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Kumba sues state over BEE rights
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Simon Mundy
Business Day
Tuesday, May 25, 2010
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Kumba Iron Ore had launched legal proceedings against the Department of Mineral Resources, it said yesterday, after it lost out on mining rights to a black empowerment group with reported links to the African National Congress (ANC).
The department awarded prospecting rights to a 21,4% stake in the Northern Cape’s Sishen Mine to little-known Imperial Crown Trading in October after the previous holder, ArcelorMittal SA, failed to renew its rights to the stake, prompting a separate, continuing dispute over Kumba’s ore supplies to the steel producer.
An application for mining rights by Kumba subsidiary Sishen Iron Ore Company, which owns the rights to the remainder of the mine, was rejected.
Yesterday, Kumba said it had initiated a review application against the decision in the North Gauteng High Court in Pretoria on Friday, “in order to protect its interests and to avoid prescription”.
A court case could expose whether or not Imperial Crown Trading had received favourable treatment from the department.
Kumba said the application did not detract from an appeal process that began in March after it belatedly discovered it had failed to secure the rights.
If that appeal is unsuccessful, court proceedings could begin before the end of this year, said a Kumba spokeswoman. Although it was keen to resolve the issue out of court, “Kumba has now started the legal wheels turning”.
Started less than two years ago, Imperial’s directors include Gugu Mtshali, who previously worked at the ANC’s Johannesburg headquarters.
President Jacob Zuma’s son, Duduzane, was also linked to the company by a Mail & Guardian investigation last month, as were the wealthy Gupta brothers, who are reportedly close to the president.
A source close to the proceedings said Kumba’s legal argument would not focus on the personal connections of Imperial’s board members, but on the irregularity of awarding prospecting rights to a working mine.
“Iron ore has been mined at Sishen since the 1950s, and all the mineral reserve details can be seen in the competent persons reports that the mining companies have had to produce. So why on earth does Imperial want to prospect when we already know what’s there?” said the source.
The fact that Kumba had already won new-order mining rights to the mine precluded the awarding of prospecting rights under the Mineral and Petroleum Resources Development Act, the source said.
“Also, Imperial’s application was filed after Sishen Iron Ore Company’s application. By law, the department has to consider the first application received — and only if something is not right can they consider others. But they never indicated that anything was wrong with our application.”
Department of Mineral Resources spokesman Jeremy Michaels said it was “aware of the litigation, and we believe in the correctness of our decision, and we will therefore be defending the matter”.
After criticism from the Democratic Alliance, Mineral Resources Minister Susan Shabangu last month defended the award of the rights to Imperial, saying it would be “very, very wrong” to exclude politicians’ relatives from business deals.
The department has sought to justify the decision by citing legislation stating that if two applications are submitted for mineral rights, priority should be given to historically disadvantaged persons. Imperial appears to have stronger black empowerment credentials than Kumba.
But such priority should be given only when the two applications are received on the same day, said Peter Leon, a mining law expert at law firm Webber Wentzel.
“If the Kumba application was received first, it should have been
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processed first.” Leon also criticised the department for informing Kumba of its failure more than four months after the decision. He said Kumba had made the right decision in launching court proceedings.
Kumba is still locked in another dispute, with Mittal over a 2001 agreement under which it agreed to provide the latter with iron ore from Sishen at a rate of cost plus 3%.
Kumba claims that Mittal’s failure to renew its mining rights invalidated the deal. It has invoiced Mittal at market prices for the past two months of supplies, but the steel producer has insisted on paying the original rate, prompting Kumba to raise the possibility of stopping supplies.
Mittal CEO Nonkululeko Nyembezi-Heita last month rejected a Kumba request to pay the difference into an escrow account until the conclusion of an arbitration process, questioning why it apparently regarded Mittal as a “credit risk”.
But a Kumba spokeswoman said Mittal had now “come back with counterproposals”, and both sides were working to find an interim arrangement “as soon as possible”.
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