Mining Matters Summer 2010

Many of the prospecting and mining rights (rights) granted by the Department of Mineral Resources (DMR) (formerly the Department
of Minerals and Energy) cover two or more portions of land. Thus for example, one prospecting right may have been granted over
Farm A, Farm B and Farm C. This is particularly so in regard to many converted rights where several prospecting or mining areas
were included in a single conversion application for administrative or other practical considerations.

However, it is often necessary that such a right be partitioned or sub-divided on the basis of the various land portions due to transactional agreements founded on practical reorganisation and consolidation of areas, or for economic or operational synergies, or to facilitate empowerment transactions. Currently, many large and complex transactions cannot be implemented as the sub-division or partitioning of rights and the subsequent registration of that subdivision are now being refused by the DMR.
Where consent for such sub-division has been accepted, the Mineral and Petroleum
Titles Registration Office (MPTRO) (itself a division of the DMR) is refusing to register such sub-division.

As a matter of practice, when one had to transfer a portion only of prospecting or mining areas from the holder of the right to a
new transferee, one would file an application under section 11 of the Minerals and Petroleum Resources Act, 2002 (MPRDA).

Section 11 provides that a prospecting or mining right “or an interest in any such right” may not be ceded or otherwise disposed of except with the written consent of the Minister. Conventional
wisdom prescribed that “an interest in any such right” covered the situation where the holder of such right wished to transfer a portion
only of the prospecting or mining area covered by that right.

No place for section 11?

However, the DMR contends that section 11 does not make provision for such sub-division. The conundrum facing practitioners
in the mining industry is simply that while no provision of the MPRDA specifically authorises a sub-division of rights, there is by the same token no express prohibition against such sub-division.

Therefore, if section 11 does not enable a sub-division of rights, how is such sub-division to be achieved? To disallow sub-divisions
entirely is not an option. The South African mining industry will be thrown into disarray, much needed foreign investment will seek
The sub-division of prospecting and mining rights conundrum greener pastures and the optimal exploitation of our mineral
resources, a cornerstone of our legislative regime, will be stifled.

A prospecting or mining right is a limited real right in respect of the minerals and the property to which such right relates. It is
submitted that as a matter of substantive law, such rights can be
legally sub-divided and that as a matter of commercial practicality, they must be capable of sub-division.

Abandonments of rights
Many of the most frequently espoused proposals to achieve the same result as a sub-division involve an abandonment of the existing
rights under section 56 of the MPRDA, coupled with new applications for each of the relevant prospecting or mining areas. However, such abandonment cannot be made subject to the grant of the new applications, as sections 16(2)(b) and 22(2)(b) would
prohibit the acceptance of the new applications by the DMR whilst the current right was still in force. If the abandonment was conditional upon the mere acceptance of the new applications, the
parties would be at risk during the period from acceptance to the date of grant of the new applications. Clearly, as the MPRDA has
as one of its objectives the security of tenure of prospecting and mining rights, this alternative cannot have been the intention of
the legislature.

Withdrawal or amendment of prior grant
Another proposal involves the application of the provisions of section 103(4)(b). This section provides that – “The Minister, Director-General, Regional Manager or officer may at any time –
(b) withdraw or amend any decision made by a person exercising a power or performing a duty delegated or assigned in terms of subsection (1), (2) or (3), as the case may be”.

The powers delegated under section 103 include the power to grant prospecting and mining rights. Proponents of this mechanism suggest that the Minister has the power under this section to revoke or amend the prior decision of the Deputy Director-General: Mineral
Development to grant the right in issue and to re-grant, as it were, separate rights covering the respective areas sought to be subdivided.
While the section does indeed appear to grant the Minister such powers, it is contended that the section itself is contrary to basic administrative law tenets.

Once the Deputy Director-General has exercised the power delegated to him by the Minister and decided to grant the right, he is functus
officio. As such, the Deputy Director-General cannot himself “withdraw or amend” that decision. As a matter of administrative
law, the decision of the Deputy Director-General is regarded as the decision of the Minister. Consequently, the Minister too will be
functus officio and cannot “withdraw or amend” that decision.

As is noted by Dale at MPRDA-613, Volume 1, South African Mineral and Petroleum Law, Lexis Nexis, “…the power in section
103(4)(b) offends against the rule-of-law requirement in section
1(c) of the Constitution and may be held to be unconstitutional as
would any withdrawal or amendment based on it”.

Preferred approach
It is submitted that notwithstanding the current position taken by the DMR it would be preferable for consents to such sub-division
be to granted under the provisions of section 11 given the various factors which have to be taken into account in considering whether
or not the cessionary complies with the legal requirements to qualify as a holder of a prospecting or mining right. This is made quite
clear by the provisions of section 11(2). Under this scenario, once the DMR has considered the application and granted the section 11
consent for the transfer of the rights in and to the sub-divided portion, the provisions of Section 102 can be invoked to amend and
vary the prospecting or mining right, the environmental management plan or programme and the prospecting or mining work programme,
as the case may be. Section 102 provides that-
“Amendment of rights, permits, programmes and plans.-A
reconnaissance permission, prospecting right, mining right, mining permit, retention permit, technical corporation permit,
reconnaissance permit, exploration right and production right work programme, mining work programme, environmental management
programme, and environmental management plan may not be amended or varied (including by extension of the area covered by
it or by the addition of minerals or a share or shares or seams, mineralised bodies, or strata, which are not at the time the subject
thereof) without the written consent of the Minister”.

However, as matters stand, the DMR is not prepared to entertain
this approach.

Current approach
Currently, the only workable and legally competent manner in which to achieve a sub-division of a right (and which is endorsed
by the DMR) entails a combination of applications in terms of section 56, section 102 and section 43(2).
This process involves the current holder of the right lodging a conditional abandonment of its rights to that portion of the
prospecting or mining area to be transferred to the cessionary. The cessionary simultaneously applies to have the “sub-divided” portion
added to one of its prospecting or mining rights. The abandonment, under section 56 read with the terms and conditions of the right in
question, is conditional the grant of the section 102 application. In that a section 102 application, unlike an application for a prospecting or mining right, need not be accepted, there is no risk in the time
delay between abandonment and grant. Simultaneously with the
foregoing, an application in terms of section 4 (2) for consent to
transfer the environmental liabilities in respect of the “sub-divided” portion to the cessionary must be made.

The registrar of the MPTRO has no jurisdiction to question the decision of the Minister to consent to the cession of a portion of a right. The provisions of section 5 of the Mining Titles Registration Act, 1967 (MTRA) oblige the registrar to register the cession of
the sub-division. The wording in section 5 of the MTRA is peremptory.

More illustrative of the fact that actual sub-division of rights was contemplated by the legislature is the wording of section 19(3) of
the MTRA, which provides that “Two or more portions of a right may by one deed be transferred or ceded by one or more persons
holding the whole of such right in undivided shares to one or more persons acquiring such portions in undivided shares, if each portion
is described in a separate paragraph in which reference is made to the diagram or plan of such portion which shall be annexed
to the deed”.

Section 12A(3) of the MTRA furthermore provides that the registration of a variation, amendment, modification of or deduction
from the original right must be accompanied by a diagram or a plan and must be registered by the MPTRO. The use of the words
“diagram” and “plan” clearly indicate that the variation or amendment relates to the prospecting or mining area covered by
the right in issue. Furthermore, the word “deduction” likewise indicates that a portion of a right can be deducted from the right
to be amended. It is submitted that it is nothing more than recognition of the sub-divisibility of rights.

MPRDA amendments
However, this section 56/102/43(2) approach may be jeopardised by the coming into operation of the MPRDA Amendment Act, 49
of 2008. A new sub-section (2) has been added to section 102 which reads as follows –
“The amendment or variations referred to in subsection (1), shall
not be made if the effect of such amendment or variation is to –
(a) extend an area or portion of an area”
It is submitted that this amendment will render the above approach legally incompetent.
In addition, this procedure cannot be used where the cessionary is not already the holder of another right, which right should be
contiguous to the area sought to be added under section 102.

Although nothing in section 102 requires contiguity of prospecting or mining areas, certain provincial departments insist upon this as
a condition of grant of section 102 applications.
The refusal of the DMR to consent to or register any sub-divisions of prospecting or mining rights other than by way of a convoluted
mechanism involving sections 56/102/43(2) of the MPRDA is unsatisfactory, results in uncertainty in the industry and contributes
still further to the perception that South Africa’s mining industry is being stifled by over-regulation and inappropriate interpretation
and application of mining legislation.
Urgent legislative and/or Ministerial intervention is required to avoid a monumental and looming crisis