The problem with profit

Jan 29 2013 09:21

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Fin24 user Bernard Lawrenson has commented on Mzwandile Jacks' column The profit motive:

"The problem started when uninformed people, including think tanks of the ANC, equated the holding of mineral rights to the withholding of valuable assets that should be in the hands of the state and be immediately turned to account for the benefit of the people," says Lawrenson.

"The use it or lose (it) approach to mineral rights was intended to mobilise these resources for the immediate benefit of the nation as a whole."

In  his column, Jacks says: "I think the motive behind this whole thing (the decision by miner Anglo Platinum [JSE:AMS] to lay off 14 000 workers, close shafts and sell a mine) is profit for investors or shareholders."

Responding to this, Lawrenson writes: "The fallacy in this view was thinking that profit seeking capitalists would sit on anything that was capable of generating profits without good reason.

"The mining houses' execs, who knew from bitter experience that metal markets were cyclical and subject to the laws of supply and demand, saw these unused bottom drawer potential resources as currently ranging from marginal to pie in the sky resources and concentrated on meeting market demand and research aimed at market expansion.

"The unintended consequence of the use it or lose it legislation was an expansion in production, as resources previously considered marginal were put into production to the extent that mining houses in desperation persuaded themselves in a boom period that this was profitable.

"Some previously tied resources became the basis of BEE deals. The balance fell into hands that raised new capital to exploit the envisaged bonanza. The sheer pressure of across the board expansion put capital costs through the roof, destroying mooted returns.

"A quadruple rise in costs over a 10-year period has provided the 'coup de grace'," concludes Lawrenson.

 - Fin24

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