First published in the Daily Maverick 168 weekly newspaper.
A force majeure clause in supplier contracts is extremely common, and is designed to remove liability for natural and unavoidable catastrophes. It does include human action, but typically that means armed conflict.
Mostly the big issue in the legal contestation of force majeure is foreseeability: it’s only possible for a supplier to protect itself from the agreement to supply if the reason for the business stoppage is unforeseeable. Usually, the event must be not only unforeseeable but also external and irresistible.
These are high legal bars. The situation has to be pretty catastrophic for a company to declare force majeure. That in itself tells you something about how much teeth-gritting there must have been among Rio execs before they came to this decision.
Why is it so significant?
First and most obviously, as Business Maverick’s Ed Stoddard pointed out in his piece on the subject, this is what state failure looks like. RBM is the largest single business and the largest taxpayer in KwaZulu-Natal. What happened is really a case of attempted extortion by criminal elements, most obviously with the orchestrated hitman killing of RBM executive Nico Swart. But that hasn’t been the only incident. On YouTube you can see RBM’s digging equipment burning, backed by a rather hopeless voice wondering whether it was worth trying to get the fire brigade out. It wasn’t. It doesn’t exist.
The extent of the criminality involved is underlined by the fact that Minister of Mineral Resources Gwede Mantashe visited the area to try to resolve the conflict, which obviously involves local ANC cadres. But they clearly overruled him and have decided to continue trying to force the issue using, you know, force.
The second reason it’s important is what it says about SA’s mining dispensation. The Mineral and Petroleum Resources Development Act requires mining companies to have “meaningful consultations” with “the community”. But the regulations effectively give “the community” a veto on mining. Of course, you don’t want mining companies riding roughshod over rural homesteads, as they have for years. On the other hand, you don’t want thugs to be able to extort cash in the name of “empowerment” from mining companies either, by shooting up management and burning equipment.
The Mineral Resources Department can provide a mining licence even if a “community” objects, but in practice it does so very seldom, if at all. The problem is: who is “the community”? The legislation includes host communities, landowners, traditional authorities, land claimants, lawful land occupiers, holders of informal rights, anyone whose socioeconomic conditions may be directly affected, the municipality, agencies and institutions responsible for the environment and infrastructure, several government departments, and “civil society”.
In this case, there is a dispute within “the community”, so it’s impossible to get sign-off on a huge new investment – once touted as one of SA’s grand achievements in President Cyril Ramaphosa’s global investment drive.
The third reason this is so important lies in the nature of RBM. It was developed post-apartheid and took more than a decade to produce a profit. Only sustained support from the Industrial Development Corporation, combined with years of engineering breakthroughs and the careful development of customers around the globe, made the company profitable. The force majeure declaration tosses all that out the window.
The fourth reason is a bit technical. RMB’s main product is titanium dioxide in the form of 85% pure titanium dioxide slag, which is used in pigments and paint. The KZN plant produces perhaps 15% of the global supply. But there is another way to produce a similar product which is less technical but which is more environmentally damaging, using calcium carbonates. It will come as no surprise that many Chinese companies use this system.
The point is that often when there is an interruption to supply, it’s just that. But when supply disappears, buyers are forced to find alternative sources. Because mines take so long to be developed, potential buyers have to think long and hard about whether they can really rely on mining operation to produce a product, sustainably and consistently.
It‘s rather similar to the platinum/palladium debate. There was a time when platinum was worth more than palladium. But when suppliers noticed what was happening in SA’s mining dispensation, they focused their attention on palladium which is produced mainly in Russia. Now palladium is worth twice as much as platinum. The lesson is this: once markets dissapear, there is a risk they just don’t reappear.
And the fifth reason is what it says about the impunity in SA’s culture. Maybe that’s changing, but in general ordinary people still have to deal with an attitude of immunity and privilege on the part of the police and government officials.
As the tax income dries up, the result will be fewer teachers and nurses. This act on the part of Rio Tinto may be a last desperate attempt to get the government to listen up. But don’t count on anyone hearing. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.