Last week our Supreme Court of Appeal ruled(1) that the duration of a prospecting right must be calculated from the date of receipt of the granting letter, and not from date of the notarial execution of the prospecting right.

This ruling has drastic implications for both current and future holders of mineral rights under the Mineral and Petroleum Resources Development Act, 28 of 2002 (MPRDA), as it is at odds with the current practice by the Department of Mineral Resources (DMR).

Background

In November 2006(2),  Dilokong Chrome Mine (Pty) Ltd (Dilokong) applied for a prospecting right.

Shortly thereafter, the Regional Manager informed Dilokong, by way of a “granting letter”, that its prospecting right was granted for a period of 4 years, subject to the condition that Dilokong submit a copy of a signed shareholder’s agreement with a BEE entity.

Dilokong failed to provide the Regional Manager with such an agreement and, on the date that was arranged for the notarial execution of the prospecting right, Dilokong was informed that the execution could accordingly not proceed for that reason.

Dilokong’s prospecting right was accordingly never executed, although it had been granted.

The Dispute

Some years later, a different entity, Mawetse (SA) Mining Corporation (Pty) Ltd (Mawetse), applied for a prospecting right over the same mineral and land as Dilokong’s prospecting right.

Mawetse’s application for a prospecting right was rejected on the basis that Dilokong’s prospecting right application for the same mineral and land had already been granted.
Mawetse thereupon discovered that the duration of Dilokong’s prospecting right had in fact run its course (if the duration was calculated from the date that Dilokong was notified of the granting of its right), and Mawetse accordingly contended that Dilokong’s prospecting right had lapsed, and that Mawetse’s application for a prospecting right should be granted over the land.

Dilokong contended, in response, that its prospecting right had not lapsed and in fact the duration of its prospecting right had not yet commenced since it had not yet been notarially executed.

Supreme Court of Appeal Decision

The Supreme Court of Appeal made the following findings:

1. The duration of Dilokong’s prospecting right commenced on the day that Dilokong was informed by the DMR in the “granting letter” that its prospecting right was granted, and it is incorrect to suggest that the date of notarial execution of the prospecting right is the date on which the duration commences;
2. In terms of section 56(a) of the MPRDA a mineral right lapses as soon as it expires. Accordingly, Dilokong’s prospecting right had lapsed after the completion of the period of 4 years from the date on which Dilokong was informed that its prospecting right was granted;
3. In this regard, it did not matter that Dilokong’s prospecting right was still awaiting notarial execution;
4. To suggest that the duration of the prospecting right was to be calculated from the date of the notarial execution thereof would have the effect that the right over the particular land and mineral was effectively sterlized in favour Dilokong until such time as the prospecting right had been notarially executed, which is contrary to the MPRDA's objectives. 

Practical Implications

The Court's ruling has significant implications for those in the industry:

• The ruling is entirely at odds with the current practice of the DMR, where the date of notarial execution of the right is recorded as the date of commencement of the right, for the purpose of calculating the duration of the right.
• The inclusion of the date of notarial execution as the commencement date into a mining or prospecting right contract may now be considered to be an unlawful practice, which is vulnerable to be set aside by interested third parties by way of internal appeal or court application.
• This may have the result that certain mineral rights may be declared to have already lapsed, and the duration of other mineral rights may be reduced to accord with the ‘correct’ duration – in order to align it with this ruling by the Supreme Court of Appeal.
• It may also mean that interested third parties may now seek to challenge the DMR’s rejection of applications for mineral rights where there is a conflict of rights, if the third party ascertains (for example, through a PAIA request) that the current holder’s right had already lapsed.
• In effect then, it is critical for applicants of rights under the MPRDA to ensure that their rights are executed as soon as possible after they are notified that their right has been granted.
• It is equally important for all holders of mineral rights to ensure that their rights are not vulnerable to a potential legal challenge, on the basis of their rights having already lapsed, taking into account this ruling by the Supreme Court of Appeal.

1. Minister of Mineral Resources v Mawetse (SA) Mining Corporation (Pty) Ltd (20069/14) [2015] ZASCA 82 (28 May 2015)
2.  Prior to the commencement of the Mineral and Petroleum Resources Development Amendment Act, 49  of 2008