Friedland's SA platinum project faces local challenge

Billionaire Robert Friedland’s South African platinum project may be held up by a split in the local community, with residents accusing his Ivanhoe Mines Ltd. of subverting a process to give them a fair share in the mine.

People living in the Mokopane area in the northern Limpopo province, one of the country’s poorest regions, are lobbying the government to delay the mining license of Ivanhoe’s local unit, Ivanplats, three activists from the area said. They’re unhappy because the company sold the community a 20 percent stake in the $1.6 billion Platreef project to fulfill government demands for black shareholding without all of the residents being part of the negotiations over the terms of the deal, they said.

While the stake will be paid from future proceeds of the mine, residents don’t know what the interest rate on those repayments are and how long they will have to wait before seeing any dividends from the project, the opponents said.

“The million-dollar question for us is when will our debt be fully repaid,” Aubrey Langa, 56, an adviser to the Kopano Committee that represents five settlements in the community, said in an Oct. 1 interview in Johannesburg. “They won’t tell us. The community will be drowning in debt for a very long time. We won’t allow them to build a mine until this is cleared up.”

The activists say the local chief, L.V. Kekana, who’s paid a stipend by Ivanplats, helped rig elections to the trust set up to defend local interests. Ivanplats’ mining license for Platreef may be held up while the Department of Mineral Resources investigates the dispute, according to Lucas Moalusi, a partner with Toronto-based law firm Fasken Martineau DuMoulin LLP.

Withhold Right

“The DMR can withhold the execution of the mining right until the issues with the community are resolved,” Moalusi, who specializes in working out agreements between mining companies and communities in South Africa, said in an interview. He isn’t advising on the Platreef case.

Ivanplats said it sufficiently consulted the community and doesn’t have an improper relationship with chief Kekana. It held more than 150 meetings over 18 months to inform the community of the black empowerment deal, according to an e-mailed response to questions.

Local residents will carry no liability for any debt, which will be repaid “on a priority basis to ensure early cash flow,” Ivanplats said. The interest comes at a “significant discount” to South Africa’s prime lending rate, and the company said it’s also making an 11-million rand ($977,404) annual donation to the community.

Residents Supportive

“We can confidently state that the overwhelming majority of residents in the Platreef project’s host communities are supportive of the planned development,” Ivanplats said. “It is evident that some individuals and groups continue to refuse to work with the company for the good of the entire community -– and have in fact violently disrupted a number of our public meetings.”

Kekana didn’t respond to phone calls to his office and mobile phone or to text messages over four days. “I believe it will truly benefit the communities hosting the Platreef project,” he said of the empowerment deal in a Sept. 4 statement issued by Ivanhoe. “I am proud to have been instrumental in shaping this structure and we look forward to working with Platreef and Ivanhoe.”

A mines department response to questions e-mailed on Oct. 2 was still undergoing “internal approvals,” spokeswoman Ayanda Shezi said by e-mail on Oct. 6.

Platinum Vein

Platreef is one of Ivanhoe’s main assets, along with a copper and a zinc project in Democratic Republic of Congo. It sits on the northern limb of the world’s biggest known vein of platinum, alongside Anglo American Platinum Ltd.’s Mogalakwena, the biggest and most profitable mine of the world’s largest producer. Platreef is due to produce 785,000 ounces of platinum, palladium, rhodium and gold a year after the second of three construction phases.

Ivanhoe Mines Executive Chairman Friedland has a 24 percent stake in Ivanhoe, according to data compiled by Bloomberg. South African Deputy President Cyril Ramaphosa resigned as an Ivanhoe director last year as he prepared to take public office. He held shares worth $5.2 million, according to an April 2013 company filing.

Ivanhoe’s bind highlights the pitfalls companies face in ensuring locals benefit sufficiently from SouthAfrica’s natural wealth. With poor education and health care, and a one-in-four jobless rate, manySouth Africans are demanding more dividends two decades after the end of white-minority rule.

Black Empowerment

By including the local community as its black empowerment partner, Ivanplats avoided giving a stake to a wealthy businessperson, a practice that was commonplace a decade ago and failed to spread wealth more widely.

The region around Mokopane is one of South Africa’s poorest. About 20 percent of homes have running water and the unemployment rate is 40 percent, according to the statistics agency. Limpopo’s poverty rate, defined as those receiving a monthly income of 620 rand or less, is 79 percent, the highest in the country.

Ivanhoe has a 64 percent stake in Platreef and Japan’s Itochu Corp. owns 10 percent. The company last month announced a deal that would reserve a 26 percent stake for so-called black economic empowerment in line with government regulations seeking to redress the racial inequality enforced by the apartheid government.

Twenty percent will be held by a trust for the benefit of the 20 local host settlements in the community, where about 150,000 people live. The final six percent will be split between non-managerial employees from a historically disadvantaged background, and local entrepreneurs and company managers.

Settlements Withdraw

Five of the settlements pulled out of the process to elect representatives on the trust because they said Ivanplats and chief Kekana were excluding some members of the community by ensuring only company supporters became trustees, according to Langa and Andries Machoshoane, the chairman of the Mokopane Interested and Affected Community Committee.

“The problem is Ivanhoe should not interfere with our shares,” Machoshoane said in an interview. “It is our business as to which trust we want to establish as a community. We have a problem with their management.”

Members of the trust say the process was transparent.

The election was “fair and square,” trustee Philemon Thamaga said in a phone interview. “Other people came there to disturb the processes. But they were not successful at some villages because the process continued.”

Election Involvement

Ivanplats was not involved in the elections, which were conducted according to the community’s “customs,” the company said. The process was monitored by Ernst & Young, it said.

Ivanplats pays Kekana 30,000 rand per month after tax, had let him use a farm for 1 rand a month, and gives him an annual bonus in exchange for his “reasonable cooperation and support” on the project, according to a copy of a 2010 agreement between the company and Kekana seen by Bloomberg News.

“He should be protecting the community; he’s protecting Ivanplats,” Langa said.

Ivanplats said it doesn’t have an “improper relationship” with Kekana. The contract is “in line with legally accepted norms and standards,” the annual bonus is not to the chief directly and the use of the farm was a two-year arrangement during periods when the company didn’t need it, Ivanplats said.

While the community is divided, Machoshoane’s committee has hundreds of members, many of whom regularly attend meetings, said Osmond Mngomezulu, an attorney with Johannesburg-based Lawyers for Human Rights, which is giving it legal advice.

Burial Sites

“Their ploughing fields are there, their burial sites are there,” Mngomezulu said by phone. “These are people who are really adversely affected by the prospecting operation and will be by the mining operation.”

The community’s complaints aren’t new. Mines ministry officials told a February 2012 meeting with the company and local leaders that it didn’t consult residents enough before drilling in residential areas and ploughing fields, according to a copy of the minutes seen by Bloomberg News.

The government has yet to execute the Platreef mining license it granted on May 30. This is a requirement for the company to start building the mine. A company’s inability to ensure that all community disputes were prevented and that the community accepted the negotiations over the stake as fair may lead to a delay, according to Moalusi of Fasken Martineau.

“As a mining company, you’re going to have a longterm relationship with the community,” said Moalusi. “Be open with the community, that enhances the level of trust with them or the project is going to be stalled.”