Aug14,2011 | By Thomson Reuters
By Agnieszka Flak
JOHANNESBURG, Aug 15 (Reuters) - A South African court will this week hear a case over disputed mineral rights that is at the bottom of a spat worth billions of rand and which could shed light on allegations of perceived fraud and corruption in government ranks.
WHAT IS THE DISPUTE ABOUT?
Kumba Iron Ore , a unit of global miner Anglo American , is challenging the government's award of a prospecting right over 21.4 percent in its Sishen mine to little-known Imperial Crown Trading (ICT).
Kumba had applied for a mining right over that same stake after ArcelorMittal South Africa , which used to hold the right, failed to renew it as required by law.
WHAT ARE THE DIFFERENT SIDES SAYING?
* Kumba argues that the ICT application was "fraudulent and the product of a corrupt process". The iron ore producer said ICT had copied parts of its own application and that the ICT's bid was "irregular and incomplete". It challenges the government's decision to accept the application and later grant the prospecting right. The firm also argues that the government had no right to award a prospecting right over a property where iron ore had been mined for decades.
* The government dismissed Kumba's allegations regarding its handling of the ICT bid. It further said Kumba, which also applied for ArcelorMittal's lapsed right, had manipulated the
system to gain advantage over any other applicant and was therefore disqualified. The ministry said it had given ICT's bid precedence as it was considered a historically disadvantaged
entity, although politically-linked figures are part of the ICT's board.
* ICT said that the documents Kumba had alleged were copied from its own application were planted in its bid by Kumba itself in a move to frame ICT.
* ArcelorMittal argues that its own right never lapsed. The steelmaker said that the mining act does not allow for the conversion of a proportion of a right and therefore Kumba had converted the ArcelorMittal's 21.4 percent right when it converted the 78.6 percent it owns.
WHY DOES IT MATTER?
* The preferential iron ore supply deal is worth billions of rand a year and its loss could have serious implications for ArcelorMittal, which is already struggling with rising costs.
ArcelorMittal has said that if it fails to regain the preferential supply deal it would shut its Saldanha plant and cut all steel exports, which in turn could affect some 4,000 temporary and permanent jobs and seriously affect other industries which depend on steel supply.
* The case may expose manipulation and fraud in the minerals ministry and may further unsettle investors worried about mismanagement and lack of leadership in the sector. Mining
Minister Susan Shabangu last year said that bribery, deception and intimidation were ripe in the industry and vowed to clean up the sector. She launched a mineral rights online application
system to eliminate "the perception of corruption" within her department and also plans a shake-up of the mining act to correct some "irregularities".
* The case threw the spotlight on a related contentious black economic empowerment deal involving ArcelorMittal, President Jacob Zuma's son and businessmen close to the president. Foreign investors and many South Africans have grown increasingly worried about the implementation of the black economic empowerment policy introduced in Africa's biggest
economy after apartheid ended in 1994. BEE is aimed at righting the economic wrongs of apartheid but critics have said it only enriched some businessmen in a country where millions of black South Africans still live in poverty and over a quarter of the work force is jobless.
WHO IS BEHIND ICT AND A RELATED BEE DEAL?
* ICT is a little-known company with no experience in mining. Shareholders in the company include Jagdish Parekh, a key executive in businesses owned by the Gupta family, which is
close to South African President Jacob Zuma. Several local newspapers have reported that shareholder Prudence Mtshali is close to Deputy President Kgalema Motlanthe.
* ArcelorMittal said last year it would buy ICT for 800 million rand ($111 million) to put the preferential pricing deal back in place. As part of the deal, the steelmaker said it would transfer 26 percent of its shares to a group of black investors -- including an investment group led by Zuma's son Duduzane-- and employees.
WHAT ARE POSSIBLE OUTCOMES?
* ICT is allowed to keep the prospecting right and may eventually be granted a mining right: ArcelorMittal will follow through with its plan to buy the little-known company and regain
the preferential iron ore supply deal.
* ICT loses its prospecting right: ArcelorMittal will drop its plan to buy ICT and fight Kumba over the lapsed right. The case is expected to go for arbitration in May next year. Should the judge support or dismiss ArcelorMittal's argument in the ICT case, it may either considerably strengthen or weaken the steelmaker's bid to regain the supply deal. ICT could appeal the
court's decision and the court case could drag until well after the arbitration hearing starts.
($1=7.218 South African Rand)
By Agnieszka Flak
JOHANNESBURG, Aug 15 (Reuters) - A South African court will this week hear a case over disputed mineral rights that is at the bottom of a spat worth billions of rand and which could shed light on allegations of perceived fraud and corruption in government ranks.
WHAT IS THE DISPUTE ABOUT?
Kumba Iron Ore , a unit of global miner Anglo American , is challenging the government's award of a prospecting right over 21.4 percent in its Sishen mine to little-known Imperial Crown Trading (ICT).
Kumba had applied for a mining right over that same stake after ArcelorMittal South Africa , which used to hold the right, failed to renew it as required by law.
WHAT ARE THE DIFFERENT SIDES SAYING?
* Kumba argues that the ICT application was "fraudulent and the product of a corrupt process". The iron ore producer said ICT had copied parts of its own application and that the ICT's bid was "irregular and incomplete". It challenges the government's decision to accept the application and later grant the prospecting right. The firm also argues that the government had no right to award a prospecting right over a property where iron ore had been mined for decades.
* The government dismissed Kumba's allegations regarding its handling of the ICT bid. It further said Kumba, which also applied for ArcelorMittal's lapsed right, had manipulated the
system to gain advantage over any other applicant and was therefore disqualified. The ministry said it had given ICT's bid precedence as it was considered a historically disadvantaged
entity, although politically-linked figures are part of the ICT's board.
* ICT said that the documents Kumba had alleged were copied from its own application were planted in its bid by Kumba itself in a move to frame ICT.
* ArcelorMittal argues that its own right never lapsed. The steelmaker said that the mining act does not allow for the conversion of a proportion of a right and therefore Kumba had converted the ArcelorMittal's 21.4 percent right when it converted the 78.6 percent it owns.
WHY DOES IT MATTER?
* The preferential iron ore supply deal is worth billions of rand a year and its loss could have serious implications for ArcelorMittal, which is already struggling with rising costs.
ArcelorMittal has said that if it fails to regain the preferential supply deal it would shut its Saldanha plant and cut all steel exports, which in turn could affect some 4,000 temporary and permanent jobs and seriously affect other industries which depend on steel supply.
* The case may expose manipulation and fraud in the minerals ministry and may further unsettle investors worried about mismanagement and lack of leadership in the sector. Mining
Minister Susan Shabangu last year said that bribery, deception and intimidation were ripe in the industry and vowed to clean up the sector. She launched a mineral rights online application
system to eliminate "the perception of corruption" within her department and also plans a shake-up of the mining act to correct some "irregularities".
* The case threw the spotlight on a related contentious black economic empowerment deal involving ArcelorMittal, President Jacob Zuma's son and businessmen close to the president. Foreign investors and many South Africans have grown increasingly worried about the implementation of the black economic empowerment policy introduced in Africa's biggest
economy after apartheid ended in 1994. BEE is aimed at righting the economic wrongs of apartheid but critics have said it only enriched some businessmen in a country where millions of black South Africans still live in poverty and over a quarter of the work force is jobless.
WHO IS BEHIND ICT AND A RELATED BEE DEAL?
* ICT is a little-known company with no experience in mining. Shareholders in the company include Jagdish Parekh, a key executive in businesses owned by the Gupta family, which is
close to South African President Jacob Zuma. Several local newspapers have reported that shareholder Prudence Mtshali is close to Deputy President Kgalema Motlanthe.
* ArcelorMittal said last year it would buy ICT for 800 million rand ($111 million) to put the preferential pricing deal back in place. As part of the deal, the steelmaker said it would transfer 26 percent of its shares to a group of black investors -- including an investment group led by Zuma's son Duduzane-- and employees.
WHAT ARE POSSIBLE OUTCOMES?
* ICT is allowed to keep the prospecting right and may eventually be granted a mining right: ArcelorMittal will follow through with its plan to buy the little-known company and regain
the preferential iron ore supply deal.
* ICT loses its prospecting right: ArcelorMittal will drop its plan to buy ICT and fight Kumba over the lapsed right. The case is expected to go for arbitration in May next year. Should the judge support or dismiss ArcelorMittal's argument in the ICT case, it may either considerably strengthen or weaken the steelmaker's bid to regain the supply deal. ICT could appeal the
court's decision and the court case could drag until well after the arbitration hearing starts.
($1=7.218 South African Rand)
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