A recent judgment of the Supreme Court of Appeal has raised some interesting questions in relation to the above question – but left them unanswered.

In settling the question of whether an obligation to pay royalties in terms of a mineral lease concluded before the Mineral and Petroleum Resources Development Act, 2002 ("MPRDA") came into effect was extinguished by the new system of mining rights under the MPRDA , the SCA has raised some disquieting questions which go to the heart of what the terms and conditions of a converted mining right are.

In reaching its decision that the royalty obligation did not continue, the court considered one of the MPRDA's transitional provisions which provides that:

'no terms and conditions applicable to the old order mining right remain in force if they are contrary to any provision of the Constitution or [the MPRDA]'.

In effect, what the court found was that the obligation to pay a royalty under a mineral lease was contrary to the provisions of the MPRDA. The court did not, however, fully examine whether the effect of the provision quoted above is that the terms and conditions attaching to an old order mining right are continued in the mining right obtained on conversion, to the extent that such terms and conditions are not contrary to the provisions of the Constitution or the MPRDA. The court suggests that, if this were the case, then each term or condition of an old order right would have to be examined in light of and against the provisions of the Constitution and the MPRDA to determine whether it is contrary to either of them. If the term is incompatible then it cannot form part of the converted mining right. If it is compatible, then it can.

If it is correct that certain terms of an old order right survive its conversion, a cascade of questions follows. Which terms survive? Only those specified in the conversion application, or all of them which are not contrary to the MPRDA? One example of the complexities raised by the SCA's judgment: a common term of an old order mining right was that no contracting or subcontracting involving machinery was allowed without the written consent of the DMR. There is no similar provision in the MPRDA, which expressly contemplates the appointment of a contractor but has no reference to consent required. Does such a term survive?

A preferable view may be that upon conversion, all terms and conditions of the old order right cease, and are replaced with those of the converted mining right which are contained in the standard, DMR-issued notarially executed document evidencing the converted mining right. This approach avoids the uncertainty of the approach discussed by the SCA in its judgment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.