ANDREW LANE Multiple changes to Zambia’s mining tax regime over the past two years and uncertainty over South Africa’s mining laws are of concern to potential investors
As the mining industry is heavily dependent on a country’s regulatory framework, investment in a country’s resources sector is dissuaded when the laws governing the sector are arbitrarily altered, says advisory firm Deloitte Africa energy and resources industry leader Andrew Lane.
“This is why engaging national and regional governments is currently one of the top priorities for mining companies, particularly for those with operations in Africa. It is imperative that companies be proactive in these engagements with the State to ensure that their concerns and challenges are made known to government,” he says.
In September, Lane attended the Africa Downunder conference, in Perth, Australia, and found that certain African countries, such as Tanzania, were being promoted by its industry representatives as a business-friendly jurisdiction for mining companies and investors.
He says, conversely, multiple changes to Zambia’s mining tax regime over the past two years and uncertainty over South Africa’s mining laws have made investors cautious to invest in these countries’ mineral resources sectors.
Financial services group Cadiz Corporate Solutions mining and resources divisional head Peter Major notes that, in the late 1970s and throughout the 1980s, South Africa had an established mining industry and a “mature” government that were both very pragmatic in their outlook for the gold sector.
He points out neither the government or industry believed that gold prices would remain as high as they were at the time (between $800/oz and $2 000/oz).
“Mining companies were quite mature in that they paid out excess money for shareholder dividends and companies put a significant amount of money into internal capital expendi- ture to expand operations. The additional cash was used to sustain operations when the price declined in the 1990s.”
However, Major points out that, in complete contrast during the last commodity cycle boom in the 2000s, mining companies and government did not plan for a future with lower prices and little was invested to establish new mines and upgrade old ones.
“The lack of foresight and planning during that period continues to hit hard, as has been evidenced recently with gold mines laying off workers, companies not developing new projects and closing down some or all of their operations, owing to cost pressures and the declining gold price,” he states.
Lane and Major were speakers at research and investment advisory firm Frontier Advisory Deloitte’s fourth yearly Africa Risk and Investment Forum, in Johannesburg, last month.