Xstrata South Africa (Pty) Ltd and Others v SFF Association

Prior to the coming into force of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), Tavistock Collieries and Duiker Mining (subsidiaries of Xstrata) concluded a notarial exchange agreement with the SFF Association to settle a dispute arising from SFF’s storage of oil in disused mine shafts, which had sterilised Tavistock’s coal reserves. Under the exchange, SFF transferred certain coal mining rights (the SFF deposits) to Tavistock, and Tavistock and Duiker transferred other mineral rights to SFF. To give effect to this, SFF and Tavistock concluded a notarial mineral lease in June 2001. The lease provided that Tavistock would pay no royalty on an initial specified quantity of coal, but would pay royalties on further coal extracted. After the MPRDA came into operation, Tavistock’s mineral lease became an ‘old order mining right’. SFF sought a declaratory order that Tavistock’s contractual obligation to pay royalties would survive the conversion of its old order mining right into a new mining right under the MPRDA. The High Court granted the declaration. Tavistock, Duiker and Xstrata appealed to the Supreme Court of Appeal.

The appeal was upheld with costs, including the costs of two counsel. The order of the High Court was set aside and replaced with an order dismissing SFF’s application with costs.

The case clarifies the effect of the MPRDA on pre-existing mineral leases and contractual royalty arrangements, confirming that private-law royalty obligations linked to old order mining rights do not survive conversion if they are incompatible with the Act’s system of state custodianship. It reinforces the transformative nature of the MPRDA and limits the continued operation of pre-2004 mineral arrangements.