The FSE refers to the recent workshop facilitated by the DEA on the proposed Regulations pertaining to the financial provisioning on the rehabilitation and remediation of environmental damage cause by reconnaissance, prospecting, exploration, mining or production operations.

Firstly, the FSE wishes to express its gratitude to the DEA for the facilitation of the workshop, which provided an opportunity for meaningful engagement.

The FSE hereby wishes to augment its oral comments, which the FSE put forth at the said workshop, in particular with reference to Regulation 6, subsection 6 of the proposed Financial Regulations, whereby it is stated:


“The Chief Executive Officer of the applicant, holder, or person appointed in a similar position, or where liquidation or business rescue proceedings have been initiated, the liquidator or business rescue administrator of the company, is responsible for implementing the plans and report contemplated in subregulation (2)* and signing off all documentation submitted to the Minister.” 

*(Subregulation (2) directs an “applicant or holder to determine the financial provision through a detailed itemisation of all activities and costs, based on actual market related rates for implementing the activities for-

  1. Annual rehabilitation, determined in the annual rehabilitation plan conforming to the content requirements of Appendix 1;
  2. Final rehabilitation, decommissioning and mine closure, determined in the final rehabilitation, decommissioning and mine closure plan, apportioned per year and conforming to the content requirements of Appendix 2; and
  3. Remediation and management of residual and latent environmental impacts, including the ongoing pumping and treatment of polluted or extraneous water, determined in an environmental risk assessment report conforming to the content requirements of Appendix 3”).

The FSE’s involvement with the business rescue and liquidation processes of the Grootvlei Mine, the Blyvooruitzicht Gold Mining Company and the recent liquidation of the Mintails Group’s Mintails Gold (Pty) Ltd, Mintails SA (Pty) Ltd and Mintails Randfontein Cluster companies and Prof Tracy Humby’s research in this matter (Report attached) assisted the FSE in identifying certain challenges, e.g.

  • In terms of the Companies Act 71 of 2008 and the Insolvency Act 24 of 1936 the liquidators’ duty is to protect the interest of the creditors and the shareholders, and not the environment.

Prof. Humby’s paper highlighted the following challenges:

  • The lack of articulation between the closure requirements in the MPRDA and the process for winding up companies as set out in chapter 14 of the Companies Act, 1973.  Chapter 14 establishes a process whereby insolvent companies are placed under the custodianship of a liquidator who manages the fair and equitable allocation of the company’s property amongst its various creditors. Various safeguards are built into this process to ensure that interested parties are made aware of an application to initiate the winding-up of a company; that reasons justifying the postponement or dismissal of the application for winding-up are considered; and that creditors are allowed to consider the company’s statement of affairs and prove their claims against the company. The winding-up process commences with a court granting a provisional liquidation order and appointing one or more liquidators who assume custody of the company’s affairs. The process culminates in the liquidator lodging a liquidation and distribution account with the Master of the High Court specifying how the company’s remaining assets must be applied in (i) payment of costs, charges, and expenses incurred in the winding-up process; and (ii) payment of the claims of creditors in a manner that approximates as far as possible the allocation of assets in terms of the law of insolvency. After the winding up is complete the liquidator sends a certificate to the Companies Commission which allows for the company to be dissolved and deregistered, thus ending its existence as a juristic person and it capacity to bear legal rights and obligations.
  • The MPRDA, chapter 14 places no specific obligation on the court to determine whether a company applying for a provisional liquidation order has applied for a closure certificate, ensured the transfer of environmental liabilities, or actually topped up any shortfall of funds in the chosen vehicle for financial provision. This lack of specificity is exacerbated by the narrow notice requirements, as chapter 14 requires only that employees, trade unions and SARS should be notified of a company’s intention to initiate winding up proceedings (s 346A Companies Act, 1971).
  • Government departments charged with the custodianship of mineral resources or the protection of the environment are not required to be notified and in practice are frequently caught on the back foot, becoming aware of a company’s pending liquidation after a winding-up order has already been granted by a court. Although notice of a provisional winding-up order is required to be published in the Government Gazette, capacity constraints are such that it is unlikely such departments will become aware of the application in time to participate in the court proceedings or later in the creditors’ meetings. Whether they would even be able to “represent” the financial provision for environmental rehabilitation at the creditors’ meetings is open to debate.
  • The duties and potential liability of the liquidator during the liminal phase between the granting of the provisional and final winding-up orders are unclear.  It is uncertain, for instance, whether the liquidator is obliged to apply for a closure certificate where the company itself has failed to do so, or whether the liquidator(s) would be responsible for environmental damage occurring during the liquidation phase.
  • It is not clear whether the financial provision for rehabilitation already “made” would be regarded as an asset of the company available for distribution to the creditors. In practice, the protection afforded to the financial provision would probably depend on its form. In the case of trust property, for example, s 12 of the Trust Property Control Act provides that trust property shall not form part of the personal estate of the trustee, except insofar as the trust beneficiary is entitled to the trust property. However in terms of the Standard Trust Deed used by the DMR for financial provision for rehabilitation, the trust is established for the benefit of the beneficiary, which when read with other clauses, clearly means the mining company responsible for carrying out rehabilitation and preventing and controlling pollution at its operations. Given this it would be possible to argue that protections afforded by trust legislation do not apply. Similarly, cash deposited into an account designated by the director-general could be regarded as an “asset” in the liquidation process.
  • Next, in the (likely) event of a shortfall in funds (i.e where environmental liabilities have been accounted for but funds have not actually been transferred to the vehicle for financial provision), there is no guidance on how such claim could be proved at creditors meetings. It is doubtful whether the financial provision for rehabilitation would rank as either a “secured” or a “preferent” creditor, as these terms are currently defined in the Insolvency Act. The department of mineral resources (or other state department or civil society actor) would thus have to fight with other concurrent creditors for the spoils of assets remaining after these two creditor categories have been satisfied.
  • The public interest in rehabilitation, specifically to ensure that the state and communities do not assume a disproportionate share of the environmental risks, should however be enough to justify the pre-liquidation settlement of the financial provision for environmental rehabilitation; i.e. it should be part of the court order granting provisional liquidation. However there is no clear obligation in law vesting in mining companies to do this. The Standard Trust Deed used by the department of mineral resources states that should a beneficiary go into liquidation prior to fulfilling its statutory environmental obligations it must not earlier than three months, and not later than one month prior to taking any steps terminating mining operations or initiating winding up proceedings, have final estimates prepared of the probable costs of compliance with outstanding environmental statutory obligations, to be certified by the regional manager (clause 17.1, Standard Trust Deed). If, on or after the date of termination of mining activities, the total amount estimated for outstanding environmental obligations exceeds the amount standing to the credit of the beneficiary in the trust’s account, the beneficiary “shall forthwith pay to the Trust the shortfall” (clause 17.2, Standard Trust Deed). However, the only consequence of non-compliance with this clause (and other clauses) of the trust deed is that it allows the Commissioner of SARS to apply certain tax penalties.
  • Finally, one of the most serious consequences of the winding up procedure is that the company ceases to exist as a legal person. The environmental obligations specified in the MPRDA are linked to the “holder” of a prospecting or mining right, and this in turn is defined with reference to a “person”. If no “person” legally exists these obligations by extension cannot be enforced. Amendment Act 49 of 2008 attempted to circumvent this by specifying in its amendment of s 43 that the obligation to apply for a closure certificate extends to “the previous holder of an old order right or previous owner of works that has ceased to exist”. However, the formulation “previous owner of works that has ceased to exist”, while laudable in its intention, cannot on its own resuscitate a dissolved company. How can obligations be enforced against an “owner” that is distinguished from other holders by non-existence? The amendment would have done better to refer to the “previous shareholder or shareholders of a juristic person that has ceased to exist”.

These challenges were confirmed by the Parliamentary Portfolio Committee (PPC) on Mineral Resources during its oversight visit of Shiva Mine and the Mintails Group in September 2018.  We attach the Report hereto.  Please refer to pages 39 to 52 of the attached Report. (Ref. 22 November 2018:  ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS NO 174─2018. No 174—2018,  FIFTH SESSION, PARLIAMENT. Pages 39 – 52.)

The PPC found:

  • It is clear that some mining companies are still operating without adequate financial provision for repairing damage caused to the environment by mining activities, if they suddenly close.
  • Neither Shiva Uranium (Pty) Ltd and Mintails Mining SA (Pty) Ltd has saved all the money they were supposed to set aside under the law to pay for environmental rehabilitation. The shortfalls are R36.6-million for Shiva and R460-million for Mintails.
  • The state will inherit these liabilities if the mines are finally liquidated.
  • The DMR has failed to implement effectively and carry out the intentions of Parliament to ensure that all mines rehabilitate the damage they cause.
  • Changes to the mining law were made by Parliament after 2002 to ensure that in mining, as elsewhere, the polluter must pay.
  • The new laws have not proven effective in avoiding this situation where the state and the taxpayer still ends up paying for the environmental harm caused by mining.
  • There is a lack of clarity on the rules for the Department of Mineral Resources when it comes to Business Rescue Practitioners. It seems there is non-application of the law resulting in a free for all.
  • The DMR allowed Mintails to operate between 2012 and 2018, despite the fact that the Department had never approved the environmental management plans of the mine and had never issued the company with a mining right under the law.
  • There is a huge regulatory gap regarding the financial provision of environmental rehabilitation of a mine during the process of business rescue.
  • There is a lack of standardization by the DMR on how to relax environmental obligations of a mine during the business rescue stage.

The PPC recommended:

  • The DMR must identify clearly and specifically the gaps between mining, insolvency and company law that have led to this ongoing situation, where the polluter does not pay, it is the state that ends up paying.
  • DMR should get specific legal opinion on these complex issues.
  • The DMR must report to the Committee in Parliament on what it will do [or needs to do] differently in future to ensure that this situation does not continue.
  • DMR must report on what efforts they have made to hold directors and shareholders of Shiva and Mintails liable for the environmental debts of these failed ventures.
  • The DMR must actively ensure that the licensing of mines goes with responsibility and accountability.
  • The DMR should further explore the regulatory gaps resulting from the business rescue process and come up with regulations that will ensure full environmental compliance during the period when a mine s experiencing financial distress.
  • The DMR should design and implement standardized approaches when dealing with the relaxation of environmental financial provisions for mines that are undergoing business rescue process.

The FSE’ presentation to the Australian High Commission and the Australian Centre of Geomechanics, which has relevance as well as some recent news media reports regarding Mintails, which also, have relevance are attached hereto.


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