Mineral and petroleum are non-renewable natural resources that have been a focal point in the South African mining industry. The transfer of mining rights plays a pivotal role within the mining industry and is regulated by the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA). Section 11 of the MPRDA outlines the legal process for transferring mining rights in South Africa. In this article, I will provide insight into the ministerial consent required where there is an indirect change of controlling interests.

Section 11(1) of the MPRDA 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 of Mineral Resources and Energy , except in the case of the change of a controlling interest in listed companies.

In Mogale Alloys (Pty) Ltd v Nuco Chrome Bophuthatswana Proprietary Limited [2011] (6) SA 96 (GSJ), the court shed light on whether there was a change in the controlling interest. Judge Coppin held that in the context of section 11(1), the term “controlling interests” cannot be limited to a single criterion.  It could mean more than 50% of the issued share capital of the company or more than half of the voting rights. It was common cause that if a majority shareholder intended to dispose either their entire shareholding to another party or intended to dispose only a portion of its interest, the consent from the Minister is required.

The court stated that one must consider whether the company is still able to carry out its obligations and maintain the mining right after the transfer. After the Mogale judgement it was still unclear whether ministerial consent was required for a controlling interest.

In the recent matter of Vantage Goldfields SA (Pty) Ltd (Vantage) and Another v Arqomanzi (Pty) Ltd (Arqomanzi) (733/2022) [2023] ZASCA 106 (27 June 2023), the Supreme Court of Appeal (SCA) had to consider whether the consent of the Minister under section 11 is required where there has been a change of controlling interests in the holding company.

In this matter, Vantage was the beneficial owner of two subsidiaries, Makonjwaan Imperial Mining Company (Pty) Ltd (MIMCO) and Barbrook Mine (Pty) Ltd (Barbrook), each of which held a new order mining right. In accordance with the business rescue of the Vantage group and to obtain funding, an Australian company, Macquarie Metals (Pty) Ltd (Macquarie), acquired 98% of the shares in Vantage. This resulted in the dilution of the interests that were previously held by Vantage and placed Macquarie in indirect control of MIMCO and Barbrook. Vantage had stated that this did not trigger section 11 as the transaction took place at a level above the mining right holder level.

Arqomanzi had sought an interdict against the Vantage business rescue practitioners based on its (Vantage’s) argument that the dilution of the shareholders’ interests could take place without section 11 consent. Arqomanzi argued that the controlling interest in Vantage was transferred to Macquarie through its acquisition.

The Minister participated in the Vantage court case and made submissions on obtaining Ministerial consent. Both the Mpumalanga High Court and the SCA found the Minister’s submissions and interpretation of the MPRDA to be reasonable. They prohibited Vantage and the business rescue practitioners from asserting that the Minister's consent was unnecessary.

The SCA concluded that the change in controlling interest resulted in an indirect change. The SCA ruled that section 11 must encompass both direct and indirect cessions, transfers, or leases, as well as other forms of changing control.

The ruling in the Vantage case provided clarity, removing uncertainty, and establishing a legal precedent to avoid potential legal disputes over the interpretation of Section 11.

Considering the above, section 11 of the MPRDA applies to a loss of control or an indirect change of control and can be triggered by the issuance of shares, even if existing shareholders are not selling their shares.

Companies within the mining industry should note that if there is an acquisition of controlling interests or the dilution of controlling interests in holding a mining right, consent from the Minister is required in terms of Section 11. Companies should seek legal guidance before restructuring share-based financing transactions.

Written by Taryne Marupen, Inlexso legal services, an EasyHQ offering