Mineral Rights. Do they still have value?

The ownership of mineral rights has received extensive media coverage of late. Claims have been made that the State has in terms of the Minerals and Petroleum Resources Development Act, 2002 (“Minerals Act”) effectively taken away mineral rights from its rightful owners and nullified the value of mineral rights. But is this claim correct, and if so what then is the current position regarding mineral rights.

To illustrate, the following example is useful. Many years ago James purchased a farm, knowing such to have potential diamond deposits which could be mined. James however never managed to get the finances in place to proceed with his prospecting plans even though this was always a dream of his. To his shock James finds out that his neighbour, Ben has applied for and been awarded prospecting rights on his farm!

But how can this be? Surely only James should have the ability to prospect and not someone else?

In terms of the Minerals Act, Ben, or any other third party for that matter, is entitled to apply for a prospecting permit on James’ farm. In terms of the Minerals Act, the right to mine can be allocated to any person who applies for that right in accordance with the Minerals Act. No preference is given to the owner of the land or the previous holders of mineral rights relating to the land, although they are not prevented from competing with anyone else for the allocation of a prospecting or mining right.

Previously under our law, you were the owner of mineral rights as a result of your ownership of the land on which the minerals are found and you could prospect or mine your land with the necessary authorization. Prior to the Minerals Act, these mineral rights could be sold and ceded to another party in terms of an agreement (a Notarial Deed of Cession of Mineral Rights) which agreement was registered in the Deeds Office.

The Minerals Act however introduced the “use it or lose it” principle. This means that if a person who owns mineral rights does not use that right (through prospecting or actual mining activities) within one year of the coming into operation of the Minerals Act, the State became the owner of those mineral rights. Accordingly, if a person should buy land today on which minerals are found, that person has to compete with everyone else to obtain a prospecting or mining license in respect of that land.

Does this mean that the State has taken away mineral rights from the owner of the land?

In a recent Appeal Court case our courts found that this was not the case. The right to ownership of mineral rights has never included the right to prospect or mine those mineral rights. If a person wanted to prospect or actually mine for the minerals, a person always had to apply to the State to obtain a license to prospect or mine. The right to actively use the mineral rights was therefore owned by the State and was granted by the State, and had thus not been ‘taken away’ from the owner of the mineral rights as they effectively never owned the right to prospect or mine for such minerals.

The Minerals Act has however resulted in unused mineral rights (where a prospecting or mining license had not been applied for) to lose their value by expanding the net of possible applicants for prospecting or mining beyond only the owner of the mineral rights.

James is however not left completely out of pocket where a prospecting or mining right is allocated to Ben. The Minerals Act makes provision that James could claim compensation from Ben for losses or damages suffered by James through Ben’s prospecting or mining activities.

With the Minerals Act the holding of mineral rights is no longer the gateway to the exploitation of minerals and have mineral rights accordingly ceased to have significant value. To explore and exploit mineral resources in South Africa the procedures for licensing in terms of the Minerals Act must be carefully followed rather than focusing on the ownership of mineral rights.

September 27, 2012

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