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State mines 'not unique'

Feb 08 2010 08:14 Dewald van Rensburg

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Cape Town - It is almost a foregone conclusion that South Africa will establish a state-controlled mining company. But it is not the only country where this is on the cards.

The government's involvement in mining activities will increase, reckons Professor Magnus Ericsson of the Raw Minerals Group consultancy. He says that there is a sense on the part of many governments that they are not involved enough in their own mining activities, especially as prices rise. Their intention of becoming more involved is understandable, he believes.

Although the trend is evident, it's not clear what the effect on markets will be.

Ericsson says one cannot have a "black and white" view on state-controlled mining. Sweden has been mining its own iron ore profitably for 50 years and Chile's Codelco is one of the world's biggest mining houses. Ultimately it is not a question of who owns what, but rather the quality of the owner.

In 1984 about 35% of the world's mines were under state control.

By 2000 this had fallen to almost 15%. But the trend has since reversed.

Many of the world's mines are still in government hands, even after a period of privatisation in the nineties, Ericsson points out. Practically all Chinese mining groups are state-controlled - which significantly boosts state control globally. About 60% of the world's tin, for example, is mined by state mining companies, and more than 50% of the coal and 40% of the alumina is extracted from the ground by state-controlled businesses.

In 2006 governments processed almost 50% of all alumina and more than 30% of all copper and zinc.

China has the largest government mining sector, followed by Chile, Poland, India and Iran - without taking oil into account.

International companies are responsible for almost all mining in Gabon and Argentina.

In China, Russia and India almost all mining is undertaken by local companies, many of which are owned by the state.

Certain conditions are necessary for successful state mines, says Ericsson. A company must look to its own future and not simply feed government coffers. Secondly, it must be well managed and political motives should not form its raison d'être.

Domination by private giants

Government mines are a counter to domination by a reducing number of mining giants which generally mine and do business across borders.

Control over mining activities has economic and political consequences, and Ericsson contends that companies can influence governments.

At a media conference where she shot down the ANC Youth League's nationalisation plans, Minister of Mining Susan Shabangu pointed out that state-controlled diamond company Alexkor's many years of losses have recently turned to profitability.

This was achieved without any expensive rescue package from the state. The basic principle is that a business has to be efficient, she said. Its not a new concept for a state to mine, but it must be placed in the proper context of professionalism.

South Africa's state mining company will probably concentrate on strategic minerals, coal in particular, and empowerment will play a significant role.

- Fin24.com

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