Face Off – Governments tackle big mining companies

Windhoek – The South African government is fast losing patience with an intransigent mining sector, and so are most African governments, which are intent on overhauling the pernicious historical legacy of the mining sector as an enclave.
Mining analysts say that the deadly unrest, which gripped the mining sector in South Africa, reinvigorated African governments’ push for increased state participation in the mining sector and increased mining revenue into state coffers.
Ernest & Young analysts warned in 2012 that the resource nationalism trend is not likely to slow down, accepting that the global phenomenon among governments is now to “go beyond taxation in seeking a greater take from the sector, with a wave of requirements introduced such as mandated beneficiation, export levies, and limits on foreign ownership”.
At the annual international mining showcase, the Mining Indaba held in Cape Town this past week, the die was cast.
South Africa, which has had a spat with global resources giant Anglo American Plc, recently, urged international mining capital to respond to the changing global economic environment.
Minerals Resources Minister Susan Shabangu cautioned mining companies against focusing on short-term gains, advising companies to treat workers as partners in the mining sector.
“We observe with concern the focus on short-term gains, which disregard the long-term prospects of sustainability. These practices are not in the interests of any stakeholder, including the shareholders as these are based on the principle of downside and distribute, rather than retain and invest,” Shabangu lectured mining executives attending the Indaba.
While South Africa, the continental economic powerhouse’s tone has somewhat been moderate, other mineral endowed countries such as Guinea, Democratic Republic of Congo (DRC), Zambia, to name but a few, are pushing through wide ranging policy reforms aimed at increasing revenue flows into the state.
The DRC, which holds some of the world’s largest deposits of copper and cobalt, is amending its mining code to enable the state to hold no less than 35 percent equity in mining projects.
“We need to put an end to the paradox which sees huge mining potential, and ever more intense mining activity, but only modest benefits for the state,” DRC President Joseph Kabila said recently.
Guinea, believed to hold the world’s largest deposits of bauxite and iron ore, has come up with a law in which it holds 35 percent equity in mining projects. Guinea is currently reviewing all mining contracts in the country with a view to raising state participation and boosting mining revenues.
Zambia has said it wants to hold no less than 35 percent equity in mining projects. South Africa has opted for ‘strategic state ownership’ of key mining projects, a cosmetic change from the contentious term ‘nationalisation’.
“Politically under pressure from its allies and a young, poor, jobless and increasingly restless electorate, the ANC is losing its patience with the industry and what it perceives as a resistance to change,” Vukani Mde and Sinethemba Zonke, analysts at Africapractice said.
The analysts say that mining was the key to the country’s ability to rapidly industrialise in the 20th century and has remained the bedrock of the South African economy ever since.
“However, many in the ANC feel that reform in the mining sector has not kept pace with the democratic consolidation of the country and that political, social and racial inequalities from the apartheid era have not been fully addressed,” Africapractice analysts say.
“To name a few, health and safety, labour relations, investment in mechanisation and technological innovation. We believe that ANC policy makers are committed to confronting these issues and that the country’s mining industry is therefore set for significant state driven change,” the analysts add.
The analysts say that a platform for consultation provides a platform for mining companies to play a constructive role in the restructuring and reform of the resources sector.
“Companies who want existing assets to remain viable or want to enter the market will need to adopt more long term approach to profitability and attempt, whenever possible, to play open cards with the government, regulators and labour on the financial viability of their plans. Only those companies flexible enough to deal with the shifting landscape will succeed,” Africapractice analysts say.

February 2013
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