Warnings about mine liquidation

Johannesburg - Mining companies with mature assets can use liquidation as a way of dodging the full expense of closure and rehabilitation, nongovernmental organisation Lawyers for Human Rights (LHR) has warned.

With South Africa’s gold industry stuck in a long-term decline, this apparent loophole could see more mining communities robbed of the protections that mining law has tried to create, the organisation said this week.

In a report released on Friday, LHR details the fallout from the liquidation of the 70-year-old Blyvooruitzicht gold mine, located west of Johannesburg, in 2013.

The abrupt end of mining operations, with the concomitant lack of rehabilitation and mitigation measures – resulting in 75% unemployment and environmental devastation – is described as a catastrophe.

Up to 6 000 people still live in the mine village at Blyvooruitzicht and most are still unemployed. Basic municipal services are nonexistent and subject to the environmental ravages of mined-out land, including sinkholes and dust from unsecured mine dumps.

“The Blyvooruitzicht example deftly illustrates that, while the practice of casting off underperforming assets by invoking insolvency proceedings may be an effective way to safeguard shareholder profits, the negative impact on South Africa’s environment and communities is tremendous,” the report reads.

“As the gold mining industry enters its twilight years, this report alerts us all to the human toll from unforeseen closure and the downscaling of mines.

“If the experience of these individuals is a template for the scores of other mining communities which exist in South Africa, the next decade will produce similar crises on a much wider scale.”

Blyvooruitzicht was placed in provisional liquidation in 2013, halfway through a planned takeover of the mine by Village Main Reef from previous owner DRDGold.

Its particular circumstances led to both companies disavowing responsibility, making the management of the mine’s closure the liquidators’ problem.

South Africa’s mining law makes provision for a number of responsibilities relating to the ultimate closure of mines and the rehabilitation of the land.

These include contributions to a rehabilitation fund, as well as plans for dealing with the effects on the workforce and community when the mine closes.

They form part of what is known as the social and labour plan. A prerequisite for obtaining a mining right, this plan outlines how the company intends to share some of the benefits that flow from mining.

LHR’s argument is that these obligations seem to fall into a crack during liquidation.

Its major recommendation is that there should be a legal obligation to implement rehabilitation measures before a mine is allowed to go into liquidation.

It proposes amendments to the law that spell out how liquidators use rehabilitation funds, but also that South Africa “explore methods to allow recourse to a holding company ... to ensure that rehabilitation obligations are fulfilled”.

At Blyvooruitzicht, this fund amounted to R36 million when the mine closed – a fraction of what was required to rehabilitate the mine shafts and tailing dumps which have consequently been left in poor condition.

This has resulted in uncontrolled acid mine water drainage and waste dumps giving off large amounts of radioactive dust.

In the LHR report, one of the mine’s provisional liquidators says he and his colleagues do not even know what was in the mine’s social and labour plan.

According to LHR, this plan outlined commitments such as providing workers with training and helping them look for other jobs, using funds that were apparently set aside for this.

Given that none of this happened, the 6 000 inhabitants of the mine’s village were placed in a far worse situation than might have been the case if things had occurred as the law had prescribed.

The case of Blyvooruitzicht is similar to the tragedy that played out in the North West around the mines of Pamodzi Gold, which was also placed into provisional liquidation in 2009.

As the mine was shut and ultimately abandoned, the area was invaded by illegal mine workers, or zama-zamas, while uncontrolled acid mine drainage filled up shafts.

Workers and their families stayed on site, unpaid, in the hope of a white knight investor coming to revive operations.

The mine housing they occupy has no municipal services, having been private property serviced by the mining company itself.

LHR recommends that the Blyvooruitzicht mining village be absorbed into the Merafong City Local Municipality and provided with services – a step that should apply in all municipalities when a mine with its own housing is closed.

Local municipalities hosting mining compounds need to be prepared for a mine’s closure – and the technical and financial arrangements for integrating mining villages with the infrastructure surrounding them has to be part and parcel of the closure liability imposed on mining companies, said LHR.

It also advised that mining laws be amended to clearly spell out what happens with rehabilitation funds in the case of liquidation.

Blyvooruitzicht, like Pamodzi’s mines, has stayed in a perpetual state of provisional liquidation because mining rights get extinguished on final liquidation – destroying even the slight possibility of rescue by new investors.