Compensation for Expropriation of Mineral Rights under New Mining Regime - International Law Office

The Mineral and Petroleum Resources Development Act (28/2002), which came into force in May 2004, eliminated private ownership of minerals and declared that all minerals belong to the South African nation, with the South African government as the custodian of these minerals. The question has arisen as to whether the enactment of the act effectively expropriated mineral rights from individual South African landowners.

Under the Institution of Legal Proceedings against Certain Organs of State Act (40/2002), notice of any intention to institute legal action against the state for the expropriation of mineral rights had to be issued within six months of the entry into force of the Mineral and Petroleum Resources Development Act. In October 2004 several mining companies (eg, Lonmin, Placer Dome, SouthernEra and Aquarius) issued notices against the state(1) claiming damages of approximately R15 billion(2) in aggregate. The notices preserved the right to institute claims for compensation against the state for a period of three years (ie, until April 30 2007).(3)

The Department of Minerals and Energy Affairs recently announced that an amendment to the Mineral and Petroleum Resources Development Act would be enacted(4) to extend the deadline for the institution of claims for expropriation under the Mineral and Petroleum Resources Development Act from April 30 2007 to April 30 2009 plus 180 days - that is, until January 2010. The amendment is expected to come into force in mid-May 2007.

The announcement has forced those with potential claims to decide whether to file suit or risk reliance on the amendment. If enacted, the amendment will primarily benefit holders of old order mining rights, which will be required to apply for the conversion of their rights before the May 1 2009 deadline. If these holders lose their old order rights because they are unable to comply with the requirements of conversion (eg, compliance with prevailing black economic empowerment legislation) in a timely manner, they will, as a result of the amendment, have until January 2010 to institute a claim for compensation against the state.

The rationale for the amendment remains unclear. The South African Chamber of Mines indicated that the amendment flows from a series of discussions between the Department of Minerals and Energy Affairs and mining industry stakeholders since September 2006.(5) It has also been suggested that the amendment signifies a move by the Department of Minerals and Energy Affairs to delay making expropriation payments for claims. This is certainly a possibility, given that settlement of claims may run into billions of rands(6) and an important election will occur before 2010.

One case to watch involves several Italian investors in two South African mining companies, which have instituted a claim against the South African government under international investment law for approximately R2.5 billion in compensation. The claim was brought before the International Court for Settlement of Investment Disputes, a division of the World Bank, and is based on certain treaties that South Africa has signed with the Italian and Belgo-Luxembourg economic unions.(7)

Endnotes

(1) "The right to mine", Business Day, November 2 2004.

(2) "Amendment deadline clashes with parliamentary recess", Neal Goldwyer on www.miningweekly.co.za, April 13 2007.

(3) "South Africa extends deadline for mineral rights expropriation claims", Tessa Kruger on www.mineweb.co.za, March 23 2007; see also "Mining rights claims deadline is extended", Charlotte Matthews, Business Day, March 23 2007.

(4) "'No need for panic over resources bill deadline", Charlotte Matthews, Business Day, April 20 2007.

(5) "DME extends rights-claims deadline", Matthew Hill, Mining Weekly, March 22 2007.

(6) "Amendment deadline clashes with parliamentary recess", Neal Goldwyer on www.miningweekly.co.za, April 13 2007.

(7) "Miners consider legal case against race rules", Calie Lourens on www.moneyweb.co.za, March 12 2007.