At last, residual mining right returned to Kumba Iron Ore’s Sishen

JOHANNESBURG (miningweekly.com) – A long-running legal dispute, which arose in 2010, came to a head on Thursday when South Africa’s Department of Mineral Resources (DMR) returned the residual 21.4% undivided share of the mining right for the Sishen mine to Kumba Iron Ore subsidiary, Sishen Iron Ore Company (SIOC).

The 21.4% share, initially held by steelmaking company ArcelorMittal South Africa (AMSA), has been the subject of a head-scratching dispute, which arose six years ago when the DMR controversially granted the right to politically connected company Imperial Crown Trading (ICT).

Now SIOC has the mining right back, following the completion of an internal appeal process, as prescribed by Section 96 of the Minerals and Petroleum Resources Development Act (MPRDA).

Prior to the MPRDA coming into effect, SIOC and AMSA both held undivided shares of a mining right in the properties on which Sishen's mine was located.

In terms of the latest development, SIOC is the sole and exclusive 100% holder of the right to mine iron-ore and quartzite at the Sishen mine.

New Kumba CEO Themba Mkhwanazi expressed appreciation to the DMR for bringing the matter to a successful conclusion.

However, the consent is subject to various conditions.

Kumba said in a release to Creamer Media’s Mining Weekly Online that these include the continuation of the export parity price agreement between SIOC and AMSA in its role as a strategic South African steel producer, as well as SIOC’s continued support of skills development, research and development and initiatives to enable preferential procurement.

Mkhwanazi made the point that Kumba, an Anglo American subsidiary, remains fully committed to contributing towards South Africa’s developmental objectives against the background of Anglo last year announcing its intention to dispose of its controlling interest in Kumba and to exit the Northern Cape iron-ore business.

HISTORICAL BACKGROUND

The MPRDA entitled holders of mineral rights under previous legislation to convert their old order mining rights to new order mining rights within five years of the Act coming into operation. If they failed to do so, the rights expired.

As it turned out, Sishen converted its shares, but AMSA did not, resulting in both Sishen and ICT applying for rights over AMSA’s expired share.

The then Minerals Minister declined Sishen's application for mining rights and granted a prospecting right over the property to ICT, resulting in Sishen asking the High Court to set the ruling aside, which it did.

After the State applicants and ICT appealing unsuccessfully against the order, the matter then went to the Constitutional Court, which ruled in Sishen’s favour.

ALLEGED TAX LIABILITY

Kumba now faces another battle, this time with the South African Revenue Service (Sars), which claims that the iron-ore company still owes R1-billion in unpaid tax.

While Kumba and its subsidiaries believe that all taxes owed under South African tax legislation have been paid and that it complies with all applicable tax laws in all the jurisdictions in which it operates, SIOC received a R5.5-billion tax assessment from Sars for the 2006 to 2010 tax years, which includes R3.7-billion in interest and penalties.

In 2015 – a year of sharp iron-ore price fall – the company contributed R900-million in corporate taxes and mineral royalties, R4.7-billion in salaries and wages, R15.2-billion in local procurement and R174-million in social investment in health, housing, education and small business development – and also invested R6.8-billion in the business.

Kumba is by far South Africa’s foremost broad-based black economically empowered (BBBEE) model, having returned a whopping R21.7-billion to its BBBEE shareholders since listing on the JSE ten years ago.

In 2011, Kumba turned its 6 209 worker shareholders into pretax half-millionaires through its Envision employee share ownership plan (Esop), an Esop which has outdone all others.

But this has not stopped off-putting steps being taken against the company, which has played a very positive role in uplifting the economy of the Northern Cape region in which it operates.