A gate is not a mine

The fastest way to keep a dying mine alive is to give it away. Let someone else bring the machines, dig the ore, sell it and ship it, and take a royalty on every tonne that leaves the gate. The cash arrives in weeks and the operation looks alive, but the value leaves the country one truckload at a time.

South African law says the same thing in two places, in the private contracts that ration access to our ports and in the statute that governs every mining right in the country. The holder, and no one else, must be the one mining.  If you cross the line between working a mining right and renting it out, the rescue stops being a rescue, the company stops being what the law needs it to be, and the right that made it worth saving can fall away in the crossing.

A dispute in Durban drew that line some time ago, yet most of the industry crosses it every week.

A gate is not a mine

The line a rescue cannot cross

Picture a mine that no longer mines.  Instead of a lack of activity, you see the open pit is a hive of activity. The haul roads are busy. Trucks cross the weighbridge loaded and roll out through the gate, and the ore reaches a smelter or a port and a waiting ship. By every outward sign it is a working operation. Look closer, and the company whose name is on the mining right is digging nothing, other people are. They brought their own machines and their own money, they dig the ore, they own it the moment it breaks ground, they sell it and they ship it. The holder takes a fixed sum for every tonne through its gate, and nothing else. When this happens, it has stopped being a mine. It has become a toll-gate.

From the road the difference cannot be seen, but in law, the difference is profound. A holder that lets others mine through its gate for a toll has not found a clever way to keep trading. It has stopped trading. And when the contract, or the statute, that depends on it being a miner asks the question, the answer is not the one anyone wanted.

Although I write herein for the people who rescue distressed mines for a living, the business rescue practitioners and the provisional liquidators who hold these assets in trust for creditors, the principle applies equally to healthy mining companies.  It also applies whether the mineral is coal or chrome, manganese or gold. Our law draws a hard line between hiring a contractor to mine your ore and handing the mining over to someone who mines it for himself. Most distressed mining rescues in this country are built on the wrong side of that line. The people building them either do not see it, or are betting that no one will be the wiser.

When is a miner not a miner?

The case is Optimum Coal Terminal v Richards Bay Coal Terminal[1], decided in the Durban High Court in May 2023. Strip away the parts that made it notorious, the Gupta money, the asset forfeiture, the curator who resigned after death threats, and what remains is a finding about a single word in a single contract.

Richards Bay Coal Terminal is one of the largest coal export terminals in the world, built to ship 91 million tonnes a year. Access to it is rationed among its shareholders under an agreement that lets each of them export coal through the terminal. To hold that entitlement a shareholder must be a Coal Exporter, and the agreement defines a Coal Exporter as a company that itself mines and produces coal. Optimum Coal Mine held its export slot through that definition. It then stopped mining its own coal. It handed its mining areas to a set of contractors who mined at their own cost and risk, took the coal, sold it and exported it for their own account, and paid the mine a royalty for every tonne they moved. The court was asked whether the mine was still a Coal Exporter. It held that it was not. The judge drew the distinction in a single phrase. In her words, “the ‘use of contractors’ to do the work of mining coal… is vastly different from ‘leasing’ the mining rights to another company for that company’s benefit.” The first keeps you a miner. The second does not.

I should be precise about what the case is and is not. It was an urgent application for an interim interdict, and the interdict was refused. The findings were made on a prima facie basis, with the underlying dispute heading to arbitration. So it is not the last word, and I will not pretend it is. But in my view the line the court drew is right, and it is not a quirk of one coal terminal’s contract. The same line runs through the statute that governs every mining right in the country. I will call this principle the “Optimum rule”, because the industry needs a name for the thing it keeps doing.

Is this only a coal terminal’s rule?

It is tempting to read the Optimum judgment as a coal story, or a Gupta story, or a quarrel about one contract at one port but it is none of those things. The requirement that the holder must mine is written into the Mineral and Petroleum Resources Development Act, and it binds every holder of a mining right, regardless of the mineral involved.

The Act grants a mining right to a holder on the footing that the holder will work it. Section 25 obliges the holder to conduct mining operations actively, in accordance with the mining work programme on which the right was granted. The industry has a blunt phrase for the principle: use it or lose it. A holder that has parked its right and lives off a toll while strangers do the digging is not conducting mining operations. It is collecting rent on a right the State granted for a different purpose.

There is a second provision, and it is the one that should give every practitioner pause. Section 11 says that a mining right, or any interest in it, may not be let or sublet, ceded or alienated, without the written consent of the Minister. Letting your right to a contractor who mines it for his own account, and takes the ore, sits close to the heart of what that section forbids. And the Supreme Court of Appeal has held that section 11 is read on a purposive interpretation, a species of substance over form. You cannot escape it by calling the arrangement a mining contract if, in substance, you have handed the right away.

The consequences run the other way as well.  The holder of the mining right is the party that is responsible for compliance with its terms.  Moreover, the Minister may suspend or cancel a right where the holder breaches a material term or fails to comply with the Act. So the toll-gate exposes the holder on three fronts at once. It may be an unlawful letting under section 11. It may leave the holder no longer mining, as section 25 requires it to, and it brings the right itself within reach of cancellation. A practitioner who decides to become a toll-operator is standing across the grain of the whole statute.

Why do rescues reach for the gate?

To see why this matters you have to see why the toll-gate is so tempting. A mining company arrives in business rescue or provisional liquidation with nothing. Optimum’s own account of itself is the standard one. It had no banking facilities, no capital and no cash flow. Its mine and equipment were in a state of neglect and disrepair. Its employees were on strike because they had not been paid.  Copper thieves stripped the cabling once the security company went unpaid and the power had been switched off by Eskom. You cannot mine in that condition, and you cannot raise the R200 million it takes to bring a single pit back into production. What you can do, quickly, is find someone who already has the machines and the money, let them onto your ground, and take a cut of what they dig. 

It produces cash within weeks. It makes the operation look alive. It costs the estate nothing and risks the estate nothing, because the risk all sits with the contractor (or so it seems). For a practitioner under pressure to show that the company is trading, it is the obvious move. It is the cookie-cutter rescue, one size fitted to every mine, and it is reached for far more often than anyone will admit.

The odds explain the temptation, and why it so seldom ends well. Since business rescue began here in 2011, of the more than 4,000 companies that have entered it, only about one in five have reached substantial implementation of a plan. That is better than the American Chapter 11 figure, which sits closer to one in ten, but it still means most rescues do not rescue. In a field with those odds, anything that makes a company look like it is operating, becomes tempting and the desperation does the rest. Business rescue has become, as one commentator put it, a magnet for opportunistic capital. The toll-gate is how the value walks out while everyone congratulates themselves on maintaining a going concern.

Who owns the ore at the gate?

The Optimum rule hands the practitioner a test, and it is a simple one. When someone offers to come onto your ground and dig, ask three things. Who owns the ore once it leaves the ground? Who carries the price when the market moves? And what does the contractor actually receive, a fee for a service, or the mineral itself?

In Optimum the answers were damning. The mine did not keep the coal; the contractors owned what they dug. The mine carried the downside of the price and none of the upside, because the royalty fell when the coal price fell and did not rise when it rose. And the size of that royalty is the number that ends the argument. The court-appointed curator, whose task was to preserve the value in the estate, set it out without ornament. The mine was paid a royalty of between R45 and R65 a tonne against a coal price of roughly R5,000 a tonne. For every tonne that crossed the weighbridge the estate kept barely one percent of its worth and watched the rest leave through the gate.

That is not contract mining. Contract mining is when you engage a contractor, pay him a fee for the service he renders, keep ownership of the ore he brings up, carry the price yourself, and sell it for your own account. Done that way the benefit lands in the estate, where it belongs. The curator said as much. Had the contractors been paid a fee for their services, the mine would have kept its coal and sold it at a profit, instead of being used, in his word, as a conduit. A conduit holds nothing; the coal flows through it and so does the money.

What flows through the gate?

Two things happen when a distressed estate puts up a toll-gate, and both are the opposite of what the practitioner was appointed to do.

The first is that the value the practitioner is bound to preserve flows out to strangers. The scale in Optimum was extraordinary. The curator’s reports suggested that more than R6 billion may have left the estate over seven months, something near R850 million a month, much of it possibly leaving the country. Output was never the problem. Run-of-mine production had climbed from 55,000 tonnes in a single month to 573,000 tonnes within two years. The mineral was there and it was being dug in quantity. It simply was not the estate’s anymore. A business rescue practitioner’s duty is to rescue, or at the very least to give creditors a better result than they would receive in liquidation. A provisional liquidator’s whole office is to preserve and realise the estate. Paying away coal worth R5,000 a tonne for R65 is not preservation. The curator called it a very significant dissipation of value, and he was right. He then resigned after death threats, so sadly, the man the court had put in place to guard the value was driven off it.

The second thing is quieter and worse. The gate does not only drain the asset but it destroys the right that gives the asset its worth. In Optimum, the moment the mine stopped digging its own coal it stopped being a Coal Exporter, and the export entitlement that hung on that status fell away. Richards Bay shipped only 47 million tonnes in 2023, its lowest in three decades, against a capacity of 91 million, and a slot through that terminal is one of the most valuable things a coal business can hold. But the point is not confined to coal or to one terminal. A mining right, for any mineral, is granted once and held on conditions, and what the contract did to Optimum the statute can do to any holder. A right that is rented out and left unworked is a right the Minister can cancel. They mined the company to death to keep it breathing.

How do you mine the seam instead?

None of this means a distressed mine cannot use contractors. It means it must use them properly, and proper is harder. You appoint a contractor and you pay him a determinable fee for the work. You keep ownership of the ore he brings up. You carry the price, downside and upside both. You sell the mineral yourself and the proceeds return to the estate, where the creditors and the employees who depend on it have a claim. The mine stays a mine and the right stays intact. Done that way you have not let your right to anyone, so you need no one’s consent, and the rescue actually rescues something.

That is of course more difficult than bolting a gate onto the front of a dying operation, but no-one pretended that a mining rescue is easy.  On the contrary, considering the extent of regulatory prescripts and the exorbitant costs of preserving a mine put on care and maintenance, mining rescues are hard – very hard.  It needs capital, or post-commencement finance, or a funder willing to lend rather than to strip. It needs the practitioner to understand that a mining rescue is not a retail rescue or a property rescue, that the asset is a licensed right to take a finite thing out of the ground, and that the right can be killed by the very structure meant to exploit it. It needs the harder conversation with the funder who would far rather take the ore and leave a royalty. Mining is among the most complex things this economy does, and a mining rescue carries all of that complexity into a process that already fails four times out of five. It cannot be run off a template.

So the practitioner has a choice, and it is a real one. You can put up the gate, take the toll, show the cash, and play catch me if you can until a creditor or a curator or a court asks the question the structure cannot survive. Or you can rise to the challenge, accept that this is hard, and do it properly, so that what comes out of the ground belongs to the people you were appointed to serve and the value is not destroyed by short-term thinking.

From the road, the toll-gate operation and the compliant mine look the same. The trucks move, the ore leaves, the money comes in. But a toll-gate produces nothing of its own. It takes a cut of what passes through it, and what passes through it belongs to someone else. The day the contract is read, or the statute applied, or the file finally opened, the question is the same. Are you mining, or are you charging others to mine in your place?

The seam makes a miner.

The gate makes a toll-keeper.

Only one of them still holds the right.

Written by:

Wessel Badenhorst

August 2026

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[1] (D531/2023) [2023] ZAKZDHC 30 (31 May 2023)