The Supreme Court of Appeal Rules on When a Prospecting Right Starts Running

In Mawetse SA Mining Corporation (Pty) Ltd v Minister of Mineral Resources and Others (3081/12) [2014] ZAGPPHC 11 the Supreme Court of Appeal (“SCA”) recently ruled on the calculation of the period for which a prospecting right endures. The SCA held that the duration should be calculated from the date on which the applicant was informed that the right has been granted (upon receipt of the grant letter) and not from the date of the notarial execution of the prospecting right or the date on which the environmental management plan was approved (if that date differed to the date of grant). The SCA decision has important practical implications for the distinct legal processes both current and future holders of prospecting rights adhere to when applying for and/or renewing a prospecting right. Although this particular case relates to the period of validity of a prospecting right, it can be assumed that the same principle would apply to a mining right.

Background

In November 2006, Dilokong (Pty) Limited (“Dilokong”) applied to the Department of Mineral Resources (“DMR”) for a prospecting right. In December of the same year, the Regional Manager of the DMR issued an acceptance letter to Dilokong requesting that Dilokong, amongst other compliance requests, give effect to the empowerment provisions in section 2(d) of the Mineral and Petroleum Resources Development Act, 28 of 2002 (“MPRD Act”). On 18 July 2007, the Deputy Director General of the DMR wrote to Dilokong to confirm that it had been granted a prospecting right for a period of four years. In November 2007, on the date on which the prospecting right was to be executed, Dilokong was informed that the DMR was unable to execute the prospecting right due to the fact that Dilokong had failed to comply with the empowerment criteria listed in section 2(d) of the MPRD Act.

Unaware of what had transpired, Mawetse (SA) Mining Corporation (Pty) Ltd (“Mawetse”) applied for a prospecting right in respect of the same mineral and over the same land that Dilokong’s prospecting right application related to. Mawetse’s application was, however, rejected on the grounds that Dilokong had already been granted a prospecting right for the same mineral over the same land.

On 20 January 2012, approximately four and a half years after Dilokong received the prospecting right grant letter, Mawetse took the decision of the Regional Manager of the DMR to reject the Mawetse prospecting right application on review, arguing that, amongst other contentions, the prospecting right that had been granted to Dilokong for a period of four years commencing in 2007 had lapsed due to the effluxion of time. Mawetse argued that Dilokong’s prospecting right had lapsed and therefore Mawetse could not be barred from making an application for the same mineral over the same land.

Issues of Interest

The SCA held that in order to determine whether a prospecting right has lapsed, it is necessary to clarify the date on which the time period for which the right starts running. Bearing this in mind, the Court emphasized the importance of distinguishing between three legal processes, namely – the granting of a right, the notarial execution of a right and the coming into effect of a right through the approval of the environmental management plan.

Dilokong argued that a prospecting right commences on the date of notarial execution of the right (as had been established in previous case law, namely Meepo v Kotze). Following from this assertion, Dilokong argued that their right had not been executed and was therefore not yet effective. The SCA found the argument advanced by Dilokong untenable in that it effectively allowed the right to be sterilised in Dilokong’s favour, which interpretation offends one of the MPRD Act’s key objectives, namely that minerals must be exploited within stipulated timeframes for the benefit of the public. The SCA made it clear that the time period for which a prospecting right would endure begins on the date on which the applicant is made aware of the granting of the right. In Dilokong’s instance, this was on 18 July 2007 and therefore by the time Mawetse had launched its application for review in 2012 Dilokong’s prospecting right had lapsed, despite it never having been executed.

Where mining companies may previously have been content to take some time to execute a prospecting right and commence with prospecting activities (on the assumption that the time period for the duration of the prospecting right had not yet commenced) it is now clear that the clock starts on the date on which the applicant is alerted to the grant of the right, although title to the right may not be enforceable against third parties until the right has been notarially executed and registered in the Mineral and Petroleum Titles Registration Office. The implication of this is that the time period may have commenced prior to the effective date of the prospecting right (namely the date upon which the environmental management plan was approved), and prior to mining companies being able to enter the land to prospect.

Given that Dilokong’s prospecting right was granted prior to the Mineral and Petroleum Resources Development Amendment, Act 49 of 2008, (“MPRD Amendment Act”) coming into effect in 2013, such effective date would have been the date on which the environmental management plan was approved. It is worth noting though that subsequent to the MPRD Amendment Act coming into effect in June 2013, the effective date is the date the right is notarially executed.

This case also has implications for when mining companies apply for a renewal of their prospecting right. In terms of the MPRD Act prospecting rights are granted for a maximum period of five years, renewable once, for a further period not exceeding three years. In terms of the prospecting right, when a mining company wants to apply for a renewal of their prospecting right, the renewal application must be submitted 60 days prior to the expiry of the right. If the commencement date of the prospecting right is calculated from the granting of the right as opposed to the date of execution, such 60 days will expire sooner than previously expected.

Conclusion

It is critical that mining companies avoid potential legal challenges on the basis of their rights having already lapsed, by ensuring any application for a renewal of a prospecting right or holders of prospecting rights who have the exclusive competency to apply for a mining right, are aware that their rights commence when they become aware of the grant of such right or renewal applied for and not from the date of execution of the right. It remains to be seen, however, whether the departmental practice changes following the SCA’s decision or whether there will be a discrepancy between the Court’s interpretation and the DMR’s practice.