Miners helpless to stem resource nationalism

[miningmx.com] — LIKE it or not, the world’s mining companies are having to bow to the sovereign right of African countries to establish a stronger participation in their mineral industries.

Last week, Guinea passed legislation allowing its government a free carry of 15% in all new mining projects, and the right to buy 20% more. Mozambique has a similar free carry law when foreign miners want to convert exploration permits into mining licences. Botswana, Namibia and, most likely, South Africa are making similar moves to improve government access to minerals revenue.

It’s fair to say Zimbabwe has led this charge. As far back as 2006, Zimbabwe’s government was calling for indigenisation, the transfer of 51% of all foreign-owned mining properties to the Zimbabwean government which would then appoint partners. Compensation was never an obvious part of the mix.

In response, mining companies have no choice but to comply. If they withdraw from places like Zimbabwe, another mining company – with far less to lose – will simply replace the divestors.

The much publicised exit of Rio Tinto from South Africa’s Chapudi coal prospect is a case in point. It was replaced by Coal of Africa, an Australian-listed mining junior with less to lose than Rio Tinto. South Africa was none the worse for wear, it would seem. And the confidence of host countries to turn the heat up on foreign investors is perhaps born out by that interesting, final question in the Fraser Institute study on risk in African mining polities.

What, asks the Fraser Institute, more important to a mining company CEO: the stability of the country in which it wants to invest or the existence of minerals there? Almost 60% of respondents said the existence of minerals was more important which, one suspects, was the answer most supplied by junior mining company CEOs.

Peter Leon, an attorney at Webber Wentzel, does make the valuable point, however, that there’s a limit to host country behaviour in this regard. “It’s all very well while there’s a commodity boom, but if the boom dries up, which it may well do with a recession looming, then things could go very pear-shaped,’ he says.

Sasol’s newly appointed CEO, David Constable, makes a parallel point that while the private sector understands the need for governments to participate in the minerals boom, and while national patrimony needs to be respected, “a certain light touch’ would only help. “Look at what’s been achieved in places like Australia,’ he says. “It’s no accident that it controls 85% of the manganese industry with just 15% of its reserves, while South Africa, with 85% of reserves, controls only 15% of the industry,’ he says.

South Africa’s ham-fisted treatment of the nationalisation debate is an example. Investors have choice and would rather opt for Mozambique, which is insisting on a free carry, rather than South Africa were mining law is still on a willing seller, willing buyer basis. What’s not helping South Africa is the dithering on nationalisation – a point made in other columns by other writers, ad naseum. While we wait for the ANC machinery to form a policy, investment in South African mining is drying up.