Questions over Kropz mining right irregularities

A billion-rand Western Cape phosphate mine, Kropz Elandsfontein – which has Patrice Motsepe’s African Rainbow Capital as its largest shareholder – has allegedly benefited from a string of inconsistent regulatory decision-making by government officials.

Kropz Elandsfontein’s parent company, Kropz PLC, is a UK mining company listed on London’s AIM stock exchange. Motsepe, however, began investing in the mine only in 2016, after some of the irregular regulatory decisions had already been taken.

The mine is expected to earn its investors a fortune through the export of a large majority of mined phosphate via Saldanha Harbour.

However, environmental activists say those profits come at an enormous environmental cost.

Serious objections to the phosphate mine appear to have been raised within a number of government departments based on concerns over environmental damage and water contamination. But these appear to have been dismissed by mineral resources department officials, some of whom are alleged to have acted “unlawfully”.

Legal challenges

The mine has been contested since day one, with its mining licence and water use licence subjected to legal challenges, some of which are still ongoing.

A Department of Mineral Resources (DMR) whistleblower, departmental documents and legal challenges by environmental activists all paint a picture of government officials bypassing regulatory requirements to benefit the mine.

This appears to have reached the attention of former finance minister Trevor Manuel, who in October 2016 slammed the DMR for “inconsistent application of regulations” with a specific reference to the Elandsfontein phosphate mine.

Manuel demanded that the department “clean up its act”.

The irregular decision-making occurred at the department under Minister Ngoako Ramatlhodi in 2014 and 2015, and at the Department of Water and Sanitation under Minister Nomvula Mokonyane in 2016 and 2017 during the processing of the mine’s mining right application and water use licence.

However, when New Frame contacted these two government departments recently for comment on this previous irregular decision-making, they either presented a version of events that contradicted their internal documentation or were evasive in terms of answering specific questions.

Contradictory accounts of events

The departments’ version of events indicates that all proper processes were followed to the letter of the law. Whistleblowers and environmental activists allege that there is a cover-up going on and internal departmental documents appear to back up their claims.

Since the beginning of the year, Motsepe has faced various claims from labour unions and the EFF that his companies are allegedly benefitting from his brother-in-law Cyril Ramaphosa’s presidency, particularly in the renewable energy sector.

Motsepe responded to the claims in February with a press conference to dispel rumours that he was receiving favourable treatment.

This first part in a New Frame investigation into the Kropz Elandsfontein mine can reveal that the DMR official who signed the document to award Kropz a mining right has been previously linked romantically with a former director of the mine.

New Frame can also reveal that Kropz’s mining right was irregularly awarded before key environmental assessments had been completed and before a department committee could consider objections, which it is mandated to do by law.

The department also awarded the mining right even though a department official found that the mine may have an unacceptable impact on critical biodiversity and cause unacceptable and avoidable environmental degradation and damage.

ARC spokesperson Ainsley Moos
 told New Frame that it had acquired a 26% shareholding in Kropz Elandsfontein in 2016.

“During this process, we conducted a full due diligence exercise that is typically performed with transactions of this nature and which, inter alia, covered legal and regulatory matters,” he said. “The due diligence exercise did not expose any irregularities as alleged or inferred in your list of questions.”

Moos insists that ARC has “always” insisted on “proper ethics, governance and compliance with legal and regulatory requirements” from Kropz.

“This is in line with ARC’s business philosophy and our responsibility as a good corporate citizen,” he said. “During our various interactions with the Kropz Elandsfontein management, we have been repeatedly assured that business is being conducted in this manner.”

“ARC Investments has representatives on the Board of Kropz Elandsfontein and Kropz Plc to ensure the business achieves its operational and strategic objectives,” added Moos.

Romantic links

The decision to award a mining right to Kropz was signed on 26 November 2014.

The acting director general of the department, Joel Raphela, signed over power of attorney to the department’s regional manager in the Western Cape, Duduzile Kunene, to sign the document awarding the mining right.

In 2009, news reports linked Kunene romantically to South African mining businessman Phemelo Sehunelo.

At the time, Sehunelo had attracted national attention for being involved in a legal struggle between Kumba Iron Ore and his company, Imperial Crown Trading 289 (ICT), over a 21.4% stake in the Sishen opencast iron ore mine in the Northern Cape.

In 2010, Sehunelo held the position of director at Kropz precursor Amari Phosphate. An Amari Phosphate presentation dated 19 July 2010, reporting on its Elandsfontein phosphate project, lists Sehunelo as a director alongside Richard Napier and Mark Summers.

Napier was the managing director of Amari Resource Holding between 2007 and 2011 and Summers is Kropz’s current chief financial officer.

Sehunelo did not respond to questions from New Frame.

Both Kropz and African Rainbow Capital denied having any knowledge of this relationship between Sehunelo and Kunene.

Kunene, in a Whatsapp response to New Frame regarding the allegations, said:  “I have not had any relations with Adv Sehunelo for the past nine years.

“My name cannot be dragged every time Adv Sehunelo is involved in a mining project, that is very unfair. If people have issues with a decision taken in a licensing process, they have every right to challenge the PROCESS! Let the court decide whether due processes were followed or not.

“As for the process that is followed when decisions to grant mining rights are concerned, I hope the department has provided you with a response.”

‘Incomplete’ application

A DMR whistleblower alleged that Kropz’s mining application was missing “key data” and that some specialist studies the mining company provided alongside the application were “incomplete” or “not adequate”.

“Things that needed to be considered were not there,” said the whistleblower.

The whistleblower said that important studies required to make an informed decision were only done after the mining right was granted.

The whistleblower said that at numerous times Kropz gave the impression that it was in no doubt that it would be granted its mining right.

Kropz chief executive Ian Harebottle told New Frame that because the mining company had been fully compliant with the Mineral and Petroleum Resources Development Act (MPRDA), it had a “legitimate expectation” of being granted the mining right.

The department said the act allowed the condition to be attached to the granting of a right and that applicants are afforded an opportunity to supplement any documents or information that can assist them in complying with the act.

‘Unlawful’ mining licence

Department officials are alleged to have taken an “unlawful” decision when awarding Kropz its mining right before the Regional Mining Development and Environmental Committee (RMDEC), an internal DMR committee, could consider objections, which the RMDEC is mandated to do by law.

The DMR Whistleblower said the department’s failure to get the RMDEC to consider the objections before the mining right was awarded means it has not complied with the MPRDA.

The whistleblower said the decision was thus “unlawful”.

Section 10 (2) of the act states that “if a person objects to the awarding of a mining right, the regional manager must refer the objection to the RMDEC. RMDEC must consider the input of objectors and make recommendations to the decision-maker before such a decision is made”.

The whistleblower said that the case was not heard at the next RMDEC meeting because committee members were informed that the department had already taken the decision to award the right.

The whistleblower said this failure on the department’s part undermines administrative justice and the intention of the act.

Internal documents

When New Frame asked the department for comment on this, it insisted that the RMDEC had heard all objections on 27 October 2014, before the mining right was awarded on 26 November 2014. But this version of events is not supported by the department’s internal documents.

An internal memo dated 29 October and titled “RMDEC Outcome: 27 October 2014” shows that a decision on the objection by governmental conservation organisation Cape Nature was not taken at this meeting because the department “reported there is an updated EMPr [environmental management programme] submitted by the applicant that they have not assessed”.

The memo goes on to state that the Department of Water and Sanitation would also be in contact with Kropz about its own requirements.

The memo indicates that the committee intends to wait for feedback from both departments at the next meeting, before making a decision.

When New Frame drew the attention of the DMR to its internal memo, which contradicted the response it had given New Frame, the department failed to directly comment on the memo, insisting that all objections had been referred back to Kropz to address, which again contradicts the internal memo as it states that it would wait for feedback from the DMR.

When answering questions put to Kropz on this matter, Harebottle said the mining company’s complete final Environmental Impact Assessment (EIA)  /  Environmental Management plan (EMPr) had been with the department for two and a half months, when the department’s environmental sub-directorate stated in its record of decision that the department had not consulted its updated final EMPr.

“The sub-directorate appears to have not done what was expected of them,” he said.

Harebottle said the sub-directorate’s recommendations that the mine would result in environmental damage was based on incomplete and inaccurate information.

He said that in June 2017, almost three years after the Kropz mining licence was granted, the department’s committee reconsidered objections by Cape Nature and Wildlife Rescue.

He said this occurred at the instruction of the mineral resources minister at the time, Mosebenzi Zwane, pending an internal appeal by environmental non-profit organisation the West Coast Environmental Protection Association.

“RMDEC supported the approval of the EMPr and found that Kropz had adequately addressed the concerns of the objectors,” said Harebottle.

When asked why Zwane had ordered the committee to reconsider the objections in 2017 when they had already been considered in 2014, the department said the 2017 committee meeting may have been ordered because Zwane may not have had insight into the fact that the objections were addressed in the upgraded EMPr.

Environmental degradation and damage

The DMR whistleblower alleges that the decision to award the mining right to Kropz was also made before the Mine Environmental Record of Decision (Mem Rod) had been completed and that this, too, makes the department’s decision an “unlawful” one.

The Mem Rod is a DMR document that details the evaluation of the Kropz EIA and EMPr.

The deputy director for mining environmental management signed the Mem Rod a day after the rights had already been awarded.

Activists say this means that the decision-maker did not have the facts in front of them and thus made an uninformed decision.

The Mem Rod found that mining may result in an unacceptable impact on critical biodiversity and cause unacceptable and avoidable environmental degradation and damage.

It found that Kropz’s consultation had been inadequate and that Kropz had not met all conditions for the approval of its EIA and EMPr.

The Mem Rod also says that it is “apparent” that Kropz’s interest is in exporting the majority of the phosphate it mines.

“Depleting and exporting the second most important phosphate reserve in South Africa in 15 years seems to be against the principles of sustainability and may not be strategically wise,” states the Mem Rod.

Timing

When asked, the department said the Mem Rod was attached to the submission when it was forwarded for a decision.

However, when the DMR was questioned directly about why the Mem Rod was signed only the day after the department’s decision document to award the mining right was signed, it avoided the question, choosing instead to focus on the date that the mining right was granted, 30 January 2015, not the date that the mining right was awarded.

The department’s responses to New Frame stated that Kropz’s revised EMPr, submitted in September 2014, addressed “all the shortcomings raised during the public participation process”.

The department said the Mem Rod findings are a result of officials not considering this revised EMPr.

“The recommendations were based on the initial EMP,” said the department. “The updated EMP is regarded as sufficient, and complies with the relevant environmental sections as contained in the MPRDA.”

Harebottle said the submission made to the director general on 27 November 2014 by the regional manager clearly weighs up the environmental report of the sub-directorate with all the inputs from specialists in the department.

He added that the Mem Rod must be read in context.

Harebottle said the comments in it represent the views of the department officials at a “certain time” in the processing of the application and were based on a first draft EMPr.

He said Kropz had complied with all the conditions the department had suggested.

The Kropz EMPr was approved in February 2015.