South Africa: Mining And Energy E-Alert - June 2012

BREAKING NEWS: SUPREME COURT OF APPEAL FINDS THAT THE MPRDA DID NOT BRING ABOUT AN EXPROPRIATION OF OLD ORDER MINERAL RIGHTS.

In a far-reaching and unanimous judgment delivered on Thursday 31 May 2012, in Minister of Minerals and Energy v Agri South Africa [2012] ZASCA 93, the Supreme Court of Appeal ("the Court") held that the Mineral and Petroleum Resources Development Act, 2002 ("the MPRDA") did not bring about a general expropriation of mineral rights in South Africa. In doing so, the Court upheld an appeal by the Minister of Minerals and Energy ("the Minister") and rejected the reasoning of the North Gauteng High Court that the MPRDA had extinguished all unused old order rights existing under the previous minerals regime and vested the substance of those rights in the state, thus expropriating them and requiring compensation under section 25(2) of the Constitution.

The Court formulated the test for expropriation as being a deprivation of some form of property, coupled with a subsequent acquisition by the state. The Court, however, opted not to adopt a categorical approach to what constituted an acquisition for the purposes of expropriation, deciding rather that it would be preferable to determine this on a case-by-case basis.

The Court categorised the MPRDA as the latest in a long line of legislation affirming the principle that the right to mine is controlled by the state, which allocates it to those who wish to exercise it. It held that the right to mine remains, as it has always been, under the control of and vested in the state which allocates it in accordance with its current policy.

The Court noted that the large mining companies had not claimed compensation under the transitional provisions of the MPRDA as they had suffered no loss as, subject to some variation, they continued to enjoy the same or similar rights to those they held prior to the MPRDA coming into operation. In these cases, it would be impossible to find that a deprivation had occurred, in light of the continuation of their mining activities - first under the Minerals Act of 1991, then in terms of old order mining rights under Schedule II, and thereafter under the MPRDA. Consequently, the Court held that the conversion process under the MPRDA neither deprived previous mineral right holders of their rights, nor were the rights they previously enjoyed acquired by the state.

The Court concluded that the right to mine (which included the right to prospect for, mine and dispose of minerals) has always been regarded as a right that vests in the state and is granted by the state. This position had been continued by the MPRDA. It followed that, as the fundamental right to mine had not been taken from the holders of mineral rights, and given that the MPRDA afforded security of tenure through its transitional provisions, there was no general expropriation of mineral rights in South Africa.

The Court emphasised that, although the MPRDA did not bring about a blanket expropriation of all mineral rights existing under the previous regime, it is possible that, in particular circumstances, it did exact an expropriation of some or all of the rights previously enjoyed by a mineral right holder. Thus, the effect of this judgment is that it closes the litigation floodgates, but leaves open the door. Claims for compensation may indeed be lodged, under item 12 of the transitional provisions of the MPRDA, by "[a]ny person who can prove that his or her property has been expropriated in terms of any provision of [the MPRDA]". In order to achieve this, a claimant would have to prove not only the deprivation of a right but also the acquisition of that same right by the state.

Precisely this possibility was raised by the parties, and left open by the Court, in the Court's earlier decision in Xstrata and Others v SFF Association [2012] ZASCA 20 ("Xstrata"). In that case, the Court held that a land-owner's right to claim royalties from a person, to whom it had granted a right to mine on its land, was destroyed by the MPRDA, while the state, as the custodian of the nation's mineral resources, acquired the right to claim royalties from the holder of a mining right. Thus, it appears that Xstrata - where there was both a deprivation of a valuable right and the acquisition of that right by the state - might be precisely the kind of case in which an expropriation was brought about by the MPRDA, although the Court only alluded to this possibility.

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