[miningmx.com] — ONE thing is for sure, plans by Anglo American to sell off part of its Minas Rio iron ore project in Brazil to help offset its initial acquisition cost of $5.5bn (including other iron ore assets in the country) will most probably come to nothing in the short-term. They’ll be few takers given that the project cost now becomes open-ended after the UK group said last week it would cost an extra $750m to build the mine owing to permitting delays. The total cost of building the mine is now $4.5bn.
Thus do the potholes and precipices of operating in multiple districts around the globe leave mining companies vulnerable, especially if they fail to diversify their risk. Nobody wants to be over-reliant on a single project for long-term success.
I think Harmony Gold might be, however.
The South African gold company recently unveiled updated mineral resource figures for its Wafi-Golpu project which is situated in Papua New Guinea (PNG). The mineral resource on Wafi-Golpu has now been upgraded to 16 million ounces of gold and 4.8 million tonnes of copper which, expressed as gold equivalents, amounts to a hefty 38.5 million ounces.
Said Harmony Gold CEO, Graham Briggs, of the increase in resources: “Drilling results continue to prove that investing in exploration was a very good long-term decision. We have now added significant size to what is one of the highest grade copper gold prophyries in South East Asia.’
Briggs has been upbeat about Wafi-Golpu for some while. In May, he described it as “a company maker’. One can, perhaps, see now why former CEO, Bernard Swanepoel, considered a separate listing for the asset at one point.
So what does Briggs make of political developments in PNG over the last two weeks which led one analyst to believe investments in the country could be under threat?
This was after PNG prime minister, Michael Somare adjourned parliament on July 21 until November successfully avoiding a vote of no confidence. According to the Herald Sun, Somare is facing a direct challenge from his former deputy Puka Temu who in parliament actually threatened to kill the prime minister.
According to Eurasia Group, a stockbrokerage, the political developments in PNG are ominous. “The current political crisis in Papua New Guinea highlights increasing political uncertainties that will raise risks to investors, including delays to projects, repudiation of contracts, rent-seeking activities and creeping expropriation.’ Even if a new government is peacefully installed – the next election has to take place before 2012 – the volatility for which PNG is historically known could return.
PNG’s Supreme Court recently found a 2001 law preventing members of parliament from switching political parties after an election unconstitutional. “The ruling paves the way for a return to the volatile politics characteristic of PNG for almost three decades prior to 2002 where MPs frequently switched sides in return for ministerial appointments or monetary inducements, causing frequent changes of government,’ said Eurasia Group.
Harmony confirms the recent political events described above and adds that Temu is challenging the decision to dissolve parliament in court. But Somare has indicated his decision to quit the prime ministership in 2012 at the latest, says Harmony which adds that floor crossing doesn’t translate into legislative changes that would affect the mining industry.
“The mining and tax legislation as it relates to mining have not changed since the late Nineties [in the PNG] unlike Australia and South Africa,’ says Harmony’s corporate and investor relations executive, Marian van der Walt. “We have dealt with a number of ministers filling the portfolio for mining in the development process for Hidden Valley. The changes in ministers did not impact on the process or result in a different application of policy, and we do not believe the current changes will result in that either.’
According to Harmony, Temu is supportive of the mining industry while the recent investments of Newcrest in the Lihir project and the $13bn Exxon Mobil gas project unveiled in PNG would seem to suggest that other international investors are equally as sanguine on the matter.
Case closed then.
Royalty proceeds for water pumping
Instead of nationalising the mines, why not have Government take control of the pumping and retreatment requirements instead of asking three mines to do it for them – which they can’t. Rand Uranium, Mintails and DRDGold are being made responsible for pumping and even retreating the disused mines in the East Rand. Shouldn’t government be helping to pay for this, if not all?
Legally, it’s the mines that should pay. That’s my understanding. But the fact of the matter is that the mines in question will probably go under, as it were, which not only has retrenchments as a consequence but leaves Government as the last man sttanding.
Government needs to dive in, and quickly.
As for the cost of such support, shouldn’t this be provided by revenues derived from the Royalty Act, the first of which will be arriving in the fiscus round about now?
The initial intention of the Royalty Act, when it was still in green paper format, was to drive reinvestment into towns that once thrived on mining activities but were now rendered empty following the end of mining. Revenues from the levy, which is levelled at the pretax level of every mining company operating in South Africa seem now to be going straight into the fiscus, but I would have thought keeping disused mines well pumped and mine water sanitised is a pretty worthy cause.
Just a thought.
