Johannesburg - A court will decide on Thursday
whether a small but politically connected company with no mining
experience can keep a prospecting right it was awarded.
But the stakes are far bigger than one dispute, as the case
has rattled investor confidence in Africa's largest economy and could have
multi-billion rand consequences for Kumba Iron Ore [JSE:KIO] and Arcelormittal
SA [JSE:ACL].
Kumba, a unit of global miner Anglo American [JSE:AGL], has
challenged the state's award of a prospecting right over a 21.4% stake in
Kumba's Sishen mine to little-known Imperial Crown Trading (ICT).
The granting of that right by South Africa's department of
mineral resources raised concerns about political favouritism and cronyism, as
one of ICT's owners is a business partner of President Jacob Zuma's son
Duduzane Zuma, and the company has no real mining experience.
Thursday's ruling will be the latest twist in a long and
complex saga, ending with a decision whether ICT should keep the right. Few
think it will.
"I would be very surprised if the court granted ICT the
right, because the circumstances under which the right was granted were so
extraordinary," said Peter Leon, a mining expert at Johannesburg law firm
Webber Wentzel.
"In this particular case, the regional manager in the
department and other officials had recommended against the grant, and the deputy
director general at the time approved it."
If the judge says ICT can keep the prospecting right, that
will probably allow it to apply for the mining right.
If, as expected, the judge rules that ICT should not have
been granted the right in the first place, he may set it aside but say that
only Kumba can apply for the mining right.
Thursday's court drama will also have profound implications
for steelmaker Arcelormittal's South Africa unit, as it allowed the right in
question to lapse in 2009. This was subsequently granted to ICT.
Arcelormittal is welded to the case because a preferential
supply agreement with Sishen that enabled it to buy iron ore at below market
prices was tied to the right, and Kumba says that has now lapsed.
This is being hashed out in a separate arbitration process,
but Thursday's ruling could ultimately have a bearing on this, and the stakes
are huge for both companies, as the preferential iron ore supply deal is worth
billions of rand a year.