R/€ = 16.18 Change: -0.01
R/$ = 14.62 Change: 0.00
Au 1473.98 $/oz Change: -1.02
Pt 897.63 $/oz Change: -0.83
R/€ = 16.18 Change: -0.01
R/$ = 14.62 Change: 0.00
Au 1473.98 $/oz Change: -1.02
Pt 897.63 $/oz Change: -0.83

Auctions an efficient way to generate cash, reduce costs

1st March 2019 BY: Nadine James
Features Deputy Editor

The term ‘mining auction’ refers to a range of disposals in the mining sector, including the disposal of scrap and/or surplus yellow equipment, assets from business rescue and/or liquidation, and the disposal of mining concessions, explains Hogan Lovells partner Nicholas Veltman.

The primary distinction between a bidding process and an auction process is that, under a bidding process, the actual disposal is preceded by an extensive due diligence phase and commercial negotiations, while, in an auction, assets are sold ‘as is’.


Bidders are reminded to review a potential purchase on the auctioneer’s website, with viewing typically scheduled a day prior to the auction to enable potential bidders to familiarise themselves with the condition of the goods.

The primary benefit of auctions is an objective and transparent disposal process where the highest bidder acquires the assets. “This also means that the seller, on auction, can get the highest possible price for the assets,” Veltman comments.


Aucor Auctioneers mining expert Charles Neser notes that the bidder often represents a junior miner or a local equipment supplier that uses auctions to boost the supplier’s existing fleet without breaking the bank.

He says that auctions can promote local enterprise development by enabling smaller suppliers to acquire equipment and potentially refurbish and resell or rent it to mines.

Moreover, auction houses, particularly those based in traditionally rural areas, are also considered small enterprises, which Aucor and De Beers recognised in 2018 when partnering with, and empowering, Limpopo-based auction house Amagidi Auction, which would become a majority shareholder in Aucor Limpopo.

Park Village Auctions director Clive Lazarus noted in a press release in December that auctions were not only an efficient way of generating capital for sellers but also a mechanism for reducing costs and optimising performance, with companies disposing of redundant assets, and curtailing holdings and maintenance costs.

The Auction Experience

Fifty people congregating in a truck yard on the city outskirts on a dismally grey midweek morning is not necessarily a scene one associates with an auction.

The bid caller ran through a list of rules with the ease of a highly experienced flight attendant explaining the in-flight safety procedures. The most noteworthy remark by the caller was that every prospective bidder had to register his ore her identification number, in accordance with the provisions of the Financial Intelligence Centre Act and that bidders had to present proof of identification and proof of current residential address, together with proof of payment of a refundable deposit, prior to the auction.

A company representative required a cheque account letter, a South African Revenue Service certificate, a Companies and Intellectual Property Registration Office printout and the company’s proof of address, as well as a proxy letter and the proxy’s identification document.

“Each lot is sold individually. If you win bids for two or more lots, you have to pay for all the lots that reflect on your invoice – you are not allowed to pick and choose after the fact,” the caller explained.

He added that the invoice would comprise the bid price, the buyer’s commission, documentation fees and value-added tax. Payment would have to be made before the end of the day.

Assets that are sold at an action are supposed to remain on the premises for the duration of the auction and until full payment has been made. However, they must be removed within a specified period, or a storage fee will be charged.

Despite starting off low, the bids at the auction described earlier quickly escalated to near-retail price for several lots, even for miscellaneous lots comprising items such as floodlights.

The auction moved quickly, with the first 17 lots sold within the first 15 minutes.

Meanwhile, the South African Institute of Auctioneers (SAIA) notes on its website that online auctions have broadened the base of buyers, as they no longer have to physically attend an auction. The digital process has also simplified the process for sellers and improved transparency.

Nonetheless, the SAIA says that South Africans still tend to prefer live auctions – this is supported by the institute’s 2018 finding that, in terms of movable assets, only about 30% were sold online that year.

The institute adds that, while live auctions are still the norm locally, that is not the case internationally. As a result, it expects the percentage of online auctions in South Africa to continue to increase.

Auctioning Mining Concessions

Liquidity services and auction company GoIndustry Dovebid South Africa associate director John Taylor told Mining Weekly in May last year that the Lerala diamond mine, in the Palapye region of Botswana, was sold for more than $8-million in an online auction.

The transaction included the transfer of the mining licence and rights, a complete processing plant, a diesel generator plant, electrical reticulation, workshops, offices and a mining camp.

The mine – owned by defunct Australian miner Kimberley Diamond Company – went into liquidation in mid-2017 after two years of poor sales, resulting in 130 job losses.

Hogan Lovells partner and mining head Warren Beech explains that, in South Africa, prospecting or mining rights can be auctioned off – typically using a bidding process – only after the mining rights have been granted or as a means of disposing of assets, as in the Lerala case.

However, while other jurisdictions allow governments or mining authorities to auction off rights or concessions, “the Mineral and Petroleum Resources Development Act (MPRDA) does not make specific provision for the auctioning off of mining concessions by government or the Department of Mineral Resources”.

Two of South Africa’s peers in the Brics bloc – India and Brazil – have held several concession auctions over the past six months to attract private investment, one of President Cyril Ramaphosa’s key priorities. (The other Brics member countries are Russia and China.)

In December, global news agency Reuters reported that Brazil planned to auction off about 20 000 tracts of land for mining exploration in the first half of 2019. The exploration rights had been revoked, prior to the government’s announcement, as permitting processes had stalled.

At the time, Brazil’s National Mining Agency – the new mining regulator launched in December as part of the new administration’s mining reform, which included a hike in mining royalties and changes to the mining code – had published a preliminary draft of the bid documents for the auction of two large mining concessions.

Bidding for these two concessions – Candiota, which boasts more than 20 ha of coal reserves, and Palmeirópolis, which shows evidence of zinc, lead and copper on a 5.5 ha plot – was expected to take place between December 13 and 17.

Meanwhile, in October, India’s Mines Ministry announced its intention to auction 102 mineral blocks before March 2019.

Mining Weekly reported last month that the Indian government even intended to offer ‘bundled’ mandatory approvals to each successful bidder to reduce delays in securing approvals from different government agencies.

On completion of an auction round, the successful bidder would be offered a composite prospecting and mining licence, which would be bundled with mandatory approvals preapproved by government for each of the mineral blocks.

Beech notes that the auctioning off of mining concessions provides an immediate benefit for the State and is a demonstrable commitment from the bidder.

“The auction process in other jurisdictions is typically quicker than a mining application process under South African law. This means that, theoretically, at least, prospecting and mining operations can start sooner.”

However, Beech stresses that successful bidders would generally still have to acquire appropriate licences and authorisations; as a result, prospecting and mining activities could still be delayed.

He comments that there has been debate on whether an auction process should be provided under the MPRDA, adding that last year’s withdrawal of the MPRDA amendments might reignite the debate.

“A primary concern is whether bidders will comply with environmental laws,” Beech says, noting that, unlike the bidding processes, the MPRDA application processes provide for the rigorous vetting of applicants, especially in terms of committing to environmental-impact studies and social and labour plans, as well as rehabilitation plans.

Additionally, the Minister must be satisfied that the applicant can meet all the requirements under the MPRDA.

“These concerns, together with the concerns raised by communities . . . suggest that an auction process is currently not an appropriate option for South Africa. The application process is rigorous and, in my view, addresses the concerns to a large extent,” says Beech.

Regardless of whether mining concessions will ever be auctioned off by the State, local mining auctions are conducted quite frequently, and Veltman suggests that, given the challenges facing the mining sector and the local economy, in general, auctions will remain a prominent feature in the mining sector for years to come. 

EDITED BY: Martin Zhuwakinyu Creamer Media Senior Deputy Editor