Application of the MPRDA on Indirect Transfer of a Controlling Interest: A Short Note on Vantage Goldfields SA (Pty) Ltd and Another v Arqomanzi (Pty) Ltd and Others

11 Dec 2023 | By Daniel Hertog
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11 Dec 2023 | By Daniel Hertog

Introduction

The case of Vantage Goldfields SA (Pty) Ltd and Another v Arqomanzi (Pty) Ltd and Others[1] (“Goldfields”) has clarified whether s 11(1) of the Mineral and Petroleum Resources Development Act[2] (“MPRDA”) applies to the indirect transfer of a controlling interest. This blog explores the findings of the Supreme Court of Appeal (“SCA”) in this case, read with prior findings of Coppin J in Mogale Alloys (Pty) Ltd v Nuco Chrome Bophuthatswana Proprietary Limited[3] (“Mogale”).    

Purpose of s 11 of the MPRDA

Under the old order, the transfer of extractive rights was not subject to the same strictures found under South Africa’s constitutional democracy. This enabled extractive corporations to easily transfer the very rights at the heart of South Africa’s exclusionary and exploitative past, often subjugating the rights and interests of the majority of South Africans. However, the MPRDA changed this.

As constitutionally transformative legislation, the MPRDA seeks to, inter alia, provide for equitable access to and sustainable development of mineral and petroleum resources.[4] In achieving such ends, the MPRDA imposes a custodian duty on the state to ensure, inter alia, tenure security over extractive rights; and that right holders make a meaningful socio-economic contribution to South Africa, considering the need for redress to rectify historical injustices.[5] For such reasons, s 11(1) of the MPRDA was framed as follows:

“A prospecting right or mining right or an interest in any such right, or a controlling interest in a company or close corporation, may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister, except in the case of change of controlling interest in listed companies”. 

Section 11(2) of the MPRDA prescribes that the consent by the Minister of Minerals and Energy under ss (1) be granted provided the prospective right holder satisfies the spirt, objectives and other relevant provisions underpinning the MPRDA. Such obligations on the Minister of Minerals and Energy are, unlike under the old order, to ensure that there are constraints on the exercise of public power and performance of public functions when transferring rights. Furthermore, it is because of the state’s custodian duty that such powers and functions are placed on the Minister of Minerals and Energy. Section 11 of the MPRDA, therefore, aims to ensure that prospective right holders are properly vetted before rights can be transferred.[6] 

The Mogale Case  

Prior to the Goldfield’s judgment, the seminal case pronouncing on the transfer, albeit a direct transfer, of a “controlling interest”, including the concomitant rights and obligations in relation thereto, was the Mogale case. A primary issue in the Mogale case was whether there was a direct transfer of a “controlling interest”, which would necessitate ministerial consent.[7] The answer to such question called for an analysis of s 11 of the MPRDA. In undertaking such analysis, there are important canons which can be extrapolated from the Mogale judgment, which is also relevant for purposes of appraising the Goldfields case.

For one, the Mogale case pronounced on the term “right” under s 11(1) of the MPRDA as being read to include a “controlling interest” in a company.[8] Secondly, Coppin J went on to broadly define a “controlling interest” as follows:

“It could mean, in the case of a company, more than 50% of the issued share capital of the company, or more than half of the voting rights in respect of the issued shares of the company, or the power to either directly or indirectly appoint, remove or veto the appointment of the majority of the directors of the company without the concurrence of another”.[9]

Thirdly, Coppin J reiterated the implications of s 11(2) of the MPRDA. Because a right must be interpreted as including a controlling interest for purposes of s 11(2) of the MPRDA, when there is a disposal of a controlling interest, provided it is an unlisted company, ministerial consent is required to ensure the right holder complies with various other provisions under the MPRDA.[10] However, ministerial consent would not be required if a shareholder merely disposes of a portion of shares and not a controlling interest.[11] The position would be different if a shareholder so much as loses a controlling interest, as in, even if it is not disposed of to anybody else. In such a case, ministerial consent would still be required.[12] Again, an understanding of why such consent is required to transfer rights lies in ensuring such transfers effect the transformative objectives underpinning the MPRDA. This, after all, is the overarching aim of s 11 and the MPRDA as a whole.

Thus, while the Mogale case maintained persuasive value on pronouncements around the meaning of controlling interest and ministerial consent for purposes of directly transferring rights, the Goldfields case serves as authoritative value for both the principles set out in the Mogale case as well as for the indirect transfer of rights. It is to the Goldfields case this blog now turns.

The Goldfields Case

While the Mogale case shed some light on s 11 of the MPRDA, the Goldfields case provided further clarity on any uncertainty regarding ministerial consent in relation to the transfer of a controlling interest, particularly an indirect transfer.

The brief facts of this case pertain to three companies placed under business rescue following the Lily Mine incident in 2016, namely: MIMCO, Vantage Goldfields and Barbrook.[13] The controlling interest of MIMCO and Barbrook, who both held mining rights, vested in Vantage Goldfields.[14] However, pursuant to its business rescue proposal, 98% of Vantage Goldfields shares, along with its concomitant holding interest, were issued to an Australian based company, Macquarie.[15] Consequently, several Vantage Goldfield’s shareholders relinquished their shares, albeit indirectly to Macquarie.[16] The disposal of Vantage Goldfield’s controlling interest meant that, indirectly, the controlling interest it held in MIMCO and Barbrook, including the mining rights, were also disposed of.[17] 

The issue became whether ministerial consent must be obtained to exercise mining rights when there is an indirect change in the control of a holding company, pursuant to s 11 of the MPRDA.[18] The answer to this question was undertaken by appraising the relevant provisions.

Similar to the ratio decidendi of Coppin J in the Mogale case, in the Goldfields case, Ponnan and Matojane JJA applied a contextual approach to interpreting s 11 of the MPRDA, with due regard to the overarching aims underpinning the MPRDA.[19] The Goldfields case relied on the findings of Coppin J in the Mogale case with regard to interpreting the term “right” as including a “controlling interest” under s 11(2) of the MPRDA.[20] Furthermore, the Goldfields case confirmed that if a shareholder loses a controlling interest, even if it is not transferred, ministerial consent is required.[21] Importantly, the Goldfields case confirmed that any form of transfer envisaged under s 11(1) of the MPRDA would naturally entail an indirect transfer.[22] Such transfer would include if new shares are issued by a company holding a mining right, resulting in the subsequent control change.[23] 

Conclusion    

For many years, the Mogale case maintained persuasive value regarding the meaning of controlling interest and the circumstances under which ministerial consent is required to transfer such interest, pursuant to s 11 of the MPRDA. The Supreme Court of Appeal has laid to rest any uncertainty around the application of s 11 of the MPRDA. In addition to confirming the findings of Coppin J in Mogale, the Goldfields case provided certainty on whether ministerial consent is required for the indirect transfer of a controlling interest.

 

[1] (733/2022) [2023] ZASCA 106.

[2] 28 of 2002.

[3] [2011] (6) SA 96 (GSJ).

[4] See the long title; the Preamble; s 2(c) of the MPRDA.

[5] See ss 2(b); (d)-(g); (i) of the MPRDA.

[6] See para 37 of Mogale.

[7] See paras 5; 17 of Mogale.

[8] See para 29 of Mogale. Although, some scholars have critiqued the finding that a controlling interest can be conflated with the rights envisaged under s 11(1) of the MPRDA. See PJ Badenhorst & JJ Du Plessis “Mogale Alloys (Pty) Ltd v Nuco Chrome Boputhatswana (Pty) Ltd 2011 (6) SA 96 (GSJ)” (2012) 45 De Jure 388 400-401.

[9] See para 37 of Mogale.

[10] See para 28 of Mogale.

[11] See para 38 of Mogale.

[12] See para 38 of Mogale.

[13] See paras 3-4 of Goldfields.

[14] See para 46 of Goldfields.

[15] See para 46 of Goldfields.

[16] See para 47 of Goldfields.

[17] See para 47 of Goldfields.

[18] See para 12 of Goldfields.

[19] See para 48 of Goldfields.

[20] See para 49 of Goldfields.

[21] See para 49 of Goldfields.

[22] See para 50 of Goldfields.

[23] See para 50 of Goldfields.