20100806
reuters

Johannesburg — THE Department of Mineral Resources will be taken urgently to court by Lonmin after the world's third-largest platinum miner was forbidden from selling associated minerals from its mines with immediate effect.

Lonmin CEO Ian Farmer said last night Lonmin had received a letter from the department late on Wednesday ordering it immediately to stop selling nickel, copper, chrome and other minerals apart from platinum group metals.

The matter is remarkably similar to Kumba 's battle with the department over its awarding of a prospecting right over a 21,4% stake in Kumba's Sishen iron-ore mine to the politically linked Imperial Crown Trading 289.

Lonmin has linked the letter signed by the department's North West provinc ial regional manager, Aaron Kharivhe, to a prospecting right awarded over part of its property to a HolGoun Group company.

HolGoun was established in 2003 by Sivi Gounden, a former director-general of public enterprises, an African National Congress stalwart and a former board member of Lonmin until his departure in October last year.

"The reputational damage done to SA is enormous. It runs the coach and horses through the security of tenure and undermines everything the government keeps saying about it," said Peter Leon, a mining rights lawyer with Webber Wentzel.

"It looks like a replication of Imperial Crown Trading. It is unbelievable that this was done to a UK-listed mining company that has been mining here for decades," he said yesterday.

The HolGoun website says the company holds a minority stake in Samancor Chrome. Mr Gounden is chairman of the family-owned investment holding company.

Attempts to contact Mr Gounden at his office late yesterday were unsuccessful.

The prospecting right for associated minerals was applied for in March last year and issued on May 2 this year to a HolGoun Group company, Mr Farmer said.

"Lonmin has taken comprehensive legal advice on this matter and believes that the action taken by the (department) is wrong and the company will defend its interests robustly," he said.

"Associated minerals are inextricably linked to PGMs (platinum group metals) in the ore body and it is not feasible nor economically viable to mine them alone," Mr Farmer said.

The department's spokesman, Jeremy Michaels, said he was unable to comment last night.

The 2002 Mineral and Petroleum Resources Development Act has created ambiguity about the sales of associated minerals.

"The old mining law enabled you to sell all mine products respectively with your primary minerals. The act is silent on the issue," Mr Farmer said.

"We are resolute we are going to see this through because it's not in the interests of Lonmin or the country that this ambiguity is allowed to exist and be exploited," he said.

Lonmin filed Section 102 applications in accordance with the act late last year to explicitly give Lonmin the right to sell associated minerals.

However, the applications did not include all its mineral rights because of the portion of its property covered by the disputed prospecting right.

"We've been challenging that prospecting decision through the normal processes because it's just not logical," Mr Farmer said.

Lonmin has mined and sold platinum group metals and associated metals for 30 years.

These minerals contributed $80m to Lonmin's turnover in the 2009 financial year.

Mining would continue as normal but all sales of associated minerals had stopped, Mr Farmer said. Lonmin would take urgent court action.

"This is bizarre," he said.

The letter, signed by Mr Kharivhe, pointed out that Lonmin was issued a mining right for platinum group metals and that it should refrain from selling the associated minerals, Mr Farmer said. Mr Leon said the old-order mining rights would have included the associated minerals.

"It's unbelievable that the (department) issued the prospecting right," he said. "I don't know on what legal basis the department can say Lonmin can't continue selling these minerals."

The platinum and chrome sector was recovering from a letter from the department demanding immediate changes to the bord and pillar mining method after five people were killed at an Aquarius Platinum mine. The department seemed to backtrack from the letter issued by a provincial inspector after billions of rands were knocked off Aquarius's market capitalisation, and the financial and production implications of the demand became clear.

SA's appeal as an investment destination, already tarnished by the Imperial matter, power shortages and the letter to Aquarius, would be badly damaged by what had happened to Lonmin, Leon Esterhuizen, a precious metals analyst with RBC Capital Markets in London, said. "You get a constant kick in the nuts every time you want to talk about South African mining. People don't want to waste their time understanding things that are as complicated as the SA mining scene," Mr Esterhuizen said.

"It adds significantly to the risk to your investment decisions. By implication, all South African mining stocks will be rated significantly lower than anything else in the rest of the world."

Kumba has filed an appeal against the Imperial decision. It has also lodged a high court action .