1. Section 11 of the
MPRDA:
transfers of shares
and
transfers of
prospecting and
mining rights
Gareth Driver
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2. OVERVIEW
 SECTION 11
 TRANSFER OF A PROSPECTING OR MINING RIGHT
 Suspensive conditions versus resolutive conditions
 Consent and then registration of transfer
 Interim arrangements – mining contracts
 Purchaser acquiring the ore
 Tax considerations
 TRANSFER OF SHARES
 Suspensive conditions versus resolutive conditions
 Minority interests and controlling interests
 Disposal or acquisition of control
 Direct and indirect interests
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3. SECTION 11
11 Transferability and encumbrance of prospecting rights and mining rights
(1) 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. [emphasis added]
[A prospecting right or mining right or an interest in any such right, or any
interest in a close corporation or unlisted company or any controlling
interest in a listed company (which corporations or companies hold a
prospecting right or mining right or an interest in any such right), may not
be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed
of without prior written of the Minister.] [Replacement text – not yet
effective]
(2) The consent referred to in subsection (1) must be granted if the cessionary,
transferee, lessee, sublessee, assignee or the person to whom the right will be
alienated or disposed of-
(a) is capable of carrying out and complying with the obligations and the
terms and conditions of the right in question; and
(b) satisfies the requirements contemplated in section 17 or 23, as the
case may be.
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4. SECTION 11 (continued)
(3) The consent contemplated in subsection (1) is not required in respect of the
encumbrance by mortgage contemplated in subsection (1) of right or interest as
security to obtain a loan or guarantee for the purpose of funding or financing a
prospecting or mining project by-
(a) any bank, as defined in the Banks Act, 1990 (Act 94 of 1990); or
(b) any other financial institution approved for that purpose by the
Registrar of Banks referred to in the Banks Act, 1990 (Act 94 of 1990), on request
by the Minister,
if the bank or financial institution in question undertakes in writing that any sale in
execution or any other disposal pursuant to the foreclosure of the mortgage will be
subject to the consent in terms of subsection (1).
(4) Any transfer, cession, letting, subletting, alienation, encumbrance by mortgage
or variation of a prospecting right or mining right, as the case may be,
contemplated in this section must be lodged for registration at the Mining Titles
Office within 30 days of the relevant action.
[Any transfer, cession, letting, subletting, alienation, encumbrance by
mortgage or variation of a prospecting right or mining right, as the case
may be, contemplated in this section must be lodged for the registration at
the Mineral and Petroleum Titles Registration Office within 60 days of the
relevant transaction.] [Replacement text – not yet effective]
[(5) Any cession, transfer, letting, subletting, assignment, alienation or
disposal of prospecting or mining right or an interest in a corporation or
company made in contravention of subsection (1) is void.][Additional text
to be inserted – not yet effective]
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5. TRANSFER OF A PROSPECTING OR MINING
RIGHT
 Section 11 prohibits a disposal of a prospecting or mining
right (or an interest therein) without the Minister’s consent
 What is the consequence of an agreement to dispose of a
right without Ministerial consent?
 Section 11(5) of the amended wording clarifies that the
disposal will be void - arguably the current wording would
have the same consequence
 Consequently, any agreement providing for such a disposal
should be subject to a suspensive condition that the
Minister’s consent be obtained (unless already obtained) –
does not only apply to the registration of transfer
 A resolutive condition is not adequate
 Also applies to disposal of an interest in a right, eg a joint
venture
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6. TRANSFER OF A PROSPECTING OR MINING
RIGHT
 Procedure requires that, after consent has been
obtained, the transfer be registered in the MTO
 Only 30 days to lodge – amended wording will extend
this period to 60 days
 Consequently, a transfer of shares is far more
convenient
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7. TRANSFER OF A PROSPECTING OR MINING
RIGHT
 While waiting for the consent and registration of
transfer, what should happen?
 Generally, the disposer continues to mine for its own
benefit.
 Particularly in intra-group restructurings, consideration
may be given to a mining contract as an interim
arrangement
 In some circumstances, mining contracts seem to be
acceptable practice
 Mining contracts allow a person other than the holder of
the mining right (in this case, the expectant acquirer of
the mining right) to undertake the physical extraction of
a mineral
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8. TRANSFER OF A PROSPECTING OR MINING
RIGHT
 As an interim arrangement, a mining contract could allow the
expectant acquirer to purchase the mineral once it has become
movable property, and the expectant acquirer can then
beneficiate and dispose of the mineral for its own benefit, but
what parameters should be observed?
 These arrangements usually provide for the expectant acquirer to be
paid compensation for the extraction activities, but also to pay for the
mineral, and these payments could leave some element of profit in the
holder of the mining right
 What if the holder of the mining right does not retain some element of
benefit or profit from the mining activity?
 How much control over the mining activity should be retained by the
holder of the mining right?
 It is usually important to ensure that the expectant acquirer’s
revenue is regarded as revenue from a mining activity for income
tax purposes
 Rulings given by SARS have accepted that, in these interim
arrangements, such revenue will be so regarded
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9. TRANSFER OF SHARES
 Like a transfer of a right, an agreement for disposal
must be subject to a suspensive condition concerning
the Minister’s consent
 After that consent has been obtained, the shares may
be transferred and it is not necessary to register
transfer in the MTO
 The most difficult question is – which transfers of shares
need consent in terms of section 11.
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10. TRANSFER OF SHARES
Mogale Alloys v Nuco Chrome
In simplistic terms, the facts were that the holder of 78%
of the issued share capital sold 33% and a dispute arose
as to whether the sale required consent in terms of section
11 and the court made a number of interesting
statements:
 As to which companies are referred to in section 11 “the
reference could only be to those companies, or close
corporations, which have any rights or interests in the
rights referred to in that subsection”
 “A disposal of a mere interest in a company ... that has
a prospecting or mining right … does not … require the
Ministerial consent”
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11. TRANSFER OF SHARES
Mogale Alloys v Nuco Chrome (continued)
 “the term “controlling interest” cannot be confined to a
single characteristic or criterion. It could mean … 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. This list is
not intended to be exhaustive, but it certainly includes
the right of a shareholder … to more than half of the
company’s profits or assets.” [emphasis added]
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12. TRANSFER OF SHARES
Mogale Alloys v Nuco Chrome (continued)
 “If the majority shareholder, with the controlling
interest, intends to dispose only of a portion of his
interest and the disposal will not result in a change of
control, ie the shareholder will retain the controlling
interest, then the disposal would … not require the
Minister’s consent.”
 “If, however, the effect of the disposal would be that
the holder of the controlling interest would lose such
control, then the disposal would require the Minister’s
consent, even if no one else acquires that controlling
interest.” [emphasis added]
 The court therefore found that the Minister’s consent
was required for the sale of the 33% shareholding
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13. TRANSFER OF SHARES
Mogale Alloys v Nuco Chrome (continued)
 The decision focused on the use of the word “dispose” and
decided that the question of whether a controlling interest was
indeed acquired by anybody else was not relevant.
 The shocking consequence of this approach could be that the
acquisition of control does not trigger the need for consent in
terms of section 11 in situations where a small, non-controlling
interest is acquired, but, when added to the existing interests of
the acquirer, that small interest gives the acquirer control, but
that could not be the intention of the legislature
 Could that consequence be avoided by taking the view that in
those circumstances the small interest is in fact a “controlling
interest” or should it be rectified by changing the interpretation of
section 11 to focus on the acquisition of control?
 Drafting shortcomings in section 11 are partly due to the fact that
its primary focus was the disposal of a right, and the language
used to make reference to a disposal of a controlling interest was
inadequate for its purpose
 Section 11 still needs to be clarified
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14. TRANSFER OF SHARES
To what extent will the amendment to section 11 rectify
the shortcomings?
 Amended wording of section 11(1) will make specific
reference to
 “any interest in a close corporation or unlisted company”
even a disposal of a minority interest in an unlisted
company will be covered
 “any controlling interest in a listed company”
 “(which corporations or companies hold a prospecting right
or mining right or an interest in any such right)”
 Still does not specifically address the question of
whether a direct or indirect interest is covered.
 Still focuses on disposals, rather than acquisitions, of
controlling interests
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15. THANK YOU
Gareth Driver
18 October 2012
Nothing in this presentation should be construed as formal
legal advice from any lawyer or this firm. Readers are
advised to consult professional legal advisors for guidance
on legislation which may affect their businesses.
© 2012 Werksmans Incorporated trading as Werksmans
Attorneys. All rights reserved.
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