Eiser & Kantor Attorneys


1.1. This submission is made by the BAPO BA MOGALE COMMUNITY (the Community) to the Parliamentary Finance Portfolio Committee in connection with the Draft Mineral and Petroleum Resources Royalty Bill (the Bill) which was published on 6 December 2008.

1.2 The Community is in favour of and supports the imposition of the Royalty to the State as provided in the Bill.

1.3. This submission is directed at the retention of the non abolition of Contractual Royalties [as defined in the Minerals and Petroleum Resources Development Act 2002 (MPRDA)], after the Bill becomes law and comes into effect on 1 May 2009.

1.4. The Community has from time immemorial occupied ancestral land covering a number of farms in the Brits/Odi Magisterial Districts of the North West Province. The Community is approximately 35 000 strong, and although a very small minority have achieved financial success, the vast majority are poverty stricken. Unemployment is high.

1.5. Many of the farms have Platinum Group Metals (PGMs), Chrome and Granite ore bodies in, on and under them.

1.6. A legacy of Colonial and Apartheid times is that no Black Community in South Africa owns its land. Instead, each community is the sole beneficiary of a separate trust which owns each community's land, of which the Minister of Agriculture and Land Affairs is currently the Trustee.

1.7. The Community, represented by its Trustee from time to time, has been and is currently party to a number of agreements with different Mining Companies, which presently and will shortly extract mineral resources covered by the agreements.

1.8. In terms of all the said agreements the Community currently, and for some time, has been receiving royalties and will receive them in the future.

1.9. However the Community has learned that the Chamber of Mines (the Chamber), and maybe others, will make representations to the Committee to have the Bill amended so that, from 1 May 2009 all Contractual Royalties are abolished.

1.10. Any such abolition will severely prejudice the Community and will rob it of the financial independence it has enjoyed since 1999, when meaningful, as opposed to minimum, royalties began to be received.

1.11. It is not known whether any other communities which receive, or will in future receive Contractual Royalties, will also be making submissions to this Committee. However, during contacts made with such communities in the area around the Community's land, all expressed ignorance of the Chamber's intentions. The ignorance is certainly as a result of insufficient publicity of the Chamber's intentions.

1.12 This memorandum will demonstrate why changes to the Bill sought by the Chamber should not be made.


2.1 The Community's right to receive royalties dates from:

2.1.1. 1969 in respect of the PGMs;

2.1.2. 1988 in respect of Granite;

2.1.3. 1984 in respect of chrome;

In terms of written notarially executed documents.

2.2.  All the said agreements were entered into prior to the MPRDA coming into force and, indeed, in respect of two, long before it was contemplated.

2.3. In terms of the said agreements the Community has been receiving royalties from 1969 as a result of the contractual obligations and rights flowing there from.

2.4 These royalties have been and continue to be used to fund the upliftment and development of the Community.

2.5 It is patent that if the Contractual Royalties are abolished the Community will be deprived of being able fund its own upliftment and development, and will have to join the queue with other people and communities for grants.

2.6 In addition abolition of the Contractual Royalties will be expropriation of an existing binding right and an Exclusionary Act as defined in the MPRDA.

2.7 This will result in the Community being deprived of the fruits of its own assets, and thereby enriching the Mining Companies which are extracting the wasting assets for the benefit of shareholders, many of whom are not even South Africans. That this is so, is beyond debate.


3.1. The starting point must be the Constitution, Act 108 of 1996.

3.2. The relevant sections are:

3.2.1. section 25 which: prohibits the deprivation of property except in terms of a law of general application; limits expropriation to instances where there is a public interest or purpose; requires compensation to be paid to those whose property is expropriated; states property is not limited to land.

3.3. section 36 which stipulates:

3.3.1. the rights in section 25 may be limited only by a law of general application;

3.3.2. any limitation must be consistent with human dignity, equality, and freedom taking account of, the nature of the right, the importance of the purpose of the limitation, the nature and extent of the limitation, the relationship between the limitation and its purpose, and if less restrictive means can achieve the purpose.

3.4. The MPRDA, the relevant sections of which are:

3.4.1. preamble 3 which recognises the need to promote local and rural development and social upliftment of communities affected by mining;

3.4.2. the definition of "broad based economic empowerment" focusing on: transforming the minerals industry to assist in, provide for, initiate or facilitate: ownership, participation, or benefiting from existing or future mining, prospecting, exploration or production operations; participation in or control of management of such operations; the development of management, scientific, engineering or other skills of historically disadvantaged persons; the involvement, participation, in the procurement chains of operations; the ownership of and participation in the beneficiation of the proceeds of the operations or other upstream or downstream value chains in such industries; the socio economic development of communities immediately hosting, affected by or supplying the labour to the operations. the definition of Community including as it does those which have  interests or rights in agreements. the definition of contractual royalties, which mean any royalties or payment agreed to between parties in a mining or production operation. the definition of exclusionary act which for the purposes of this submission focuses on any act or practice which impedes or prevents any person from.. ..making progress in the mineral and mining industry. the definition of historically disadvantaged person which includes the Community. section 2 which includes as objects of the MPRDA:

" (d) to substantially and meaningfully expand opportunities for historically disadvantaged persons, including women, to enter the mineral and petroleum industries and to benefit from the exploitation of the nations mineral and petroleum resources


(1) to ensure that holders of mining and production rights contribute towards the socio economic development of the areas in which they are operating." section 3(2) of the MPRDA which empowers the Minister in consultation with the Minister of Finance to determine and levy any fee or consideration in terms of any act of Parliament. section 11 (1) of Schedule 2 Transitional Arrangements, which states any existing or future contractual royalty will continue to accrue to that Community.


4.1. The preamble states that the Bill's purpose is to impose a royalty in favour of the State on mineral resources and to provide for ancilliary matters.

4.2. It is emphasised and repeated the Community is in favour of and supports the imposition of this royalty.

4.3. The Bill is patently the Act of Parliament referred to in section 3(2) of the MPRDA.

4.4. But for the contents of section 3(2) of the MPRDA, there would have been no legislative framework and/or context for the Bill.

4.5. The Bill gives effect to the power given to the Ministers in section 3(2) of the MPRDA.

4.6. As it stands the Bill is in conformity with the letter and spirit of the Constitution.

4.7. The fact the legislature saw fit to elevate the contents of section 2 of the MPRDA to the status of fundamental principles, means the contents of that section, read with the other sections which fall within Chapter 2, are the yardstick by which compliance with all the sections of the said Act must be measured. The other sections of Chapter 2 which are relevant to this submission are sections 3 and 4.

4.8. The Bill is the means by which the Ministers of Minerals and Energy and Finance exercise the power granted to them in terms of section 3(2) of the MPRDA. The question arises whether the Bill, as it stands, satisfies the requirements of the MPRDA .

4.9. There is nothing in the Bill, as it stands, that offends against the Preamble nor of Chapter 2 of the MPRDA. In addition, the Bill gives effect to sections 2(a), 2(b) and 2(c). Therefore, the Bill, as it stands, does satisfy the requirements of the MPRDA and more particularly Chapter 2 thereof.

4.10. In addition, as it stands, the Bill does not contravene any of the sections of the Constitution.

4.11. The Bill is the product of five years work and two previous drafts. That it emerged from this exhaustive process in the form it has, is testimony that the drafters, who include experts in the fields of law, commerce, mining and finance, did not see the need to tamper with the continuation of Contractual Royalties.


5.1. The Legislature saw fit to include as fundamental principles in the same section (section 2) of the MPRDA both the imperatives:

5.1.1. on the one hand, the State's sovereignty over and custody of the nation's mineral resources, the need to promote equitable access to the nation's mineral resources to all the people of South Africa, and to advance the socio economic welfare of all South Africans;

5.1.2. on the other hand, that opportunities for entering and expanding the mining and mineral industries for previously disadvantaged people including women should be created, and the holders of mining and production rights contribute towards the socio economic development of the areas in which they operate.

5.2. This inclusion in the same section, is evidence the Legislature did not consider these imperatives to be in conflict with one another. Indeed there is no such conflict, as the two are complementary.

5.3. The Bill, as it stands, is fulfillment of both imperatives. The imposition of the State Royalty ensures satisfaction of the first imperative. Non abolition of Contractual Royalties ensures the second is satisfied.

5.4. The power granted in section 3(2)(b) to the Ministers of Finance and Minerals and Energy to impose the State Royalty is also part of Chatper 2 and, therefore, is also a fundamental principle.

5.5. Section 4 of the MPRDA, also a part of Chapter 2, requires that any interpretation of the Act must be a reasonable one which is consistent with the objects as set out in section 2.

5.6. Thus the Legislature saw no conflict between the imperatives contained in the objects in section 2 and the imposition of the State Royalty in section 3. It is submitted that abolition of Contractual Royalties is an unreasonable interpretation of sections 2 and 3, which addition is inconsistent with the objects of the Act.

5.7. The continuation of the payment of Contractual Royalties is not inimical to the imposition of the State Royalty. Those who will argue for the abolition of Contractual Royalties, can justify this only on the basis that it will lead to lower returns for the Mining Companies with myriad alleged consequences. This will be dealt with later, but the advocates of abolition of Contractual Royalties are challenged to say how the second set of imperatives can be satisfied by abolition of Contractual Royalties. It is submitted the Mining Companies simply cannot do so.

5.8. The atrocious record of the Mining Companies in the development and upliftment of communities throughout South Africa, and more particularly in the Bushveld complex, where the Community's land is situate, is notorious.

5.9. Neither undertakings by, nor the urging of legislation, by the Mining Companies, will address any of the consequences of the abolition of Contractual Royalties.

5.10. It is thus clear that abolition of Contractual Royalties must of itself mean the Bill will be unlawful.

5.11. The second of the imperatives will now be dealt with in detail. The focus will be on the Community itself and its own circumstances. However, although not all communities will have the same circumstances, the principles apply to all communities


6.1. The Community as a whole, without any individual exception, is a group of previously disadvantaged persons. As stated above the Community is poverty stricken, and unemployment is high, notwithstanding the profits that have been made by the Mining Companies from its mineral resources. The future will be no different unless the Contractual Royalties are retained.

6.2. The Community's demographics are that it is comprised of men and women of all ages. Although detailed census figures are not known, it is likely the majority are women, in keeping with the demographics of the whole country. It is an unfortunate reality that, in the Community which numbers about 35 000 persons, there are disabled persons as well.

6.3. As been mentioned above, the Contractual Royalties the Community has been receiving have enabled it to start with maintaining, uplifting and developing itself.

6.4. However, the Contractual Royalties provide only a limited stake in the enterprises that are extracting the wasting assets represented by the mineral ore body.


The Community has recognised it must use the Contractual Royalty to expand its stakes in the Mining Companies that operate on its land.

6.6. In order to give effect to this object, the Community has already commenced negotiations to convert its Contractual Royalties to equity with two of the Mining Companies, and is about to commence these negotiations with two others.

6.7. There is a fifth company which claims the right to exploit minerals in, on and under Community land. The Community disputes that company has any rights. This is likely to end up in litigation. This ore body is large and is known to be viable.

6.8. Reverting to the negotiations already commenced and due to commence shortly, the following need to be noted.

6.8.1. They are difficult, and have to date been marked by frustration, disappointment and even conflict;

6.8.2. They are likely to take some time to conclude. Any deadline that is imposed by anyone will only weaken the hand of the Community, as the Mining Companies will hold out until the deadline passes, or seek to impose terms that do not give full value;

6.8.3. There is no guarantee they will be successful. If any of the negotiations do not succeed, retention of the right to continue to receive the Contractual Royalties will be vital to the Community's ability to continue to develop and uplift its people.

6.8.4. If any time limit is imposed in the Bill for the completion of the negotiations, this will considerably weaken the hand of the Community in the negotiations. The Mining Companies will just hold out to the end, and impose a conversion ratio on the Community that is less than its true value. The Community's choice will be either to accepts this or lose everything.

6.8.5. The basis of the negotiations is the valuation of the Contractual Royalty Stream over the expected life of the mine, the valuation of the mine itself and the conversion of the royalty stream into shares in the Mining Company. In the case of one of the negotiations, there are number of other conversion options the Community has identified;

6.8.6. The Mining Companies want to give as little as possible. The Community has engaged professional assistance. in the form of mining and mineral expertise, financial and corporate expertise, and legal expertise, to ensure it gets that to which it is entitled.

6.9.1. There are many benefits in converting the Contractual Royalties to equity.

They are:

6.9.2 The acquisition of a real stake in the Mining Companies. This satisfies preamble 3 to the MPRDA.

6.9.3 A share in the appreciation of the company's value, and thereby the acquisition of a capital gain. This satisfies preamble 3 to the MPRDA. In 2004 the Community was afforded the opportunity to acquire a very small stake in a company involved in PGM mining on Community land. The circumstances of the acquisition has caused bitterness in the Community, the detail of which is beyond the scope of this submission. But this notwithstanding, the Community has seen a fourfold increase in the value of the shares. A Contractual Royalty stream cannot provide this.

6.9.4. The continuation of the income stream in the form of a dividend. This satisfies preamble 3 to the MPRDA. It is true that if a company does not make profits, there may be no dividend. But in the case of the Community's PGM Contractual Royalty stream, which constitutes over 90 per cent of its assets and income, it does not receive a royalty (apart from an insignificant minimum) if a loss is sustained after Capital Expenditure (Capex). However, the self same company pays dividends to its shareholders out of actual profit, and accumulated profits. As a shareholder, the Community will receive its share of this, as opposed to the minimum royalty. The latter has occurred in the last five years.

6.9.5. Participation in management is a vital part of expansion of the Community's interest in the mining industry. This satisfies preamble 3 to the MPRDA. For many years the Community has repeatedly requested its PGM mining company to have representation on the Board of Directors of the company that has to date provided the major source of the royalty. All these requests have been rebuffed. The latter word is used deliberately. As a shareholder the Community will have a voice as such, and more importantly can demand a voice on the Board of Directors, to insist on skills development across the whole range of activities. The Community, as shareholder is already reaping the benefits of having representation on two Boards of Directors in two mining enterprises. The critical difference between these two situations on the one hand, and that which exists with the PGM miner on the other, is that in the former cases the Community is a shareholder, whilst in the latter it is not.

6.9.6. The Community consciously promotes the advancement of women. Women are well represented on its Traditional Council and women will be appointed to management and director positions in the various companies in which the Community acquires equity stakes.

6.9.7. It is patent the above steps being taken by the Community have the prospect of achieving optimal realization of the second imperative. But if the Contractual Royalty is abolished, or if it is limited in any way, the Community will be deprived of this opportunity.


6.10.1. A recently published report on the socio economic condition of communities in the Bushveld complex of the North West Province, where the Community's land is, was devastating in its criticism of the lack of contribution by the Mining Companies.

6.10.2. The Contractual Royalties are a visible, quantifiable, contribution to the socio economic development of the areas in which the Mining Companies operate. Their exchange for equity as outlined above, are an even more effective way of contributing to the upliftment of the Community and other communities. This money must be, and is, used for the advancement and upliftment of the Community. The other benefits that flow from the conversion to equity, as set out above, round off what has until now been a limited contribution by the Mining Companies.

6.10.3. If the advocates of abolition of Contractual Royalties prevail, the contribution of the Mining Companies will be less, and the socio economic conditions of the host communities, including the Community, will deteriorate. This will clearly, and beyond debate, be an exclusionary act as defined in the MPRDA.

6.10.4. The Fundamental Right to Dignity enshrined in the Constitution is relevant. This right attaches to every individual and to the Community as a whole made up, as it is, of individuals. Even the Apartheid regime afforded the communities on whose land Mining Companies did business, a reward for the extraction of the minerals, in the form of the royalties. The advocates of abolition would take even this away, for the sole purpose of enriching their shareholders, many of whom are not even South Africans.

6.10.5. If the abolitionists succeed the Community and all other communities will have even this vestige of dignity torn from them.


7.1. The Community knows the Chamber will urge the Government to change the Bill to abolish Contractual Royalties. The Chamber represents Mining Companies, but not all of them.

7.2. It is patent the Mining Companies will benefit from abolition of Contractual Royalties. They will be rid of an expense and this will boost their profits.

7.3. The Treasury will benefit from abolition of Contractual Royalties to the extent the decrease in expenditure and consequent increase in profits of the Mining Companies, will attract additional income tax.

7.4. But the Treasury's benefit will be limited. From 1 April 2008, the Mining Companies will pay tax at the rate of 28 per cent of their taxable income, if they are not able to reduce this by means of other deductions.

7.5. In addition, the benefit to the Treasury will be limited in overall terms. It is not know what are the contractual royalties paid to other communities. The maximum the Community receives is 12 percent of the PGM miners profit before tax, that is after all expenditure including Capex is deducted.

7.6. The big beneficiaries will be the shareholders of the Mining Companies. The share holding of all Mining Companies in South Africa is not known, but in the case of the Community the:

7.6.1. PGM miner's primary listing is on the London Sock Exchange with a Secondary Listing on the JSE Securities Exchange. The majority of its shareholders are not South African.

7.6.2. The Chrome Miner's listing is only on the London Stock Exchange, and if there are any South Africans among the shareholder, they are a tiny minority.

7.6.3. The Granite Miner is an unlisted South African company.

7.7. Thus the real beneficiaries of abolition of Contractual Royalties will be non South Africans, at the expense of poor South Africans.


8.1. This has to be seen in the context of the imposition of the State Royalty which, it is repeated the Community supports.

8.2. The Government's intention to impose the State Royalty was announced in 2002 or earlier.

8.3. Since then there has been massive expansion of existing mines and massive investment in new mining opportunities, notwithstanding the consternation the first draft of the Bill caused, and the fact that Contractual Royalties were ongoing obligations of the Mining Companies.

8.4. The Community is not aware of any proposed expansion of an existing mine or commencement of a new mining venture, which has been delayed or abandoned because of the pending imposition of the State Royalty.

8.5. Quite the converse. Although the following is only a small number of new mining ventures which have commenced since the State Royalty was first announced, it is indicative of new mining ventures being undertaken notwithstanding the pending imposition of the State Royalty and the continued existence of Contractual Royalties.

8.5.1. African Platinum Limited, quoted on the AIM of the London Stock Exchange prior to its acquisition by Impala Platinum.

8.5.2. Eland Platinum Limited prior to it being acquired by Xstrata.

8.5.3. International Ferro Metals Limited Lesedi Mine on Buffelsfontein 465 JQ and the ferra chrome smelter built on the same land. This company is listed on the London Stock Exchange.

8.5.4. The Pandora Platinum Mine which has reached pre feasibility stage.

8.5.5. The Akanani Platinum Mine

8.6. Not only are South African Mining Companies and entrepreneurs investing, so are foreigners. Foreigners own or control the mines referred to in paragraphs 8.5.3 and 8.5.5.

8.7. Employment opportunities have been and will continue to be created by these investments. The continuation of Contractual Royalties will not affect this in any way.



The starting point will be the Constitution. As stated above the relevant section is the fundamental right contained in section 25 and, more particularly that part which deals with expropriation.

9.2. It is submitted that if the Bill is amended to abolish Contractual Royalties this will be an act of expropriation.

9.3. The two leading judicial definitions of the word "expropriate" are

9.3.1. "The ordinary meaning of 'expropriate' is to 'dispossess of ownership, to deprive of property...; but in statutory provisions , it is generally used in a wider sense as meaning not only dispossession or deprivation but also appropriation by the expropriator of the particular right, and abatement or extinction, as the case may be, of any other existing right held by another which is inconsistent with the appropriated right."


9.3.2 "The word 'expropriate' is generally used in our law to describe the process whereby a public authority takes property (usually immovable) for a public purpose and usually against payment of compensation."

9.4. Section 25(4 )(b) states property is not limited to land.

9.5. Thus the Community's right to receive Contractual Royalties is property as contemplated in section 25.

9.6 The State represented here by the Legislature is a public authority as contemplated in the Harksen Case, and if it takes away the right of the Community to receive Contractual Royalties it will be an expropriator of a right as contemplated in the Beckenstrater Case.

9.7 There can be no doubt that, if the Bill is amended to take away the Community's Contractual Royalties this will be an act of deprivation of an existing right.

9.8 If this deprivation is an expropriation, the State will be obliged to pay the Community compensation. Suffice to say that the amount involved will be a significant ten figure amount.

9.9.1 However it is submitted that the deprivation will be unlawful, as it will contravene section 25(2)(a) of the Constitution which requires an expropriation to be for a public purpose or in the public interest.

9.9.2 The deprivation of the Community's right to receive Contractual Royalties is neither for a public purpose not in the public interest. The only purpose and interest that will be served is enriching the shareholders of the Mining Companies, which is not a public purpose or interest referred to.

9.9.3. The public purpose and public interest are served, and fully so too, by the imposition of the State Royalty. Nothing is said in the MPRDA that can be used to support the contention the State Royalty is in place of the Contractual Royalty. Indeed, the second imperative mentioned above says quite the opposite.

9.9.4. Therefore the abolition of the State Royalty is not a deprivation which is permitted by section 25 of the Constitution.

9.9.5. Section 36 of the Constitution does not help the abolitionists. Although the Bill will be a law of general application, if it abolishes or places restrictions on the Contractual Rights, it will fail on the following grounds: it will infringe the dignity of the Community by disabling it from providing for its own development and upliftment, as set out on paragraph 6 above; it will consequently limit the freedom of the Community; the right is a private one stipulated in contracts between the Community and the Mining Companies. The said right has never impinged on the rights and obligations of any other person, and is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom. To argue otherwise would place all contractual rights and obligations in jeopardy. All the Mining Companies which entered into the agreements containing the Contractual Royalties did so of their own volition and without coercion. They have in the past, and will in the future continue to make profits that comfortably accommodate both the State Royalty and the Contractual Royalties. The limitation the State will seek, is that it can expropriate the Contractual Royalties without having to pay compensation. There is however no relation between the limitation the State will seek and the purpose of the Bill. It is not necessary and, indeed it is a contravention of the MPRDA, for the State to sacrifice the Contractual Royalties for the sake of the State Royalty. There is clearly a less restrictive means to achieve the purpose, namely the imposition of the State Royalty. It is simply to comply with and not contravene the MPRDA, by imposing the State Royalty and not interfering in any way with the Contractual Royalties.

9.10. It is therefore submitted abolition of the Contractual Royalties will be unconstitutional.


The relevant sections of MPRDA have been set out in paragraph 3.3 and have been dealt with in paragraph 6.

9.11.2. What is said there will not be repeated.

9.11.3. However it is emphasised that abolition or limitation of Contractual Royalties will be an Exclusionary Act which is a contravention of the MPRDA.


10.1. It is submitted it is unthinkable that the State, which since 1994 has been based on the values and norms in the Constitution, which include the upliftment of previously disadvantaged people, could even think of depriving the very previously disadvantaged people who it is obliged to protect of the Contractual Royalties.

10.2. These written submissions will be supplemented by oral submissions at the public hearings of the Committee.