Mine workers busy with the construction of the Everest platinum mine in Mpumalanga. Picture: SUNDAY TIMES
Picture: SUNDAY TIMES

The government would face stiff legal challenges and huge damages claims if it tried to seize platinum mines mothballed because of adverse market conditions, legal experts warn.

Tensions continue to simmer over Anglo American Platinum’s (Amplats’) decision to mothball four shafts and sell a mine at the cost of 14,000 jobs. The company said last week that it was restructuring its mines because of weak demand growth for platinum and soaring costs.

The UK’s Sunday Times reported yesterday that Anglo American, owner of 80% of Amplats, will write down $4bn-$5bn ahead of its annual results next month, mainly because of difficulties at Amplats and delays and cost overruns at its Minas Rio iron-ore project in Brazil.

Mineral Resources Minister Susan Shabangu last week threatened to review all mining rights held by Amplats. The African National Congress and trade unions said the government should seize the mining rights of idled mines and put them up for tender.

Amplats CEO Chris Griffith and Ms Shabangu had "constructive discussions" on Friday about the restructuring, the company said, adding that it and the department would "engage positively" over the next 90 days.

Two industry sources said the platinum task team set up by Ms Shabangu last year was ineffectual, unable to make headway against unions’ steadfast demand that no jobs be lost in an embattled sector.

The task team conceded the platinum sector was in serious trouble; was looking for interventions to cut costs; seeking alternative uses for platinum; and investigating how to increase domestic use of the metal.

The department has once before revoked the mining right of a listed company. It cancelled the licence of Central Rand Gold in 2011, but it was returned after the company went to court.

Bowman Gilfillan director Claire Tucker said the right had been revoked because Central Rand had not implemented its mining work programme, essential to securing a mining licence.

"If a person fails to comply with the mining right — and particularly the mining work programme and the social and labour plan — the minister may cancel a mining right, but only after a full notice and comment period has been followed ," Ms Tucker said in a note.

"Any such decision would have to take into account the realities facing the miner and have to be fairly and reasonably taken." Such a decision could be taken to the high court for review.

Webber Wentzel’s head of Africa mining and energy projects, Peter Leon, said on Friday that a threat is more easily made than carried out.

"There’s not a lot the government can do lawfully to force any company to produce minerals if the market circumstances are such that it’s not economic to do so," he said.

The legislation governing mining allowed for "extensive notification and remediation processes" with companies, and the revocation of a right could only follow a material breach of that right, he said.

"It’s a pretty strong section of the act from an administrative law perspective," Mr Leon said.

The Minerals and Petroleum Resources and Development Act says a mining licence can only be suspended or cancelled if there is a breach of material terms of the mining permit, an environmental management programme was contravened or inaccurate information was submitted to secure a right.

A major issue, which has yet to be tested legally, is what would happen to a mine — a company’s property — after a right is cancelled.

"The government could be looking at a very serious and substantial expropriation claim for damages," Mr Leon said.

Fitch, the ratings agency, said there was a chance Amplats could be forced to revise its plans.

"We expect the group to face significant political pressure to reverse or water down its plans as well as the potential for ongoing strike action and disruption at other facilities throughout the process, which could harm production in the near term," it said on Friday.

But if Amplats succeeded in its restructuring plans, other companies in a similar position were likely to follow suit, Fitch said.