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Johannesburg - The ANC Youth League’s proposal to nationalise South Africa's mines is probably based on the idea that the mining sector is coining money and that this money would be better put to use in government's hands.
This is far from the truth.
Instead, nationalisation of the mines could cost the state a huge amount to keep the industry running.
The ANC Youth League’s perception is probably based on the R153bn in dividends that the industry distributed between 2003 and 2009.
But dividends do not imply that the sector is making money.
Over the past decade the industry has been involved in a very expensive expansion programme demanding enormous capital expenditure.
Without this capital expenditure the mines would not be able to continue producing, and production would drop and even come to a halt.
It's to be hoped that the expenditure will in time be recouped if prices remain high in the long term, which is not on the immediate horizon.
Even if government were to expropriate the mining industry without compensation, it would derive little benefit if it failed to invest, as the private sector does, in the maintenance and development of production.
From 2003 June 2009 the industry has in fact been gobbling money.
In the seven years of booming resources prices the industry has made a composite after-tax profit of about R293bn, but at the same time has made a capital investment of R334bn.
The industry has therefore pumped in R41bn in capital – even before the R153bn provision for dividends.
Deep pockets
The situation differs from sector to sector but, with many junior groups now prepared to build costly new mines, the industry will probably be a net consumer of capital for the next few years.
According to Chamber of Mines economist Roger Baxter, in 2010 the industry spent around R17bn more than it earned.
The industry requires deep pockets, said Baxter.
Why, he asked, would you nationalise if the government is already plucking most of the fruit that the mining industry offers the country?
According to him, less than 10% of mine spending – including dividends – goes offshore.
The rapidly growing bulk resources sectors (coal, iron ore, manganese and chrome) also urgently requires large capital expenditure on the rail network to expand exports, and this the state will probably not be able to finance on its own.
It will probably have to be partly funded by the private sector.
Neither can be mining sector grow before Eskom completes the Medupi and Kusile power stations.
This is being done with support from the World Bank, which does not support expropriation.
The newly launched state-controlled mining group, African Exploration Mining & Finance Corporation (AEMFC), does not appear to be a new giant mining start-up. Its first investment has predictably been in the fairly cheap coal sector and it targets the hind teat of the mineral market, Eskom.
- Sake24.com
For business news in Afrikaans, go to www.sake24.com.
This is far from the truth.
Instead, nationalisation of the mines could cost the state a huge amount to keep the industry running.
The ANC Youth League’s perception is probably based on the R153bn in dividends that the industry distributed between 2003 and 2009.
But dividends do not imply that the sector is making money.
Over the past decade the industry has been involved in a very expensive expansion programme demanding enormous capital expenditure.
Without this capital expenditure the mines would not be able to continue producing, and production would drop and even come to a halt.
It's to be hoped that the expenditure will in time be recouped if prices remain high in the long term, which is not on the immediate horizon.
Even if government were to expropriate the mining industry without compensation, it would derive little benefit if it failed to invest, as the private sector does, in the maintenance and development of production.
From 2003 June 2009 the industry has in fact been gobbling money.
In the seven years of booming resources prices the industry has made a composite after-tax profit of about R293bn, but at the same time has made a capital investment of R334bn.
The industry has therefore pumped in R41bn in capital – even before the R153bn provision for dividends.
Deep pockets
The situation differs from sector to sector but, with many junior groups now prepared to build costly new mines, the industry will probably be a net consumer of capital for the next few years.
According to Chamber of Mines economist Roger Baxter, in 2010 the industry spent around R17bn more than it earned.
The industry requires deep pockets, said Baxter.
Why, he asked, would you nationalise if the government is already plucking most of the fruit that the mining industry offers the country?
According to him, less than 10% of mine spending – including dividends – goes offshore.
The rapidly growing bulk resources sectors (coal, iron ore, manganese and chrome) also urgently requires large capital expenditure on the rail network to expand exports, and this the state will probably not be able to finance on its own.
It will probably have to be partly funded by the private sector.
Neither can be mining sector grow before Eskom completes the Medupi and Kusile power stations.
This is being done with support from the World Bank, which does not support expropriation.
The newly launched state-controlled mining group, African Exploration Mining & Finance Corporation (AEMFC), does not appear to be a new giant mining start-up. Its first investment has predictably been in the fairly cheap coal sector and it targets the hind teat of the mineral market, Eskom.
- Sake24.com
For business news in Afrikaans, go to www.sake24.com.
