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Is SA mining ‘uninvestable’?

Sep 21 2017 11:01
Natalie Greve
Mineral Resources Minister Mosebenzi Zwane. (Pic:

Mosebenzi Zwane is minister of mineral resources. (Picture: Gallo Images)

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Policy uncertainty in the South African mining industry has long been the default culprit for increasingly dwindling foreign capital investment into the sector and remains a popular panel topic at many a mining summit.

Consensus has, however, yet to be reached among the commodity players as to how to tackle a legislative environment over which they hold little, if any, sway.

If one agrees with straight-talking Eunomix managing director Claude Baissac, little can, in reality, be done by mining companies to push government to entrench stable and sound mining ownership and operational policy.

Miners are looking for a technical solution to a political problem, he told the Hogan Lovells Africa Stand Up conference in Johannesburg on 20 September.

“It’s all very polite conversation, but technical solutions aren’t going to solve a political problem. I don't know how we fix this. Everyone is terrified of taking on the crooks and gangsters who run us.

"The government knows what to do, it’s just not what is politically convenient to do,” he told a panel discussion on whether the SA mining sector had become "uninvestable".

Indicative of the existing level of animosity between the industry at large and the Mosebenzi Zwane-led department of mineral resources (DMR), the Chamber of Mines is readying to argue in court on 13 December as to why the new Mining Charter should be reviewed.

The chamber has been vocally critical of the charter, saying that, in its current form, it would “jeopardise the viability of an industry that is already under significant economic pressure”, Fin24 reported on 13 September.

Key aspects of the charter include an increase in the BEE shareholding of all mines from a previous 26% to 30%. In addition, 50% of all board members and executive management at mines must be black, while 70% of all mining goods and 80% of all services in the mining industry must be procured from BEE entities.

New mining rights are subject to a 1% revenue payment to BEE shareholders prior to any shareholder distribution, stated the report.

Zwane has, however, defended the charter, saying that it was government's prerogative to create laws.

But Paul Miller, a mining banker at Nedbank Corporate & Investment Banking, warned that through unstable policy and rising input costs, SA had pushed the costs of developing mining projects beyond acceptable pay limits.

“What we sometimes forget is that policy uncertainty is a cost, and gets priced into a potential project.There is occasionally a project that’s rich enough to develop despite this risk, and the DMR will put out a statement saying, ‘Look, we can still attract investment,’ but these projects are rare,” he commented.

As SA had insufficient capital reserves to develop domestic mining projects, attracting foreign funding was critical and a “highly competitive international sport”, as other mining destinations were also vying for capital.

“In this competition for global capital, we couldn’t be playing a worse game. It’s almost as though our policymakers don’t know we're even in the game,” Miller said.

Noting that “soaring” discount rates were currently being applied to domestic mining projects, Ria Sanz, AngloGold Ashanti executive vice president of group legal, commercial and governance, reminded listeners that ownership ambiguity when it came to an asset was the antagonist of any potential investor.

“Policy ambiguity strikes at the heart of the mining investment; at the sanctity of ownership. If there is no sanctity of ownership it makes investment impossible,” she held.

Business Leadership South Africa CEO Bonang Mohale added: “If you buy a house, wouldn't you want to know that in 10 years’ time 100% of that house will still be yours? All investors want is policy uncertainty. Even if it’s a dictatorship, at least they'd know what they are getting. They just don't want a lot of change.”

Sanz, meanwhile, advocated for the scrapping of the new Mining Charter, and the start of good-faith consultations between all relevant parties to create an innovative document and resultant policy that would create investment certainty and include the interests of labour and communities.

However, this would require a shift in mindset by corporate SA, the adoption of an attitude of “economic patriotism” and a firm rejection of any form of collusion or corruption, said Baissac, who used professional consultancy firm KPMG’s recent fall from grace due to its association with the Gupta family as an example of what not to do.

“We have to say no to corruption [...] because we are making selfish, short-term decisions for our pocket. The role of business is to consider itself corporate citizens. The Constitution belongs to us, and we need to defend it,” he commented.
mosebenzi zwane  |  mining charter  |  mining

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