US embassy cable - 04PRETORIA4831

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 004831 
 
SIPDIS 
 
DEPT OF TREASURY WASHDC 
 
DEPT FOR EB, AF/S, AF/EPS 
USDOC FOR 4510/ITA/MAC/AME/OA/JDIEMOND 
DEPT PASS USTR FOR FLISER AND PCOLEMAN 
 
E.O. 12958: DECL: 11/02/2014 
TAGS: ECON, EMIN, EINV, ETRD, SF 
SUBJECT: SOUTH AFRICA: FOREIGN MINING COMPANIES FILE 
NOTICES RESERVING POSSIBLE LEGAL ACTION AGAINST GOVERNMENT 
 
Classified By: Acting Econ Chief Alan Tousignant for reasons 1.4 (B, D) 
 
1. (C) Summary.  Four foreign mining companies filed notices 
on October 29 with the Department of Minerals and Energy 
stating their intent to pursue legal action for mineral 
rights potentially lost as a result of the implementation of 
the Mineral and Petroleum Resources Development Act on May 1, 
2004.  The move was prompted by the "Legal Proceedings Act," 
which gives the companies six months after a government 
action to file notice of a claim.  The companies involved do 
not view the procedure as tantamount to filing a lawsuit, but 
rather as preserving their right to sue should the state 
decide not to transfer their "old order" mineral rights which 
were purchased from landowners to "new order" mineral rights 
administered by the government.  Nevertheless, the action did 
not sit well with the Minister of Minerals and Energy, and 
some believe that the action may not have been legally 
necessary.  End summary. 
 
2. (U) Placer Dome (Canada), SouthernEra (Canada), Lonmin 
(U.K.), and Aquarius (Australia, but incorporated in Bermuda) 
filed notices on October 29 with the Department of Minerals 
and Energy stating their intent to pursue legal action for 
mineral rights potentially lost as a result of the 
implementation of the Mineral and Petroleum Resources 
Development Act on May 1, 2004.  The companies involved do 
not view the procedure as tantamount to filing a lawsuit, but 
rather as preserving their right to sue should the state 
decide not to transfer their "old order" mineral rights which 
were purchased from landowners to "new order" mineral rights 
administered by the government.  The Department of Minerals 
and Energy must transform "old order" rights into "new order" 
rights by 2009. 
 
3. (U) The move by the four foreign mining companies was 
prompted by the Institution of Legal Proceedings Against 
Certain Organs of State Act of 2002, which states "that no 
legal proceedings for the recovery of debt may be instituted 
against an organ of state unless the creditor has given the 
organ of state in question notice in writing of its intention 
to institute the legal proceedings in question."  Further, 
the creditor must serve a notice on the state within six 
months from the date on which a presumed debt became due. 
The Mineral and Petroleum Resources Development Act came into 
effect on May 1, 2004 -- six months ago.  At issue for the 
companies is the prospect that the state will deny them "new 
order" rights because of their failure to meet Black Economic 
Empowerment (BEE) requirements as enumerated in the BEE 
mining charter and incorporated into the new Minerals Act. 
 
4. (C) Sam Coetzer, Managing Director for Placer Dome/South 
Africa, explained to Econoff that he felt the company had 
little choice but to file the notice.  Since 1999, the 
company invested $500 million in South Deep, a gold mine with 
which it maintains a 50/50 joint venture with Western Areas. 
Placer Dome shareholders will not agree to sell shares to a 
BEE partner because it would mean relinquishing operational 
control, which under its current arrangement, Placer Dome 
retains.  Its partner and original rights holder, Western 
Areas, also refuses to reduce its shareholding in this 
lucrative ultra deep mining venture.  This automatically puts 
South Deep in contravention of the BEE mining charter because 
it does not have BEE partner.  (Under the charter, companies 
are supposed to take on a 15% BEE partner by 2009 and a 26% 
BEE partner by 2014.)  Placer Dome is worried that this could 
be the basis for the government to deny the joint venture 
"new order" rights.  Despite many requests, it has not 
received assurances from the government that its investment 
in South Deep is secure. 
 
5. (C) No South African based companies filed similar 
notices.  According to Coetzer, Bobby Godsell, Chief 
Executive of AngloGold/Ashanti, argued at a Chamber of Mines 
meeting the previous week that a legal move under the Legal 
Proceedings Act was unnecessary.  He believed that he could 
still sue the state under the law at a later date, if he had 
to, and that filing notice would only show a lack of trust in 
the government.  "This is a government of dialogue," he 
reportedly argued.  A Business Day editorial on November 2 
also opposed the filings, arguing that since the loss, if it 
existed, would only occur in 2009, it was hard to see why the 
Legal Proceedings Act would apply now. 
6. (SBU) The action by the foreign mining companies did not 
sit well with Minister of Minerals and Energy Phumzile 
Mlambo-Ngcuka, who reportedly told Placer Dome's Coetzer at a 
Chamber of Mines breakfast on November 2, "If it is a fight 
you want, then I'll show you how to fight."  The next day, 
Business Day quoted Minerals and Energy Director General 
Sandile Nogxina saying, "I don't understand why they (the 
four foreign companies) think they could be exempted from the 
application of local law -- it's sheer arrogance." 
Mlambo-Ngcuka is expected to address the issue in the media 
soon. 
FRAZER