DRDGOLD: We are not liable
By: Alec Hogg
Posted: '07-APR-05 10:00' GMT © Mineweb 1997-2004
MINEWEB: Good news for Harmony – the strike is over. The workers are going back after the last few days that they have been out on strike. Not such good news for Harmony or for AngloGold, for that matter, is that mines in the North West province could be looking at a little bit too much water. Mineweb’s editor Jim Jones is in the studio with us. Jim, you uncovered this story and it has caused quite a furore. Just please tell us what it's all about.
JIM JONES: Without going into the legal technicalities of it, Alec, the Stilfontein mine makes a lot of water. It comes in from dolomite and it’s on the surface, and it's about 25, 26, 28, 30m litres a day. That’s an awful lot of water. DRD, which owns two mines in the south, Buffelsfontein and Harties, has walked away from them, declaring them …
MINEWEB: Harties, not Harmony.
JIM JONES: Sorry, I beg your pardon. You’d moved Harmony up from the Free State a few seconds ago. Harties and Buffelsfontein has put them in voluntary liquidation for various reasons, which we don’t need to go into – and it has said that it is no longer prepared to go on pumping water at Stilfontein, which it's contractually obliged to. What will happen is that water will then flow into a property that belongs to Harmony, which is the old Vaal Reefs mine, and also into AngloGold Great Noligwa mine, which is to the south. The law is quite explicit. The National Water Act says that mines, when they close down, cannot stop pumping that water. Nor are they allowed to do anything which will vitiate the water. The water at Stilfontein is very clean. With a little bit more cleaning it could be drunk by you or me. But, anyway, DRDGold now wants to stop this pumping within a few weeks, if not days, if that pumping stops on Stilfontein …. Anyway, the whole point is that there’s now a row between AngloGold and Harmony and DRD. DRD says “we are no longer responsible, because this was a subsidiary, a wholly owned subsidiary in a separate company. We no longer own it. We’ve given it over to the liquidators,” and essentially walked away from it.
MINEWEB: Sorry for taking Virginia into the North West Province. I do apologise. In fact I’ve even been to Harmony’s mines. I should know that it's in Virginia, not right next door to Buffels and Harties. But Niel Pretorius DRDGold’s legal counsel, is with us. There’s a lot at stake here Niel. It's R85m, according to the AngloGold announcement that came out today. That is the cost of pumping this water, ensuring that the water doesn’t flood one mine and then flood the next, and eventually flood AngloGold.
NEIL PRETORIUS: Alec, look the pumping majority, the bulk of the pumping that takes place in that area, as Jim’s pointed out, is in fact from Stilfontein, which is a company which has no relation, it's not an associate company of DRD. It's in fact being managed by JCI. And Buffelsfontein started pumping water there five, six years ago – well, actually in terms of an agreement dated 1985, when it became apparent that controlling the water levels in Stilfontein makes commercial sense from a Buffelsfontein point of view. More or less what the gentleman with who you had the interview just before I arrived [said], the suggestion that he made. So Buffelsfontein has been carrying those costs for many, many years.
MINEWEB: So it's not actually it's problem. It's more the Stilfontein problem. Is that what you’re saying?
NEIL PRETORIUS: Well, the water originates at Stilfontein but, in order to keep the water levels down in order to mine Buffels and Harties, Buffels has been picking up the costs over these years to pump – and the costs are roughly in the region of about R60m a year. Now those mines have been running at a loss for many, many years, as you know – not many years but at least until after the collapse of the gold price, the rand price of gold. And we’ve been in constant state of restructuring at the North West operations in order to address the margin or the lack thereof at that particular mine. It's a problem that’s long been in the coming. We’ve engaged AngloGold in discussion, pointing out that there is a real risk lying ahead and it shouldn’t come as a surprise, the fact that this is now the situation which these mines face.
MINEWEB: It appears, Niel, and maybe Jim, you could explain whether this is the case, but from AngloGold’s argument they say, “it's not our problem. We don’t want to pick up a bill they quantified at R85m, and in fact somebody else further up the line has to keep on pumping.”
NEIL PRETORIUS: Alec, that’s an over-simplification, in my view, of the legal position. Certainly there’s no legal obligation on Anglo to pump the water. But equally there’s no legal obligation on DRDGold Limited, the holding company of Buffelsfontein, to pump water, for the simple reason that, if you were to look at the environmental legislation on which they rely, and I see they’ve actually gone out in the printed media …
MINEWEB: It was a Sens statement. Stock Exchange News Services.
NEIL PRETORIUS: Yes – where they’ve in fact stated their case. Now, on a fairly basic and fundamentally simple point of view or approach, if one has an obligation in law, then obviously there must be a concomitant entitlement to give effect to that obligation. And if there’s an obligation on DRDGold at this point in time to come forward, then there should be, in law, provision for a right to access those facilities and to in fact pump it. Now, once a company goes into liquidation, the total control and management of that company is taken over by the liquidator, and a liquidator who does not want to accommodate a concerned party in dealing with a problem such as this, there’s no obligation in law on him to allow that party to actually to [indistinct] – that’s the position in law. So in other words what I’m suggesting to you is that …
MINEWEB: There’s a legal battle that’s going to start here, and it's going to be an expensive one.
NEIL PRETORIUS: I tell you what – the lawyers are going to be very happy about this dispute, because they’re going to make an absolute fortune. I think that there is probably a better chance of dealing with the matter and settling the matter if the executives of these companies get together and maybe have a chat.
MINEWEB: But Niel, the real issue here is JCI. It's the Kebbles. The Kebbles versus AngloGold. Jim – am I reading it right?
JIM JONES: I goes back a long time, when Roger Kebble was still running DRDGold and he signed the agreement which obliged the Buffelsfontein mine to operate the Stilfontein’s [indistinct] shaft pumping facilities, and that hasn’t that has not yet gone away. That was necessary because of the legal requirements of closing down the old Stilfontein mine. Nothing happens out of Stilfontein any more – it's closed. If the two DRD, or former DRD, mines are to be closed, they too have to comply with the legislation …
MINEWEB: So where would you put your money on this? Who’s going to come short?
JIM JONES: Everybody in the end is likely to come short. And in the end I suppose what will happen is that the taxpayers are going to end up footing the bill if these people walk away from it. It's not altogether clear yet whether the government will force DRDGold to honour its agreements, even though it walked away from the Buffelsfontein mine – and if it does what can it do about it?
MINEWEB: Well, as you say Niel, the lawyers are going to love this one.