In the mining industry, 2006 was a benchmark year for empowerment, marked by a series of developments in the sector as the full impact of the new mining legislation began to be felt.
It also marked a watershed in the relationship between the mining companies and the department of minerals & energy (DME), with companies increasingly resorting to the courts.
The year ended with arguably the most interesting BEE deal so far when Lazarus Zim, the former CEO of Anglo American SA, bought into Tokyo Sexwale's Mvelaphanda Resources (Mvela) group. Not only was this the first example of "black on black" empowerment, but Zim negotiated a healthy discount out of Sexwale on the stake that his Afri-Palm group bought in Mvela.
Ironically, the DME has finally started dealing more efficiently with the thousands of applications for new prospecting and mining rights that have flooded in just as the industry has lost patience with the process.
On the positive side, some major black empowerment deals were finally approved by the DME through the granting of a conversion of "old order" mining rights to "new order" mining rights.
Gold heavyweight AngloGold Ashanti received full conversion of its rights, as did Gold Fields, proving that the complex nuances of the mining charter and the Mineral & Petroleum Resources Development Act (MPRDA) can be made to work.
AngloGold Ashanti achieved conversion without bringing in a BEE partner by winning ownership credits for the mines it sold on bargain basement terms five years ago to Patrice Motsepe's African Rainbow Minerals (ARM).
ARM is now Harmony's BEE partner where, again ironically, it seems full conversion of Harmony's old order mining rights is being held up by the DME, which wants ARM to become more "broad-based" in its ownership by historically disadvantaged South Africans.
In the platinum sector, both Lonmin and Aquarius Platinum achieved full conversion of their rights. If there is a textbook case on empowerment in the SA mining sector that should be studied in the business schools, it is Aquarius - originally an Australian junior mining company, now with its primary listing on the main London Stock Exchange. Aquarius's BEE partner, the Savannah Consortium, bought 29,5% of Aquarius's unlisted SA operating subsidiary and Aquarius used the R860m it received to build its third operating platinum mine, Everest, which has been hugely successful.
Aquarius was dual-listed on the JSE at the end of 2005 and the share has soared from an initial R20 to around R140. That has allowed Aquarius to buy back 3,5% of its operating subsidiary from Savannah, which brings Savannah's stake down to the legally required 26%. Aquarius is paying Savannah R342,5m for that 3,5% stake, which puts a meaningful chunk of cash back in the hands of the BEE consortium.
The next, and final, stage of the empowerment process is the negotiation of the "flip up" through which Savannah's 26% stake in the unlisted SA operating company will be converted into shares in the London and Johannesburg-listed top company. That requires approval from both the DME and the finance department.
So much for the good news. Heading the bad news is that neither Impala Platinum nor Anglo Platinum have had their old order rights converted though all these groups applied at the same time.
The situation regarding Anglo Platinum - the world's largest producer of platinum - is particularly worrying because it seems a major confrontation is looming with the DME.
Anglo Platinum maintains it has complied in full with the requirements of the MPRDA and the mining charter in its application.
In terms of meeting the equity requirements, Anglo Platinum is taking broadly the same approach as AngloGold Ashanti and claiming credit for deals done with various BEE partners in projects to develop new mines.
The DME disagrees, saying that Anglo Platinum is looking for a "special deal" and it is not complying with the regulations.
The bottom line is it seems the DME wants Anglo Platinum to include one of its existing, core operating mines in a BEE deal before it will agree to the conversion. Aside from the legal issues, there is some merit in the DME's stance. What Anglo Platinum is seeking to do is bring BEE partners into its new developments, leaving its existing mines wholly owned.
The developing mines are far riskier operations, as has been shown by the string of problems reported by the groups developing these operations in Limpopo and Mpumalanga.
This is where it could get really interesting - or ugly - depending on what happens next, because it seems the mining companies are now resorting more frequently to the courts.
So far a number of groups, including Anglo Platinum, Anglo Coal and BHP Billiton, have taken the DME to court on "judicial review" over the DME's refusal to grant them various new order prospecting rights they had applied for. These prospecting rights applications are separate from the mining rights conversion issue.
Mining companies have been loath to sue until now because they were trying to appear "politically correct" and avoid public confrontations with government. No longer.
Peter Leon, a partner in legal firm Webber Wentzel Bowens, says this results from the actions of the DME in rejecting large numbers of these applications on "spurious" grounds in its push to get on top of the backlog that had built up.
The great danger was that a mining company would finally lose patience and decide to sue the DME for alleged expropriation of mineral rights. That finally happened in February when granite producers sued government over expropriation in an international court. That could trigger a political and investment crisis for the country.
Leon believes that mineral rights were effectively expropriated on May 1 2004, when the MPRDA came into effect. He further believes mining companies are being penalised by the DME, which is using the BEE requirements of the act to effect a "backdoor nationalisation".
DME director-general Sandile Nogxina rejects this view, saying no expropriation took place because mining companies will automatically convert their old order rights to new order rights providing they comply with the legislation.
