Cue cards for Shabangu’s high noon

[] — IT’S tempting to get emotional about the Fraser Institute study which finds South Africa’s mining dispensation has slipped to its lowest rating in terms of mineral policy certainty, ever.

Sitting just below the Phillippines, and slightly above Zimbabwe (and, interestingly, Russia), South Africa was awarded a rating of 23.4 by the institute. This was well off the 40.4 rating it received in 2008/9, which was its highest.

Yet the crumb of comfort that may accompany Mines Minister Susan Shabangu on this week’s US investor roadshow is contained in a less covered area of the Fraser Institute report. And that’s the weighting of importance the survey’s respondents gave to mineral prospectivity versus the effect of policy.

According to the institute, nearly 60% of respondents said mineral potential was more important than policy when asked: “How do you rate the importance of mineral potential versus policy factors?’ That means less than half thought policies were more important than a really good mineral discovery.

Less face it, exploration companies know the best platinum finds aren’t located in the frosty climes of Alberta, Canada, which rates highest on the institute’s policy potential index. Nor the most manganese supplies, nor coal, nor rare earths (an increasingly important mineral) in Manitoba.

In short, miners go where the minerals are – which is not to be complacent so much as realistic about the risk tolerance in the mining industry. Just don’t make it too difficult for mineral explorers, should be the buzz phrase.

Surely Shabangu’s aim of having South Africa climb up the Fraser Institute ratings on its mining study is recoverable, notwithstanding some of the major deficits in the country’s mining lately, such as the spectre of nationalisation.

A good start to this end would be to reverse sentiment on a few key problems in South Africa’s minerals policy.

Here’s a five-point plan – or cue cards if you will – Shabangu could take with her on her North American trip that may help change the tide of negative sentiment currently subsuming South Africa’s mining industry:

1) Perspective folks. The minerals resources department has processed tens of thousands of applications for mining licences and exploration permits. The sticking points, including identified corruption, is a drop in the ocean of successful permits. The moratorium on exploration permits, currently extended in certain provinces, is a good thing; a self-imposed retrospective as is proposed legislative changes.

2) South Africa has a relatively stable society, and a strong civil voice. The uprisings in north Africa and the problems in Cote d’Ivoire and the Democratic Republic of Congo put into context some of South Africa’s achievements in its democratic era. If you want to examine investment in Africa as an emerging market, do so in the context of the whole of Africa.

3) Come clean on what the state-owned mining company is really about: this is an entity focused almost exclusively on securing Eskom’s future coal supplies, hence the strategic nature of the company’s investment focus.

4) Say no to nationalisation (again). Investors will worry that although not policy, nationalisation has made it on to ANC agenda. Show that the ANC has a track record of ditching many potential policies supposedly up for adoption in favour of a far less threatening compromise, eg royalty legislation based on revenue (was changed to Ebit or pretax), while the first incarnation of the mining charter itself proposed nationalisation only for it to be diluted into a 26% ownership.

5) Speak out for mining investment. Shabangu already has a growing reputation of being more attuned to investors than her two previous predecessors, her stand on nationalisation noted. Perhaps calm fears on who will succeed Sandile Nogxina as director-general of the DMR by saying the incumbent will be one of her choosing.

To be frank, one wouldn’t expect Shabangu to speak boldly on who will follow Nogxina, but it is an interesting point.

One possibility is that although President Jacob Zuma has the authority to directly appoint high ranking civil servants in his department, such as the director-general, he has also deferred to the minister. Were he to make a direct appointment in the case of Nogxina’s replacement, one could have grounds for suspecting an individual with a specific agenda has been appointed, rather than that of the minister.

Good luck Minister Shabangu. The word on the street is that a hot reception awaits you this week. Much turns on you and your department’s ability to change minds.