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Sata's clean-up in Zambia

Oct 23 2011 14:58 Jan de Lange

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Johannesburg - The steps taken by Zambia's President Michael Sata in that country's mining industry is aimed at bringing partnerships and inclusivity into the industry, said Arshad Dudhia, one of the Zambia's leading lawyers.

Dudhia was in South Africa last week, where he took part in a debate on resource nationalism.

Sata, who took over the reins in Zambia a month ago – and has since been giving mining investors the jitters by announcing that government wants a 35% interest in all Zambian mining projects, and by last Thursday’s suspension of all new mining licences – announced an audit of all existing mineral rights.

Shortly after coming into office, Sata dismissed the head of the central bank and two weeks ago suspended all mining export licences.

In the same debate Peter Leon, one of the country's foremost mining law attorneys, warned that these steps were much the same as those announced by President Laurent Kabila of the Democratic Republic of Congo three years ago, which had led to great disruption and uncertainty in that country's mining industry.

But Dudhia took serious issue with Leon. He pointed out that ­Sata was determined to stamp out corruption in Zambia.

He said it was part of the process to determine where the country's money and resources were going. Why, he asked, was Switzerland Zambia's largest export partner?

Sata had wanted to know why all Zambia's money went to Switzerland, ­Dudhia said.

Glencore, the world's biggest resource broker, which listed in London and Hong Kong earlier this year and which operates several copper mines in Zambia, is based in Switzerland.

Other large mining companies operating in Zambia include Canada’s copper producer First Quantum Minerals, Brazil’s Vale, India’s Vedanta Resources, Canada’s Barrick Gold, South Africa’s AngloGold Ashan­ti and Patrice Motsepe’s African Rainbow Minerals (ARM).

Analysts expect that foreign mining companies could invest up to $6bn in Zambia over the next two years if the investment climate is safe.

First Quantum lost its mineral rights in the DRC when Kabila initiated similar processes there. The company's share price dropped 35% in the weeks after Sata became president.

First Quantum chief executive Philip Pascal however met Sata on October 13, following which he declared himself satisfied with the security of his Zambian investments. First Quantum’s share price has since recovered somewhat.

At the Johannesburg legal debate, mineral rights practitioners said they believed that resource nationalism in most African countries would mirror that adopted in South Africa and that fears of nationalisation were unfounded.

“This year some 70 elections will be held across the continent and this is a trend among almost all governments: they reexamine mining legislation and review mining contracts.

“There is therefore a shift in emphasis, because governments begin to realise that mineral reserves are a finite resource and they have to answer for how these reserves have been turned to account.

“It's not an African phenomenon alone.” It can be seen in Australia and even in Britain, with ongoing arbitration regarding increased oil reserve royalties. Pressure is also being exerted for transparency and resistance to corruption, said Bruce Dickenson, mining transaction partner at legal firm Webber Wentzel.

Leon, head of Webber Wentzel’s mining and energy division – who has written a number of legal studies on resource nationalisation and mineral rights in Africa – said Botswana, whose government provides a stable environment with mining legislation that does not allow for state discretion, continuously heads surveys such as that of the Fraser Institute on countries' investor friendliness towards mining companies.

But Dudhia drew Leon’s attention to the different economic realities of Botswana and other African countries such as Zambia and Zimbabwe.

“Empowerment will take place in Zambia, much as in South Africa, but it will be broad-based empowerment – not the first version of BEE (black economic empowerment) seen in South Africa,” he said.

michael sata  |  mining industry  |  zambia
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