Good post Bolivia.Sometime ago, I raised the question as to...

Good post Bolivia.

Sometime ago, I raised the question as to whether Genorah or Nkwe was the registered holder of the prospecting rights to the three Tubatse farms at the Department of Mineral Resources as the Department's website appears to indicate that Genorah is in fact recorded as the registered holder.

I wrote to the Department on 14 September seeking clarification and did not receive a reply.

I wrote again on 27 October and still haven't received a reply.

This question now takes on greater significance because this week's company announcements categorically state that it is the registered holder (DMR approved) of a 64% right in the Tubatse farms.

If a shareholding of these prospecting rights was properly assigned to Nkwe by Genorah, and the shareholding was registered and approved by the DMR prior to the recent court judgment (which is appears that it was), then it could be strongly argued that the company retains a legally enforceable ownership stake in the prospecting rights to the Tubatse farms regardless of the court decision.

My reading of the legislation suggests that this is definitely the case;

Mineral and Petroleum Resources Development Act, 2002
Chapter 4 - Mineral and Environmental Regulation
11. Transferability and encumbrance of prospecting rights and mining rights

1) A prospecting right or mining right or an interest in any such right, or any interest in a close corporation or unlisted company or any controlling interest in a listed company (which corporations or companies hold a prospecting right or mining right or an interest in any such right), may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister.
2) The consent referred to in subsection (1) must be granted if the cessionary, transferee, lessee, sublessee, assignee or the person to whom the right will be alienated or disposed of-
a) is capable of carrying out and complying with the obligations and the terms and conditions of the right in question; and
b) satisfies the requirements contemplated in section 17 or 23, as the case may be.
3) The consent contemplated in subsection (1) is not required in respect of the encumbrance by mortgage contemplated in subsection (l)of right or interest as security to obtain a loan or guarantee for the purpose of funding or financing a prospecting or mining project by -
a) any bank, as defined in the Banks Act, 1990 (Act No. 94 of 1990); or
b) any other financial institution approved for that purpose by the Registrar of Banks referred to in the Banks Act, 1990 (Act No.94 of 1990), on request by the Minister,
if the bank or financial institution in question undertakes in writing that any sale in execution or any other disposal pursuant to the foreclosure of the mortgage will be subject to the consent in terms of subsection (1).
4) Any transfer, cession, letting, subletting, alienation, encumbrance by mortgage or variation of a prospecting right or mining right, as the case may be, contemplated in this section must be lodged for registration at the Mineral and Petroleum Titles Registration Office within 60 days of the relevant transaction.
5) Any cession, transfer, letting, subletting, assignment, alienation or disposal of prospecting or mining right or an interest in a corporation or company made in contravention of subsection 1 is void.

Mineral and Petroleum Resources Development Act, 2002
Chapter 4 - Mineral and Environmental Regulation
17. Granting and duration of prospecting right

1) The Minister must within 30 days of receipt of the application from the Regional Manager, grant a prospecting right if -
a) the applicant has access to financial resources and has the technical ability to conduct the proposed prospecting operation optimally in accordance with the prospecting work programme;
b) the estimated expenditure is compatible with the proposed prospecting operation and duration of the prospecting work programme;
c) the prospecting will not result in unacceptable pollution, ecological degradation or damage to the environment and an environmental authorization is issued;
d) the applicant has the ability to comply with the relevant provisions of the Mine Health and Safety Act, 1996 (Act No. 29 of 1996);
e) the applicant is not in contravention of any relevant provision of this Act; and
f) in respect of prescribed minerals the applicant has given effect to the objects referred to in section 2(d).
2) The Minister must, within 30 days of receipt of the application from the Regional Manager, refuse to grant a prospecting right if-
a) the application does not meet all the requirements referred to in subsection (1);
b) the granting of such right will result in the concentration of the mineral resources in question under the control of the applicant and their associated companies with the possible limitation of equitable access to mineral resources.
3) If the Minister refuses to grant a prospecting right the Minister must, within 30 days of the decision, in writing notify the applicant of the decision with reasons.
4) The Minister may, having regard to the type of mineral concerned and the extent of the proposed prospecting project, request the applicant to give effect to the object referred to in section 2(d).
4A) If the application relates to land occupied by a community, the Minister may impose such conditions as are necessary to promote the rights and interests of the community, including conditions requiring the participation of the community.
5) A prospecting right granted in terms of subsection (1) comes into effect on the effective date.
6) A prospecting right is subject to this Act, any other relevant law and the terms and conditions stipulated in the right and is valid for the period specified in the right, which period may not exceed five years.

Mineral and Petroleum Resources Development Act, 2002
Chapter 4 - Mineral and Environmental Regulation
23. Granting and duration of mining right

1) Subject to subsection (4), the Minister must grant a mining right if -
a) the mineral can be mined optimally in accordance with the mining work programme;
b) the applicant has access to financial resources and has the technical ability to conduct the proposed mining operation optimally;
c) the financing plan is compatible with the intended mining operation and the duration thereof;
d) the mining will not result in unacceptable pollution, ecological degradation or damage to the environment and an environmental authorization is issued;
e) the applicant has provided for the prescribed social and labour plan;
f) the applicant has the ability to comply with the relevant provisions of the Mine Health and Safety Act, 1996 (Act No, 29 of 1996);
g) the applicant is not in contravention of any provision of this Act; and
h) the granting of such right will further the objects referred to in section 2(d) and (f) in accordance with the charter contemplated in section 100 and the prescribed social and labour plan.
2) The Minister may, having regard to the nature of the mineral in question, take into consideration the provisions of section 26.
2A) If the application relates to the land occupied by a community, the Minister may impose such conditions as are necessary to promote the rights and interests of the community, including conditions requiring the participation of the community.
3) The Minister must, within 60 days of receipt of the application from the Regional Manager, refuse to grant a mining right if the application does not meet the requirements referred to in subsection (1).
4) If the Minister refuses to grant a mining right, the Minister must, within 30 days of the decision, in writing notify the applicant of the decision and the reasons.
5) A mining right granted in terms of subsection (1) comes into effect on the effective date.
6) A mining right is subject to this Act, any relevant law, the terms and conditions stated in the right and the prescribed terms and conditions and is valid for the period specified in the right, which period may not exceed 30 years.

It should be noted that the company put its position promptly on public record in the updated ASX announcement of 1 December;

"The Court set aside the current prospecting right for the 2 farms on a number of technical and administrative grounds including whether the Department of Mineral Resources ("DMR") had met all the technical requirements of the application and whether the requisite consultative process with the local community had been adhered to."

"Nkwe as the registered holder (DMR approved) of a 64% right in the farms clearly has a number of actions it can pursue. At this stage the Company believes that the key course of action is to engage with the DMR given correspondence received from the DMR confirming that it is not the their intention to compromise Nkwe's (and any potential investors) security of tenure with regard to mining in South Africa. In Nkwe's opinion so long as the proper review and application process is followed, it will be able to ensure its rights remain in tact."

"Nkwe has commenced discussions with the DMR and the local communities on the two farms as represented by the Bengwenyama-Ye-Maswati Royal Council and Roka Phasha Tribal Authority to expedite this matter and remove any uncertainty. The Council were an intervening party to the proceedings and made submissions that the applicants did not represent the local community. The communities are shareholders in Genorah (as is the case with all of the 5 farms) and Nkwe undertook a significant amount of community related activities whilst drilling on the properties."

In fact, the above three statements differed from the original ASX announcement released earlier in the day and appear to have been included on legal advice in order for the company to protect its title to its shareholding of the prospecting rights;

1. "The Court set aside the current prospecting right for the 2 farms on a number of technical grounds."

This was amended to read;

"The Court set aside the current prospecting right for the 2 farms on a number of technical and administrative grounds including whether the Department of Mineral Resources ("DMR") had met all the technical requirements of the application and whether the requisite consultative process with the local community had been adhered to."

2. "Nkwe as the registered holder (DMR approved) of a 64% right in the farms clearly has a number of actions it can pursue both against Genorah and the DMR. At this stage the Company believes that it isn't necessary given the court decision means that the DMR is in control of the re-awarding or rectification of the prospecting rights."

This was amended to read;

"Nkwe as the registered holder (DMR approved) of a 64% right in the farms clearly has a number of actions it can pursue. At this stage the Company believes that the key course of action is to engage with the DMR given correspondence received from the DMR confirming that it is not the their intention to compromise Nkwe's (and any potential investors) security of tenure with regard to mining in South Africa. In Nkwe's opinion so long as the proper review and application process is followed, it will be able to ensure its rights remain in tact."

3. "Nkwe has commenced discussions with the DMR and the local community on the two farms as represented by the Bengwenyama-Ye-Maswati Royal Council and Roka Phasha Tribal Authority. The Council were an intervening party to the proceedings and made submissions that the applicants did not represent the local community."

This was amended to read;

"Nkwe has commenced discussions with the DMR and the local communities on the two farms as represented by the Bengwenyama-Ye-Maswati Royal Council and Roka Phasha Tribal Authority to expedite this matter and remove any uncertainty. The Council were an intervening party to the proceedings and made submissions that the applicants did not represent the local community. The communities are shareholders in Genorah (as is the case with all of the 5 farms) and Nkwe undertook a significant amount of community related activities whilst drilling on the properties."

This landmark decision will throw the SA mining industry into turmoil and create uncertainty regarding the development of major projects across the country.

Clearly, the Department of Mineral Resources has an onus of responsubility to not only enshrine in legislation the protection of the rights of the affected communities but also the protection of the rights of those that are awarded prospecting rights over their lands.

Importantly, from the point of view of company shareholders, in the event that preferential treatment was given to the community landowners and it was awarded the prospecting rights over these lands, what legal recourse does Nkwe and Genorah have against the Department of Mineral Resources?

It will be interesting to see if the parties can cut a deal before the matter is referred to the DMR for review.


Stagman