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Let's talk mining: Ministerial consent when there is an indirect change of control by way of an issue of shares

18th September 2023

     

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By Thabang Shomang – Director – and  Sive Mqikela – Associate at Rams Attorneys

The Supreme Court of Appeal (“SCA”) has recently handed down a judgment (Vantage Goldfields SA (Pty) Ltd & Another v Arqomanzi (Pty) Ltd and Others) which ushers in an interesting development to the interpretation of section 11 of the Mineral and Petroleum Resources Development Act, 28 of 2002 (“MPRDA”).

The judgement relates to the much litigious matter(s) involving Vantage Goldfields Limited (“Vantage”) and its subsidiaries Vantage Goldfields SA (Pty) Ltd (“VGSA”), Vantage Goldfields (Pty) Ltd (“VGL”), Makonjwaan Imperial Mining Company (Pty) Ltd (“MIMCO”) and Barbrook Mines (Pty) Ltd (“Barbrook”) (collectively the “Vantage Group of Companies”) which first caught public attention in February 2016, when MIMCO’s Mpumalanga based gold mining Lilly Mine collapsed and claimed the lives of three employees (whose bodies have, to date, still not been recovered) and rendered the mine inaccessible and ultimately unable to continue operating.

The tragic collapse of the Lilly Mine resulted in the Vantage Group of Companies being financially distressed, and ultimately in VGL, Barbrook and MIMCO being placed under business rescue. The ripple effect of the financial distress was due to the web-like shareholding structure in Vantage Group of Companies. Vantage held 100% of the shares in VGSA, which in turn held 74% in VGL and 42% in MIMCO. The remaining 58% of the shares in MIMCO were held by VGL, and in turn VGL held 100% of the shares in Barbrook.

The SCA had, amongst other things, to determine whether an issue (direct acquisition) of shares constituting 98% of the issued shares in Vantage (which does not hold mining rights) to a new shareholder, viz. Macquarie Metals (“Macquarie”), required the consent of the Minister of Mineral Resources and Energy (“Minister”) as contemplated in section 11(1) of the MPRDA, which provides that:

“a prospecting right or mining right or an interest in any such right, or a controlling interest in a company or close corporation, may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister, except in the case of change of controlling interest in listed companies.”

In this regard, Arqomanzi (Pty) Ltd argued that the issue of the shares in Vantage to Macquarie amounted to the disposal of a “controlling interest” in each of the entities that held the mining rights (being Barbrook and MIMCO) as contemplated in section 11(1) of the MPRDA. To this contention, the Vantage Group of Companies argued that, as there was no direct change in the controlling interest in Barbrook and MIMCO, the consent of the Minister was not required.

The Vantage Group of Companies’ contention was consistent to the common practice in the mining industry. Historically, some of the stakeholders in the industry have generally laboured under the understanding that Ministerial consent in terms of section 11 of the MPRDA was:

not required in instances where shares are acquired directly from the company that holds a mining right, as section 11(1) only specifically mentions “ceded, transferred, let, sublet, assigned, alienated or otherwise disposed” and does not include “issues” or “subscription” for shares as events which require Ministerial consent; and

only required in respect of a change in control in the company that holds a mining right, and not a change of control in the indirect shareholder or the holding company of a mining right holder.

It is important to point out that in the court a quo, Legodi JP (of the Mpumalanga High Court) held that the issue of the shares to Macquarie constitutes an “indirect change in controlling interest” which requires the Minister’s consent in terms of section 11(1) of the MPRDA. In arriving at his decision, Legodi JP maintained that an interpretation of the MPRDA must be consistent with the objects of the MPRDA as set out in section 2 of the MPRDA (which include recognising the internationally accepted right of the State to exercise sovereignty over all the mineral and petroleum resources within the Republic; and giving effect to the principle of the State's custodianship of the nation's mineral and petroleum resources). In his view, an interpretation of section 11 of the MPRDA that would exclude “indirect controlling interest” would defeat the objects of the MPRDA.

The SCA upheld the decision of the court a quo and held that the issue of shares in Vantage to Macquarie resulted in an alienation or otherwise disposal of the mining rights held by MIMCO and Barbrook as contemplated in section 11(1) of the MPRDA, since the ultimate owner and controller of such mining rights changed from the existing shareholders of Vantage to Macquire.

Most notably, the decision of the SCA, affirmed a position which if it was not entertained would still leave question marks and possibly more litigation on the interpretation of section 11(1) of the MPRDA. That is, whether an issue of shares (an acquisition of shares directly from the authorised share capital a company) falls under any of the events set out in section 11(1) of the MPRDA being “ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of”.   

In light of the SCA’s judgment, all stakeholders within the mining industry should now note that whenever there is an acquisition of a controlling interest from or a dilution of a controlling interest in an entity which holds a mining right or an entity which indirectly controls an entity that holds a mining right, Ministerial consent in terms of section 11 of the MPRDA will be required.

 

Edited by Creamer Media Reporter

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