20110815
Reuters
JOHANNESBURG (Reuters) - A South African court will hear this week a case over disputed mineral rights that are behind a spat worth billions of rand and which could shed light on allegations of fraud and corruption in government ranks.

Disputes over mineral rights in the resource-rich country have raised investor concerns over transparency and governance in Africa's biggest economy after some had been awarded to people linked to high-ranking officials, sometimes over areas that were already being mined.

The dispute in court, which is at the heart of an ongoing battle between Kumba Iron Ore and the South African unit of steel giant ArcelorMittal, could further unnerve mining companies in the top producing country for platinum and ferrochrome and a major supplier of gold and iron ore.

Kumba, a unit of global miner Anglo American, has challenged the state's award of a prospecting right over a stake in Kumba's Sishen mine to little-known yet politically connected Imperial Crown Trading (ICT).

Vestact analyst Sasha Naryshkine said the case could have a long-lasting impact on South Africa as a mining destination.

"It's not the once-off impact on Kumba that is important. The implications for the government, the minerals industry and the sector could be far bigger and far more dangerous," he said.

Kumba's allegations of fraud and corruption led last month to an unprecedented raid of the minerals ministry by a police investigative unit, which analysts interpreted as signalling serious flaws within a key government department.

ICT was granted a prospecting right over a 21.4 percent stake in Kumba's Sishen mine over which ArcelorMittal previously held a mining right but which the steelmaker failed to convert as required by law.

The mineral right allowed ArcelorMittal to source iron ore from Kumba at a discount and the steelmaker hopes to prove that it never lost that right.

Should that fail, the company said it would buy ICT to regain that right and the preferential supply deal. Kumba applied for the right along with ICT, but was disqualified.

The granting of mineral rights to politically connected businessmen with little mining experience is a major concern.

The dispute also raised doubts about the implementation of the ruling party's black economic empowerment policy introduced after apartheid and which only seems to benefit a small elite.

As part of its proposal to buy ICT, ArcelorMittal said it would sell a stake in itself to black investors, including ICT shareholders and Zuma's son, provoking heavy criticism from opposition parties and analysts who said the deal portrayed black empowerment as a "bribe of the political class".

Mining Minister Susan Shabangu said last year that bribery, deception and intimidation were ripe in the mining sector and vowed to clean up the industry, but some are worried about a perceived lack of leadership from President Jacob Zuma.

The worries over mineral rights add to an ongoing debate over nationalisation of South Africa's mineral wealth, led by Julius Malema, the outspoken leader of the ANC's Youth League.