PAYING THE PIPER (IN PRAESENTIA) Xstrata South Africa (Pty) v SFF Association 2012 (5) SA 60 (SCA)

Abstract

This decision is an appeal from the decision of the South Gauteng High Court in SFF Association v Xstrata (2011 JDR 0407 (GSJ)). The court a quo decided incorrectly that the holder of an old-order mining right, which was converted into a (new) mining right in terms of the Mineral and Petroleum Resources Development Act 28 of 2002 (the “Act”), remains liable upon conversion for the payment of (contractual) royalties in terms of a mineral lease, which was concluded prior to enactment of the Act. The appeal was upheld by the Supreme Court of Appeal (“SCA”) (2012 (5) SA 60 (SCA) par 27). The decision was rendered by Wallis JA with the other judges concurring with his judgment. Prior to the Act mineral-right holders could grant a mining right to a miner against payment of royalties or other forms of consideration. At issue on appeal was whether the obligation to pay royalties in terms of a mineral lease “survives the introduction of the new regime in respect of mining rights brought about by the Act”. As indicated by the SCA, the Act fundamentally changed the legal basis upon which rights to minerals are acquired and exercised. Previously mineral rights were vested in the owner of land or the holder of mineral rights, which rights could be exercised upon acquisition of a statutory authorization to exploit the minerals. In terms of the new regime, common-law mineral rights were destroyed and “all mineral resources vested in the state as the custodian of such resources on behalf of all South Africans”, whereupon the state could confer the right to exploit such resources to applicants. Upon granting a mining right in terms of the Act (statutory) royalties have become payable to the state since 1 March 2010 of the Act and the Mineral and Petroleum Resources Royalty Act 28 of 2008. In order to prevent disruption of the mining industry, provision was made in the Act for the continuation of old-order rights for different transitional periods ranging from one to five years and conversion of such rights during the periods of transition. The transitional arrangements in Schedule II of the Act (“transitional arrangements”) inter alia ensured security of tenure of prospecting rights and mining rights and enabled holders thereof to comply with the Act. In particular, an old-order mining right remained valid for five years “subject to the terms and conditions under which it was granted” (item 7(1) of the transitional arrangements) and could be converted into a new mining right (item 7(2) of the transitional arrangements) if certain requirements were met. The applicant had to have: (a) met the requirements for lodgement of application for conversion; (b) conducted mining operations in respect of the mining right; (c) indicated that he would continue to conduct such mining operations upon conversion of the mining right; (d) had an approved environmental management programme; and (e) paid the prescribed conversion fee (item 7(3) of the transitional arrangements). To recap, the Xstrata decision dealt with an old-order mining right that had been converted into a (new) mining right and the effect of these statutory changes on rights to royalties which accrued to a former holder of mineral rights by virtue of a mineral lease.