JOHANNESBURG (miningweekly.com) – Should the State play a larger role in South Africa’s mining sector, as envisaged by the African National Congress’s (ANC’s) 2014 election manifesto and the ‘State Intervention in the Minerals Sector’ (Sims) report, the establishment of an independent regulator would be essential to prevent conflicts of interest, Webber Wentzel head of Africa mining and energy projects Peter Leon said.
In his yearly January 8 statement, ANC and State President Jacob Zuma indicated that the ANC was moving ahead with measures to strengthen the State mining company and to ensure increased beneficiation for industrialisation.
This statement was echoed in the ANC’s election manifesto, which stated that “the role of the State-owned mining company will be strengthened”.
Leon told Mining Weekly Online that, while the manifesto did not deal with the issue of the State-owned mining company in detail, the Sims document explained that the State would play a key role by ensuring the compulsory beneficiation of "strategic” minerals at “competitive” and “affordable” prices, and that a more direct role would be played by the State mining company through the "development of strategic minerals” and “supporting, where appropriate, vertically integrated value chains that strengthen strategic industries”.
However, he pointed out that, while the establishment of an independent mineral regulator to deal with the conflict of interest created by this increased State participation was proposed in the Sims report, it was not followed through at the ANC's national elective conference at Mangaung in December 2012.
He added that limiting the State mining company’s activities to certain “strategic minerals” or to supporting "strategic industries", did not address the underlying problems with the State's bifurcated role as player and referee, as the State itself would declare minerals as strategic.
“While the State mining company is answerable to a government-appointed board of directors, it is important that it is managed at arm's length,” Leon said, adding that some of these issues could be dealt with should the company fall under the Department of Public Enterprises, thereby ensuring that the Department of Mineral Resources was not in a conflicted position.
“It has also been suggested that the State mining company should be listed on the JSE, to enable it to tap into private sector investment, as well as to ensure that it is held to the same set of rules and disciplines as other listed mining companies,” he said.
Meanwhile, Cadiz Corporate Solutions mining consultant Peter Major said the ruling party was trying to micromanage the private sector’s mining industry, adding that a greater role for the State in mining was not a bad idea but that it should do so through its own holdings and own managed assets.
He added that the ANC’s aim to increase beneficiation could be problematic, as most mining companies would not be able to afford establishing beneficiation plants – additional to those they have at present.
“Also, if those plants are built, you have to build them to a certain size [which then often creates] a marketing problem. Also [the mines will the be] directly competing with the people they used to sell concentrates or roughly finished products to,” he stated.
STRATEGIC MINERALS
The ANC’s election manifesto also stated that “strategic minerals will be identified for policy interventions in the manufacturing, energy, agriculture and infrastructure sectors. Active measures will be taken to ensure security of supply of these minerals to achieve national objectives such as industrialisation and local beneficiation”.
However, what was meant by “policy intervention” in the manifesto was unclear, Leon commented, adding that it could, however, correspond with the ANC policy contained in the Sims report resolutions adopted at Mangaung, which envisaged a more interventionist role for the State in the economy in general and the mining sector in particular.
“The Mangaung conference saw the partial implementation of the Sims report, in the adoption of the resolutions, which provided for ‘State ownership in strategic sectors’ where this was ‘deemed appropriate’ on ‘the balance of evidence’. To this end, the resolutions require the State to identify strategic minerals, [adopt] instruments to support beneficiation for industrialisation through ‘competitive pricing’, as well as [ensure the ] ‘targeted management of exports’,” he explained.
Mining companies would be compelled to offer “strategic” minerals to downstream manufacturers at “competitive” and “affordable” prices.
Leon said this policy was reflected in the proposed amendments to the Mineral and Petroleum Resources Development Act (MPRDA) that appeared in the MPRDA Amendment Bill, currently before Parliament.
A key clause in the Bill dealt with mineral beneficiation. Under the Bill, the Minister of Mineral Resources had to designate minerals or mineral products for beneficiation; however, the Bill did not say which minerals or how the Minister must do so, he said.
Major added that investment would be deterred by the fact that the minerals to be declared strategic had not been specified, stating that “this causes much uncertainty”.
“The ANC does not realise how disruptive the word [strategic minerals] is. It scares [investors] off because they are not sure that when they invest in a mine whether that mine’s mineral might become strategic later on. The [ruling party] should come up with clear guidelines on which minerals will be strategic or scrap [the concept] completely,” he said.
“I am still looking for a realistic, easy to understand definition of ‘strategic’. It seems to alter with the wind, constantly changing,” said Major.
He added that scrapping the concept would not affect the country negatively, because, should a specific mineral be needed, a Bill could always later be passed declaring that specific mineral as strategic.
TAX
In the January 8 statement, Zuma also said the ANC had broadened Mangaung’s call for increasing the share of mineral resource rents and that it would embark on a comprehensive review of the tax system.
Leon stated that tax reviews, such as that alluded to in the ANC’s manifesto, were not unusual for resource-rich developing countries, such as South Africa.
“The governments of these countries seek an equitable share of revenue from their mineral resources in order to foster economic growth and, thus, create employment. However, in order to attain these goals, South Africa also needs to attract foreign and domestic investment to fund greenfield and brownfield mining operations.
“South Africa, accordingly, requires an equitable fiscal regime which balances both the interests of the State and those of investors,” he said.
Leon also pointed out that, in fact, a review of South Africa's mining taxation regime was already under way through Judge Dennis Davis’s tax review committee that was appointed last year by Finance Minister Pravin Gordhan.
“[This committee] has terms of reference which appear far more balanced than the ‘redistributive taxation’ and ‘mineral resource rents’ suggested in the Sims report, as well as in the resolutions of the Mangaung conference. In contrast to these proposals, the committee's terms of reference require it to consider whether the current mining tax regime is appropriate, taking account of the need for job creation, but also the challenges faced by the mining industry, such as the need to remain competitive in a volatile market to attract investment,” he explained.
Meanwhile, Major warned that, should mining tax measures be made stricter than they currently are, the country would see even less investment in mining. He also added that, “if anything tax measures should be made more favourable for mining companies”.
“If government really wants more mines, not less, then [perhaps] they should help mines the way they have helped the airlines, automotive manufacturers, farmers and other domestic industries,” he concluded.