Kigoda Consulting

Operating without a water use licence: red flags for AngloPlat and Rio Tinto?

10 October 2014

The Minister of Water and Sanitation Nomvula Mokonyane has, in a response to a parliamentary question, indicated that there were 103 mines operating illegally without a valid water use licence as of 25 July 2014. Of these 55 have applied for a water use licence. The Department of Water and Sanitation (DWS) has opened six criminal cases and issued 55 compliance directives or notices of intention.

Comparing this response with the last list of mines without water use licences from August 2012 is revealing for a number of reasons:

1. Coal is the commodity that appears most frequently. There are at least 37 collieries and coal washing plants operating without water use licences. Sand mines account for at least 17 of the mines which underlines the growing threat that sand mining poses to the country’s rivers and water systems.
2. The majority of mines operating without water use licences are in KwaZulu Natal (39) and the Northern Cape (30). While areas more traditionally associated with mining in South Africa, such as North West (4), Limpopo (4), Gauteng (11) and Mpumalanga (16), account for fewer transgressors this does not reflect the scale or size of mining company involved.
3. Mining companies often complain that they face significant challenges in complying with the legislative requirements to obtain water use licences due to administrative delays within the relevant government department. This is borne out by the fact that 17 of the companies operating without a water use licence that have applications “in process” as of 25 July 2014 also had applications “in process” in August 2012.

4. However, according to the DWS it is still awaiting outstanding information from 7 mines almost two years after these companies appeared on the August 2012 list. Mines that fall into this category include: Anglo Platinum, Shanduka’s Springlake Colliery and Rio Tinto’s Zululand Anthracite Colliery, which continues to appear in the news for all the wrong reasons (see Wildlife in danger as rivers dry up and Mining firm got a “slap-on-wrist”).

   While there might be mitigating circumstance or additional information, this should act as a red flag to investors. South Africa is a water scare country and mismanagement of water issues can have a material impact. Questions should be asked as to why these companies continue to operate without water use licences and why there has been a two-year delay in submitting outstanding information to the department.

5. At the JSE ESG Investor Briefing on 9 September 2014, we asked Exxaro whether or not they had received all water use licences required by South Africa’s regulations. Mzila Mthenjane, Exxaro’s Head of Strategy, Corporate Affairs and Investor Relations [see from 23 mins] replied that he understands that “all of [Exxaro’s] operations operate with water use licences“ and that a development project would not proceed until it has a water use licence. However, the DWS includes two Exxaro collieries on its list: Arnot and Glisa (which faced criminal charges and a water use-related government directive, which was suspended after a court appeal, in 2012). For Arnot, DWS suggests that no water licence application has been received.

   An easy way to avoid the kind of corporate misinformation provided by Exxaro would be for companies to improve disclosure by making  their various regulatory compliance documents, such as water use licences and social and labour plans (SLP), available publicly on their websites.

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