks, in the first trading session after the announcement.

“It sends a terrible message to investors,” Peter Leon, chairman of the London-based International Bar Association's Mining Law Committee, said from Johannesburg. It says “political connectivity trumps good commercial sense.”

Source: Bloomberg