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Could nationalisation of South African mines spell the end for the industry? Black investors think not...

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Nationalisation debate far from over

Siyabulela Qoza | Sun, 12 Jul 2009 21:41
[miningmx.com] -- THE debate over the nationalisation of mines has received a warmer reception from black investors in the sector than from the established mining giants.

While they believe blanket nationalisation will not work, they are of the view that greater state involvement is required to achieve meaningful transformation and achieve developmental goals.

"The mineral rights already belong to the state. There is a case to be made for government becoming a major shareholder in all of the mining operations in the country," said Vincent Phaahla, an economist who runs a small mining firm, Sebata Kgomo Mining.

Phaahla said the state could value the mineral rights in a particular mine and then use that value as a basis for it to acquire shares that would ultimately lead to it being a major shareholder. He suggested a 10-year period to acquire enough shares for majority state-ownership rather than a programme of enforced nationalisation.

This model, where government is a major shareholder, is not foreign to the mining industry. In neighbouring Botswana for example, the government owns 50% of a joint venture mining company with diamond producer De Beers, called Debswana.

Such examples are not uncommon around the world. Mining joint ventures between governments and the private sector tend to exist where the private mining companies want continued access to minerals.

In the De Beers example, Debswana is its biggest producer.

Phaahla said greater state intervention would achieve better transformation results than the current empowerment regime has managed.

"All the established firms have done is to get black partners and front them. Important operational and strategic decisions are still taken by the same people who have always taken them.

"The only time black people will take important decisions will be when the government is the major shareholder," he said.

Phaahla said one reason mineral beneficiation has not taken off in a meaningful way is because the current major shareholders are more interested in maximising profit.

"In a recessionary environment like we have now, government mines would not be firing people in large numbers. It would be more concerned about jobs, for example."

High stakes

Phaahla's views are shared by an industry analyst who preferred to comment anonymously.

"The stakes are high. We are near the halfway mark in the implementation of the Mining Charter. The industry has been very slow to implement the charter.

"Anecdotal evidence suggests that we have a long way to go towards achieving transformation," said the analyst.

He says irrespective of the debate, the industry needs to consider where it is in terms of transformation.

Sandile Zungu, executive chairperson of investment company Zico, said the management of the economy should never be based on the dogma of either communist Karl Marx or libertarian Adam Smith.

"Both men had warts and blemishes and their professed ideologies are equally imperfect. Hence it is unfortunate that an otherwise welcome public discourse continues to be dogged by ideological tags and labels and the clatter of the 'isms'," he said.

Zungu said the ANC-led government needs to respond to the challenges and demands of the day in a pragmatic manner.

"For example, faced with the reality that at the rate at which we are mining, burning and exporting energy resources such as coal, uranium and gas, in 50 years South Africa will most likely run short of exploitable energy resources.

"As such, we will be almost wholly dependent on other states for our own energy needs; then the question is, what is to be done?" he said.

He suggests that patriotic black business people should be open to the idea of a mixed economy where government is both the regulator and an owner.

State firm needed

A black investor, who preferred to remain anonymous, said the debate has become too political and thus does not encourage black business participation without a risk to their business ambitions.

"The government could look at developing its current state mining company instead of going the more expensive route of nationalisation," the investor said.

The black investors all expressed concerns about government's ability to run the mines if the state were to nationalise the assets.

"Were the government to choose to be owners of productive mining assets, then it would have to simultaneously deal with the fact that the broad section of South African people would not readily trust them with the management of such assets," he said.

Phaahla suggested a model where minor shareholders, established and black firms run the mines to address concerns about the state's lack of capacity.

- City Press