[miningmx.com] — GOVERNMENTS are fooling themselves if they think
there is more than simple, objective figures behind the negative responses of rating
agencies and prospective investors to reports about new taxes, or other methods to
extract more value out of mines, according to auditing group Ernst & Young (E&Y).
“It is really just a matter of figures, and not an emotional issue at all,” E&Y director
for taxation, Corlie Hazell, said on Monday at the release of the group’s annual
Business Risk Facing Mining and Metals report.
“Many South African mining shares are trading at a discount. Valuations reflect
concerns over taxes,” Hazell said.
Repeated, and often contradictory statements about new burdens for mines create
uncertainties that dilute the balance between risk and benefits, and can lead to the
channelling off of capital, E&Y said.
As in 2011, “resource nationalism” was at the top of the list of 10 risks that,
according to E&Y heads, control mining chiefs’ investment decisions.
“Many governments are now going further than tax with a host of requirements to
prescribe beneficiation,” said Wickus Botha, E&Y’s mining and minerals champion for
Africa. Such measures include a ban on the export of unprocessed resources, export
tariffs and restrictions on foreign ownership.
“There are without doubt projects worldwide that have been postponed and
sometimes cancelled because of the worsening relationship between risk and
return.”
The report revolves around what is essential for decisions about the investment of
large sums of capital, Botha said. E&Y created a new risk-category – the division of
benefits – this year to reflect the demands of not only governments, but also
communities, employees, suppliers and shareholders for a larger slice of the cake.
According to Botha, mining groups are prepared to pass on more of the return to
other interested parties, but then these parties must also bear some of the risk, he
said. This “transfer of risk” is the mining sector’s great challenge, he said.
The report’s focus on resource nationalism used the Australian Mineral Resource
Rent Tax (MRRT) as an example of what other countries, including South Africa and
certain Indian states, want to follow. Since 2011, the Democratic Republic of the
Congo, Ghana, Mongolia, Peru, Poland and the US have announced or introduced
higher tax on royalties, E&Y said.
According to E&Y, the second-biggest risk troubling mining investors was the
worldwide shortage of skills, as well as problems with access to infrastructure.
– Sake24
