Our courts have recently had to grapple with the concept of what happens to old order rights once they 'cease to exist' when the holders of such rights fail to apply for their conversion in terms of the Mineral and Petroleum Resources Development Act, No. 28 of 2002 (MPRDA). Do the rights vanish into thin air or do they revert to the state? And can they be reallocated to third parties?

The MPRDA fundamentally altered the legal landscape in respect of minerals and mining. To mitigate potentially adverse effects, to prevent disruption and to ensure continuation of mining and prospecting being conducted before the enactment of the MPRDA, Schedule II of the MPRDA contains transitional arrangements which created, inter alia, old order prospecting rights and old order mining rights.

The MPRDA and Schedule II provided that old order prospecting rights had to be lodged for conversion within two years from the date that the MPRDA took effect, and old order mining rights within five years. Once these rights were converted and registered in the Mineral and Petroleum Titles Registration Office, they ceased to exist and the holder of such a right became the holder of a mining or prospecting right granted pursuant to the MPRDA, with all the rights and obligations attached to such a right as set out in section 5, read with sections 17, 18, 23 and 24 of the MPRDA. Where the holder of the old order right failed to lodge the right for conversion within the prescribed times, such a right ceased to exist.

The Constitutional Court clarified the effects of an old order right ‘ceasing to exist’ in the recent case of Minister of Mineral Resources and Others v Sishen Iron Ore Company (Pty) Limited and Another [2013] ZACC 45 (the Sishen case).

The meaning of old order rights: the Sishen case

Sishen Iron Ore Company (Pty) Limited (Sishen) and Arcelormittal South Africa Limited (AMSA) were joint holders of common law mineral rights in respect of iron ore and quartzite on certain Sishen Mine properties. Sishen held an undivided 78.6% share and AMSA held an undivided 21.4% share in the mineral rights on the properties. Sishen and AMSA also possessed separate mining licences pertaining to the share that each of them held.

Once the MPRDA came into force, for purposes of Schedule II, Sishen and AMSA held separate old order mining rights. While Sishen converted its old order right within the prescribed time, AMSA failed to do so. The old order rights therefore ceased to exist at two distinct times, namely, on conversion by Sishen, and upon expiry of the prescribed period for AMSA. Upon expiry of the five-year transitional period, Sishen applied for rights in respect of the remaining 21.4%, and around the same time Imperial Crown Trading 289 (Pty) Ltd (Imperial Crown) applied for a prospecting right in respect of iron ore and manganese on the same properties. Imperial Crown was granted the prospecting right and Sishen took this decision on review.

Both the High Court and the Supreme Court of Appeal (SCA) found that Sishen was granted the full right (100%) on conversion as the sole and exclusive holder of the converted mining right and had thus obtained conversion of its own and AMSA's old order mining right.

The Constitutional Court (the Court) defined old order rights as a new right created by the MPRDA which consisted of, inter alia, the common law mineral right together with the mining authorisation. This composite statutory right could be converted. The Court held that it was not the common law mineral right that was being converted, but rather the old order right as described above. The Court found that the High Court and the SCA had proceeded from the wrong assumption that it was the underlying mineral right that was converted as opposed to the old order right; and erred in concluding that Sishen had become the sole holder of the mineral rights. The Court accordingly found that Sishen could not convert more than its own old order right and that there was no legal basis for concluding that AMSA's loss became Sishen's gain. The conversion was therefore granted only in respect of Sishen's old order right and not that of AMSA.

The Court subsequently turned to the question of whether the unconverted right lives beyond expiry of the transition period. The Court was of the view that the old order right ceases to exist in relation to the holder but continues to exist to the state.

The Court stated that "the old order mining right reverted to the state, as custodian of the right in terms of the Act". The state is then entitled to grant new rights under the MPRDA. In this case, however, the Court found that the state’s powers were limited in respect of whom it could grant the right to.

Section 16 and 22 of the MPRDA (pre-amendment on 7 June 2013) provide that the Regional Manager must accept an application for a prospecting or mining right if no other person holds a prospecting right, mining right, mining permit or retention permit for the same mineral and land. The Court therefore held that there is only one party competent to apply for and be granted rights on the Sishen Mine. This party is Sishen, as it is the existing right-holder and is therefore not prohibited by sections 16(2)(b) and 22(2)(b). The Court ordered that the Director General of the Department of Mineral Resources (DMR) must allow Sishen to apply for the remaining 21.4% undivided share in the right to iron ore and quartzite on the Sishen Mine properties.

Analysis

In terms of the Sishen case, it can be said that once old order rights cease to exist they revert to the state and the state may grant new rights to third parties in terms of section 17 and 23 of the MPRDA. The state may not, however, grant rights or accept applications for rights where rights in respect of the same mineral and land have been granted.

But is there not an alternative view that the Court could have taken that would have been more in line with the MPRDA? The MPRDA does not provide that old order rights revert to the state once they cease to exist; nor what the state would be entitled to do with such rights. As stated by the Court in the Sishen case, mineral rights are not recognised in the MPRDA; they are only relevant when it comes to the transitional arrangements. The life of old order rights should therefore not be extended beyond the transitional period as the MPRDA did not cater for such a position. Old order rights were created by the MPRDA and once they were converted, or when the holder failed to lodge them for conversion, they were extinguished by operation of law. Once old order rights cease to exist, they are terminated in their entirety and permanently. Such rights therefore do not 'revert' to the state, and nor do they become vested in the state.

In the earlier case of Agri SA v Minister for Minerals and Energy 2013 (4) SA 1 (CC), the Constitutional Court held that neither the state nor other entities or people acquired the rights once they ceased to exist. Subject to the transitional arrangements, the MPRDA had put an end to the rights without necessarily transferring them to the state. The Court also clarified that "custodian" does not mean that the state has acquired and thus has become owner of the mineral rights concerned.

This approach is in line with the MPRDA. To allow old order rights to continue to exist with regards to the state would allow common law mineral rights to exist in some form as they are a composite part of the old order right. Old order rights cease to exist in their entirety, both to the holder and to the state. They can be regarded as 'vanishing into thin air'.

Conclusion

What remains after the old order right has ceased to exist is the mineral resource itself, with no rights attaching to it, and it being the common heritage of the people of South Africa. The state as the custodian of that resource for the benefit of all South Africans, acting through the Minister of the DMR, is permitted in terms of section 3(2) of the MPRDA to grant, issue, refuse, control, manage and administer the mineral resource. The rights that are granted thereafter are not the handing over of the old order rights in any form to a different party, but rather new rights under the MPRDA with all the rights and obligations that flow from such rights as set out in section 5, read with sections 17, 18, 23 and 24 of the MPRDA.