Saturday, August 14, 2010

Facts from Fiction: The Real Situation with the DMR, ArcelorMittal, Kumba and Lonmin

There is an old adage in journalism that says: "Don't let the facts get in the way of a good story". Since the saga of the ArcelorMittal old order mining rights appeared in the media, much has been said and written about it by mining law experts, analysts, journalists and other opinion makers. In many instances the "facts", if any, were made to fit the conclusion and not the conclusions to fit the facts.

There have been many casualties of that old adage, but, the real victim has been the truth. Some will no doubt question the author's motives for writing this article but if, in the process of separating fact from fiction to which the South African public has been subjected to recently, I am castigated and maligned for telling the truth, so be it. The information presented here has always been available, but unfortunately some so-called "mining law experts" and others have elected not to report and analyse this information. The article focuses on Kumba, because this company has been presented to the public as the victim of some underhanded dealings within the Department of Mineral Resources.

In law it is said that "He who goes to the Court of Equity must come with clean hands". This begs the question: does Kumba have clean hands?

The area of land which is the subject of the dispute is around 26 000 ha. The open cast mine covers some 1417.8 ha and the infrastructure covers an area equivalent to 166.8 ha. This means that only 6% of the total mining area is subjected to any mining activity. No mining is taking place in the remaining 94% of the mining area. This also means that the open cast mine covers approximately 5% of the total mining area.

Let's go back to where it all began. On the 23rd of October 2001 Sishen Iron Ore Company (Kumba) and Iscor Limited (ArcelorMittal), with the support of the South African Government, entered into a mining and supply agreement. Following the conclusion of this agreement and after having complied with the regulatory requirements, Kumba became the 78.6% holder of the undivided share in iron ore mineral rights while ArcelorMittal became the holder of the other 21.4% undivided share in iron ore mineral rights over the same properties. In terms of this agreement, ArcelorMittal appointed Kumba as contractor to mine iron ore on ArcelorMittal's behalf in respect of its 21.4% undivided shares in the mineral right.

The agreement further acknowledged that the Minerals Act of 1991 was about to be repealed and that the concept of common law ownership of mineral rights would be extinguished and replaced by a new regime under the Mineral and Petroleum Resources Development Act. In this regard, both Kumba and ArcelorMittal committed to each other that they would, in their "dealings with each other display good faith" and concomitantly "reciprocally" undertook towards each other, as from 1 May 2004 until 30 April 2009, to "take all steps and to do all things and sign all documents which would be necessary to give effect to and implement the provisions of the agreement in the context of the new mineral rights dispensation brought about by the new mining legislation."

On the 17th of October 2002, the then Department of Minerals and Energy issued two mining authorisations, one to Kumba in respect of its 78.6% undivided share in mineral rights and another to ArcelorMittal in respect of its 21.4% undivided shares. With the commencement of the Mineral and Petroleum Resources Development Act (MPRDA) of 2002, the mining authorisation (together with the mineral rights) held by Kumba became its old order mining right in respect of the 78.6% undivided share in the mineral rights and the mining authorisation (together with the mineral rights) held by ArcelorMittal became its old order mining right in respect of the 21.4% undivided share in the mineral rights. In terms of the new mining law, Kumba and ArcelorMittal were required to lodge their respective old order mining rights for conversion by no later than 30 April 2009. Kumba lodged its old order mining rights for conversion on 13 December 2005. ArcelorMittal failed to lodge its old order mining right for conversion by 30 April 2009 and as a result it lost its 21.4% undivided share in respect of its old order mining right. Why ArcelorMittal failed to lodge its old order mining right for conversion, is incomprehensible. However, it must be emphasised that , at least until midnight on the 30th of April 2009, in terms of the MPRDA, ArcelorMittal was still the holder of the old order mining right in respect of the 21.4% undivided share in the iron ore mineral rights.

Notwithstanding, Kumba's contractual obligation towards ArcelorMittal to do all things to give effect to the provision of their legally binding agreement, on or before the 23rd of April 2009, seven days before ArcelorMittal's old order mining rights would have ceased to exist a senior manager (name withheld) employed by Kumba, signed an application on behalf of Kumba to apply for the 21.4% undivided shares old order mining rights held by ArcelorMittal. On 29 April 2009, a copy of the application form was certified as a true copy by a commissioner of oaths (name withheld).

Why, if Kumba was acting in conformance with its contractual obligation towards ArcelorMittal, did it, on or before the 23rd of April 2009, already sign a mining right application in respect of the 21.4% old mining right which was still held by ArcelorMittal, its business ‘partner' or associate? In other words a few days before ArcelorMittal would have lost its old order mining right, Kumba had already been sharpening its knife to stub ArcelorMittal in the back. It was already in the process of pulling the rag under ArcelorMittal's feet. Is this the business ethics of the South African mining and minerals sector?

Kumba, the so-called victim of "DMR's shenanigans' and "ICT's political connections", furthermore signed the covering letter accompanying their application on or before the 30th of April 2009, but dated it the 1st of May 2009. Is it ethically and morally right to sign a letter on or before 30 April 2009, but date it the 1st of May 2009? Was it a mistake? What was Kumba trying to do? Was it trying to manipulate the administrative systems at the DMR to its advantage?

Now for the real problem. On the 30th of April 2009, the last day in which ArcelorMittal's old order mining right was still in force, two representatives (name withheld) of Kumba went to the Department of Mineral Resources regional office in Kimberley to lodge an application for a new order mining right in respect of the 21.4% old order mining rights held by ArcelorMittal. Whilst at the regional office, the representatives of Kumba induced a junior official (name withheld) not to register their application on that day, but to date stamp it the 1st of May 2009 - a public holiday. This was, according to the junior official who received the application, done under the pretext that an "arrangement" had already been made with the Deputy Director-General: Mineral Regulation at Head Office. It is quite interesting that Kumba, a JSE listed company, makes "arrangements" in contravention of the law. Kumba also says that it made arrangements with respect to the same application with the Chief Director responsible for the Northern Cape region. It is noteworthy that Kumba never made "arrangements" with the Regional Manager of the Northern Cape regional office. If Kumba was the messenger carrying instructions to the regional office on behalf of the Deputy Director-General or the Chief Director, why did the Kumba representatives not raise the matter with the Regional Manager? Why go to a junior official? The author can, without fear of contradiction, state that at no stage did Kumba make any "arrangements" either with the Deputy Director-General or the Chief Director. Even if one, having regard to the allegedly incompetent and corrupt nature and character of South African public servants, were to assume or accept that such an "arrangement" had been made, such arrangement would have been irregular and unlawful.

If private arrangements were part of the licensing administration process, this process would be chaotic and in a shambles.

It is common knowledge in the South African minerals and mining industry that the lodgement of an application is an event and not a process. According to the South African Concise Oxford dictionary, lodge means to "present formally to the proper authorities". According to the author's understanding of the verb "to present", it is "an expression of an action that is taking place now". A lay person's understanding of "now" means today and it does not, nor will it ever mean tomorrow.

As if this was not enough, on the 30th of April 2009, one or two representatives (names withheld) of Kumba went to Pretoria and delivered a copy of the said application to a secretary. The Kumba representative once again indicated that an arrangement was made with the Deputy Director-General and convinced the secretary not to acknowledge receipt on the date received, 30th April 2009, but to date stamp it the 1st of May 2009, a public holiday. The conduct of these Kumba representatives raises the following questions: Who informed Kumba that ArcelorMittal had not yet applied for the conversion of its old order right? Could this information have come from the DME? If so, did Kumba obtain this information in terms of the Promotion of Access to Information Act? Could this information have come from ArcelorMittal? Did Kumba inform ArcelorMittal that it was making arrangements and preparing itself to apply, should ArcelorMittal fail to lodge its old order mining right for conversion? The officials of the Department in accepting Kumba's "arrangement" story acted outside established practice and approved policy.

It is a logical conclusion that Kumba, the victim of "the DMR's shenanigans" and "ICT's political connections", was manipulating the administrative system to gain advantage and gratification. If Kumba manipulated the system, why is it making a fuss over the fact that Imperial Crown Trading's application was dated the 5th of May 2009? Kumba alleges that because the application form was dated the 5th of May 2009, it means that the application could not have been lodged on the 4th of May 2009. Therefore, DMR officials must have made "arrangements" with Imperial Crown Trading. Does Kumba hold this view because it had also allegedly made such "arrangements"?

Consider this: when an application is recorded in the electronic license administration system (NMPS), it automatically generates a unique number. The first 8 (eight) digits of this unique number reflect the date in which the application was electronically entered into the system. No single DMR official can change or manipulate that unique number. This number and other security features can only be changed by the developers of the NMPS. Now, Imperial Crown Trading has a unique number generated automatically and electronically on 2009/05/04. Kumba's and ICT's applications were recorded electronically by two different officials at different times on 2009/04/05. Despite Kumba's claims of an "arrangement", in terms of the provisions of the MPRDA Kumba's application should not have been accepted because it was lodged on the 30th of April 2009, at which stage ArcelorMittal's old order mining right in respect of the 21.4% had not yet ceased to exist.

It has been selectively argued by some "mining law experts" that the MPRDA precludes the acceptance of a prospecting right application over an existing mining right for the same mineral. This is true. However, what these "mining law experts" failed to inform the public about is that the MPRDA also precludes the acceptance of a mining right application over an existing mining right for the same mineral. The MPRDA does not preclude the application for or granting of a prospecting right or mining right over an existing mine. The fact that Kumba applied for a mining right over the unclaimed 21.4%, is incontrovertible proof that Kumba itself acknowledges and knows that there was no prospecting right or mining right over the unclaimed 21.4%. This therefore means that Kumba and Imperial Crown Trading or any other company for that matter were lawfully entitled to apply for whatever right (prospecting or mining), they wished to apply for. In this regard, Kumba elected to apply for a mining right which takes 12 months to process and ICT chose to apply for a prospecting right which takes 6 months process. The fact that Kumba applied for a mining right is also proof that it did not have rights over the 21.4% and, as such, no rights were "snatched" nor was Kumba the victim of a "heist". Kumba could not have lost a right which did not belong to it in the first place. It is disingenuous of Kumba to arrogate to itself an entitlement (to be the sole and only applicant) which it never had.

The sad part about all this is that because the media sees corruption everywhere with little regard for the facts, it fails to give proper consideration of matters that seem controversial. In this regard, a formula has been developed that says: Black person, granted rights, must be member of the ANC, therefore is politically connected as such they are involved in corrupt activities (Black person => ANC member =>politically connected => Corrupt). No proof, just insinuations, innuendos and allegations. Would it be fair if the following formula was also developed: White Person, is member of the DA/opposition, therefore is racist (White person => DA member => racist). This is shallow and poor journalism! The reason the author is raising this issue is because no one has proven that the Imperial Crown Trading shareholders and directors are members of the ANC. Some journalists and analysts have just assumed that they are - and reported it as fact. For example Pragat Investments (Pty) Ltd owned by Jagdish Parekh, only became a 50% shareholder of Imperial Crown Trading around March 2010. The decision on the ICT's prospecting right application was taken in November 2009. How could Jagdish Parekh, who is allegedly connected to the Guptas who, in turn, are close to the Zuma's have been part of ICT in November if he only became a shareholder and director of that company around March 2010? Where is the political connection to the Zuma's at the time of the decision? If the alleged political connection is a criterion for granting rights, why is it that the DMR of the 7 (seven) applications lodged by ICT, 2 (two) have been rejected, 2 (two) have been refused and only 2 have been granted? ICT withdrew 1 (one) application. Because of the media's obsession with corruption in Government, they have lowered the standard of journalism to the level of tabloid, shoddy and ideological journalism. The same shoddy logic applies to poor Lazarus Zim. It is alleged that he has other business relationship with the Guptas, therefore because of that relationship he must also be involved in ICT - he is a participant or shareholder in ICT by association. Because of this alleged association his role as the Chairperson of Kumba, creates allegedly a perception of conflict of interest. Conflict of interest, like corruption, is no longer based on facts but on mere perception.

If one were to extend this "guilt by association" concept, one could also argue the following: Lazarus Zim is the Chairperson of Kumba and a business associate of the Guptas. The Guptas are business associates of Duduzane Zuma, who in turn is the son of the President of the Republic and President of the ruling party (ANC). Therefore, they are all, by association, politically connected to the President and the ruling party. Now, since Lazarus Zim is the Chairperson of Kumba and by association Lazarus is politically connected, it is, therefore, logical to postulate that Kumba by virtue of its association with Lazarus Zim is also heavily politically connected to the President and the ruling party. In view of the "political connected by association theory", it can be argued that both Kumba and ICT are "heavily politically connected". Something is seriously wrong with this analysis and circular or linear logic! In his book "Why we make mistakes", JT Hallinan argues that one of the reasons why people make mistakes, is because human beings have the tendency of "connecting dots" where there are no dots to be connected.

There is not a single requirement in the MPRDA that states that only "known" or not so "obscure" companies are entitled to apply for prospecting or mining rights. How many companies involved in the minerals and mining sector do journalist and analyst know? Do these companies, therefore, only come into existing once the media and public know of or about them? Due to their poor knowledge and understanding of the law and sometimes mischief, the media wants the public to believe that "being known by the public or the media" is a requirement for the granting of rights in terms of the MPRDA. This simply is not true. By the way, the fact that a company is not known by the public or media does not mean that such a company is not known to Government. If ICT was an "unknown" company to the media, it does not mean that nobody else knew of its existence. The majority of companies that have applied for rights in terms of the MPRDA have been "unknown" and "obscure" even some that became BEE partners to Kumba in the Sishen Iron BEE transaction. Because the media did not "know" ICT, there must have been something amiss and wrong when the incompetent and corrupt public servants at the DMR granted a prospecting rights to the "obscure" and "heavily politically connected" company called Imperial Crown Trading, a shelf-company.

Apart from the fact that Kumba manipulated the administrative system and despite the fact that objections to an application are, by law, addressed to relevant Regional Managers and processed at the regional level, Kumba had attempted to influence the licensing process by engaging in extra legal processes, when it wanted to meet with the then Deputy Director-General to "address the issue of a competing application". Objections are, in terms of the MPRDA, dealt with by the relevant Regional Manager and not by the Deputy Director-General or a Chief Director. In response to Kumba's request, the then-Deputy Director-General, wrote to Kumba saying that he was "...enjoined to process a just, impartial and unbiased manner in compliance with the laws and regulations of South Africa....note that applications received by this Department are treated as confidential...Please note that I will not be lobbied for or against any application which still has to come before me". Is it wrong for an official to protect the integrity of the administrative system?

In terms of South Africa's corruption laws, there are two parties to a corrupt activity. Therefore, if the Department of Mineral Resources is corrupt, by implication the minerals and mining sector which it regulates is also corrupt.

I hope it is now clear to all and sundry that Kumba, whose mining right which it never had, at least according to the media, was "snatched" should not and cannot be clothed in glory nor is Kumba an angel. There is proof that Kumba stubbed ArcelorMittal in the back and manipulated the administrative systems to derive a benefit. If anybody has cogent proof that Imperial Crown Trading manipulated the system, let's write about it.

It has been reported in the media that Kumba became "suspicious that their application had been made available to ICT" because the preamble to Kumba's application which relates to a mining right was found in ICT's prospecting right application file. Would ICT really take a preamble to a mining right application belonging to Kumba and attach it to its own prospecting right application? If ICT has, in reality, done this, it means that ICT is a novice in the mining and minerals sector.

Kumba, a JSE listed company, states in its values statement that "we are honest, fair, ethical and transparent". It also says that ":we ‘walk the talk' - our actions are consistent with our words". "We deal with people and issues directly and avoid hidden agendas". Has Kumba lived up to its values? In line with their values regarding accountability Kumba says "We take ownership of our decisions, actions and results rather than blame others". Kumba live up to your ethical values.

Those in the media, who write and report on mining and minerals related matters, need to do some serious introspection with regard to the standard of reporting and their evident overzealousness in accepting half-baked stories from ‘sources' and presenting these to the public as fact without properly verifying these ‘facts' and ":sources".

I conclude by quoting Brendan Seery, the Urban Warrier, who wrote the following in the Saturday Star of the 7th of August 2010. "Sadly in our current media environment, we journalists are our own worst enemy on that score (referring to truth and facts). We get things wrong, we allow our reporting to be coloured by personal feeling and prejudices, we lobby for political factions, we slide into sleaze, and sometimes, as happened recently, we even take kickbacks" This succinctly captures the sad state of South African in journalism. This is also reflected in the way in which the Kumba saga has been written and reported on.

*Jacinto Rocha, is a Mining Law and Management Consultant and an expert on the South African mining law and regulatory system. He is the former Deputy Director-General: Mineral Regulation in the DMR. He writes in his capacity as an ordinary South African citizen.