Malema, red tape and legal confusion

[] — ONE wonders what Mines Minister Susan Shabangu will think of 2011, the year in which she declared South Africa ready to address its lowly 67th position out of a possible 79 in the Fraser Institute rankings.

For those who don’t watch such things, the Fraser Institute annually ranks the world’s major mining countries for qualities such as political stability and predictability of government policies, and the like. In 2011, South Africa occupied the lower echelon of the global rankings sharing the space with the Congo and Zimbabwe. It was a rating that spurred Shabangu to tell investors at the Prospectors and Developers Association of Canada convention in Toronto during March that South Africa knew of the challenges and was already working to remove the risks and thus, improve its position.

The institute’s report made for some grim reading. Ten months on, there’s little evidence the country did much in 2011 to climb up the rankings.

In fact, South Africa might even rank lower owing to the unkillable nationalisation of the mines ‘debate’; the continued delays and frustration over changes to mining law; as well as what will be asked of miners in terms of meeting the rules of beneficiation. There’s also the role and uncertain practices of the state-owned mining company to blur the sight of investors; and last but not least, the pall that now hangs over security of tenure – an issue posed by the legal showdown involving Kumba Iron Ore, ArcelorMittal SA (Amsa) and the royal-sounding interloper, Imperial Crown Trading (ICT).

Let’s be honest, 2011 was a bad year for South Africa’s mining reputation. 2012 can only be better, one hopes.

At least you could say the High Court’s decision to overturn a prospecting right granted to ICT in late December was a positive development for South African mining. The fact that the right was issued by the Department of Mineral Resources (DMR) in error, and the implication that Kumba Iron Ore should never have been granted a 100% prospecting right over Sishen in 2008 when, in fact, it part owned the right with Amsa, are troubling factors, however. It suggests the minions in the DMR don’t understand their own rules. It suggests, too, corruption since ICT’s prospecting right was mired in speculation of fraud.

This was the corruption, and time-devouring red tape, Shabangu promised to overhaul in 2010 by means of a moratorium on prospecting licences. The moratorium was intended to give the DMR time to root out offenders, and streamline the legislation, the centrepiece Minerals and Petroleum Resources Development Act (MRPDA) of 2004. Nearly 18 months on, South Africa is still waiting for the streamlining of the act to take affect. The last pronouncement on the issue was changes to the MPRDA would have to wait until South Africa was clearer on its attitude to nationalisation.


Perhaps one should be glad Julius Malema, president of the ANC Youth League, looks set to make a sharp exeunt left of stage following sanctions handed down by the ANC’s National Disciplinary Committee (NDC) in November.

The party decided Malema had helped sow disunity within its ranks as president of its ANC Youth League; that was the primary charge which incurred a five-year expulsion from the party, pending an appeal.

More importantly, at least to investors, was that Malema would be deprived of a platform to push his nationalisation of mines strategy, and the political influence to help get it enforced.

Nonetheless, mines nationalisation will yet be discussed at two ANC gatherings in 2012: the policy conference in June and, if submitted as a policy worth adopting, the elective conference in December.

Make no mistake, while the possibility of nationalisation is still on the agenda, South Africa’s mining industry will hurt.

Perhaps before long, the ruling party will deliver its findings on a task-team dispatched to investigate how state participation in mining in places such as Finland, Venezuela and Zambia worked out.

One should be somewhat cautious about this. If it’s not nationalisation that’s recommended, it may be an extension of enlargement of the duties currently taken up the state-owned mining company, the African Exploration & Mining Finance Company (AEMFC).

The AEMFC, funded by taxpayers, is far from transparent in its affairs; it is also lossmaking, while its leaders hide from public scrutiny; and although the South African government declares the AEMFC to be fair in competing for the country’s remaining resources, the rumours are this is far from so.

As if this wasn’t enough, the country’s miners are left facing the prospect of what head of the South African government’s economic transformation committee, Enoch Godongwana, called “the carrot and stick approach to beneficiation”. It’s not a duty on raw material exports, well, not only, said Godongwana.

Again, the outcome of such a discussion turns on how the question of mines nationalisation will be quelled, or translated by Government. What’s certain is that beneficiation is difficult in South Africa if it requires more access to the power grid, manned by an under-fire electricity utility, Eskom.

At stake is Government’s interest in creating 200,000 jobs from the mining sector by 2020, an effort captured in the New Growth Plan adopted earlier this year.

Employment creation needs local and foreign investment. Proving South Africa is a better place to invest also means climbing above those commodity rich nations vying for the funds, including Zimbabwe and the Congo.