JOHANNESBURG – Australia-listed Nkwe Platinum has suffered a setback in South Africa’s Constitutional Court, in a landmark judgment holding that Genorah, Nkwe’s majority shareholder, has lost, for now at least, prospecting rights over two of five properties in the Nkwe stable.

Nkwe’s immediate reaction was to point out that the judgment did not impact in any way the two properties comprising its “flagship” Garatau Project. Nkwe added that it was exploring various options to “preserve” its rights in the two properties impacted by today’s judgment.

The Constitutional Court decision may come as a surprise, given that Genorah had won its case in several prior superior court judgments. The decision comes amid mounting controversies over prospecting and mining rights in South Africa, which have, in turn, triggered a major review process of prospecting rights by the mining ministry.

For many months Nkwe has been promising to list in Johannesburg, during the fourth quarter of this year. For more than two years, Nkwe has also been flirting with the possibility of a big financing from transnational miner Xstrata.

A community, the Bengwenyama-ye-Maswazi, sued Genorah, along with the South African mines minister, the mines director general, and two other senior officials. Genorah was awarded prospecting rights over five properties in September 2006, including Eerstegeluk and Nooitverwacht, on which members of the Bengwenyama reside. The Bengwenyama have enjoyed uninterrupted occupation of Nooitverwacht for more than a century.

In reviewing the case, the Constitutional Court considered whether there was proper consultation by Genorah with Bengwenyama Minerals and the Bengwenyama in terms of the Mineral and Petroleum Resources Development Act (MPRDA); whether the department of mineral resources (DMR) was obliged to afford Bengwenyama Minerals and the Bengwenyama a hearing before awarding the prospecting rights to Genorah; whether proper consideration was given to the environmental requirements of the MPRDA prior to the granting of prospecting rights to Genorah, and what relief should be granted if the review is successful.

The Constitutional Court judgment ruled that the orders made in the North Gauteng High Court, Pretoria and the Supreme Court of Appeal are to be set aside; the decision to grant a prospecting right to Genorah in respect of the farms Nooitverwacht 324 KT and Eerstegeluk 327 KT in the Limpopo Province is set aside; and that the respondents are ordered to pay the applicants‘ costs in the High Court, the Supreme Court of Appeal and in the Constitutional Court, jointly and severally, including the costs of two counsel.

In August 2008, Xstrata took up an exclusive option to acquire a 50% interest in the five Nkwe PGM properties. The option was exercisable within 90 days after completion of a bankable feasibility study (BFS) for Nkwe’s Garatau project. (Nooitverwacht and Eerstegeluk, along with Hoepakrantz, comprise Nkwe’s 64%-held “Tubatse” project, where Xstrata likewise has a 50% option).

A crucial part of the deal is that Xstrata “will fund the total development costs of the properties from mining through to concentrating”. The BFS for Garatau, expected in April 2010, had been delayed, and was “expected to be completed” in the fourth quarter of 2010. Nkwe today said “a further update on the BFS will be made next week with the release of further financial modelling which sets a base case net present value of approximately ZAR 14bn(about USD 2.0bn)”.

Exercising of Xstrata’s option is subject to Nkwe obtaining the necessary regulatory approvals, but, ahead of today’s judgment, Nkwe already seemed to be “well behind”, as one analyst put it, the likes of other PGM developers such as Johannesburg-listed Wesizwe and Canada-listed PGM.

Nkwe has been advertising itself as a company with 68.5m ounces of platinum, palladium, rhodium, gold and other platinum-group-metals (PGMs) held in deposits in South Africa’s Bushveld igneous complex, the most prolific platinum basin in the world.

Genorah Resources, a black economic empowerment (BEE) entity, holds 63% of Nkwe. Nkwe director Peter Landau, who seems to move mainly between Australia and London, has for many months, indeed years, declined to provide a see-through list of individual shareholders in Genorah. Nkwe managing director Maredi Mphahlele seems to prefer a low profile.

In August 2008, your correspondent asked Landau about claims possibly faced by Nkwe. He replied: “Xstrata are fully aware of the status of the granted prospecting rights and any possible claims in the future. Currently there are no land claims against either the Nkwe or Genorah properties.

“On two of the Genorah properties there are two spurious (in our opinion) applications for DMR review by applicants who were not successful in the original granting of the prospecting rights; if successful, it will trigger a formal review process. Note that the two applicants did not go through with the formal objection process at the time of the awarding of the rights and they are outside of the legally established objection period”.