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Years of gridlock face South Africa as new rules hurt mining

Executives from Sibanye Gold Ltd., South Africa’s biggest gold miner, were in Los Angeles in the final stages of a roadshow with U.S. bond fund managers last month when a bombshell hit from back home.

The government had introduced shock new rules requiring local mines be 30% black-owned in perpetuity, toughening existing requirements and implying hefty dilution for shareholders. South African stocks tumbled and bond yields rose that day. The measures, called Mining Charter 3, put at risk funding for Sibanye’s $2.2 billion acquisition of Stillwater Mining Co. of the U.S., the biggest foreign takeover by a South African mining company in 16 years.

“We had to hold back the financing, find out what the chartermeant, and rebrief all our potential investors,” Chief Executive Officer Neal Froneman said by phone. “A number of institutional investors pulled out of the bond process saying the risks in South Africa were just too high and it’s becoming uninvestable.”

Companies and investors say the new rules and uncertainty will starve the industry of much-needed capital, shortening mine lives, reducing profits and adding to existing challenges of declining reserves and increasing costs. Most mining companies already offloaded 26% stakes and even entire mines to black investors at preferential rates in the 2000s to comply with previous rules, believing it was a one-time deal.

President Jacob Zuma backed the charter in parliament last month as part of his “radical economic transformation” agenda, intended to boost black participation in an economy that’s still one of the most unequal in the world, 23 years after Nelson Mandela helped end apartheid. But members of the African National Congress party, including Deputy President Cyril Ramaphosa, have signalled their doubts, saying the government and industry should go back to the drawing board and reach a negotiated settlement.

Mining companies have already begun fighting the charter through the courts and say the uncertainty will scare off investors in a country once seen as model of democracy, reconciliation and open markets in Africa. The first lawsuit, to block the charter while it winds through the legal process, has an initial hearing on July 18.

“We’re not going to accept it,” Froneman said. “It’s unconstitutional to abuse shareholders retrospectively.

The legal cases “could potentially take three years to conclude,” said Victor von Reiche, an analyst at Citadel Wealth Management in Cape Town. “In the meantime the mining industry in South Africa will suffer most, as investors will take a wait-and-see approach.”

The charter imposes numerous extra levies on mining, the country’s biggest export industry, at a time when the economy is in recession and suffering from 28% unemployment. It also directs payments that the industry estimates could amount to 3.5 billion rand ($264 million) into a government-controlled fund that will also manage communities’ stakes in mines.

Sibanye managed to complete the bond sale, but at a cost. It’s paying coupons of 6.125% and 7.125% on two bonds worth $1.05 billion, 50 basis points higher than if the government had not published the charter, according to Froneman. The extra interest is worth $5.3 million a year.

“This is bad news for mining, which was already shrinking due to the commodities cycle,” said Dave Mohr, who helps oversee 110 billion rand as chief strategist at Cape Town-based Old Mutual Multi-Managers. “It’s going to scare off investment while they go through the courts.”

The Chamber of Mines, which represents mining companies, has taken the government to court to block the charter and argues that it’s in breach of company law, international agreements and the country’s constitution.

The most controversial of the new rules is around ownership. The charter says mining companies must “top up” black ownership to 30% within the next 12 months. But the firm says it’s unclear whether they must increase from 26% or the current direct black ownership level.

A rule requiring 1% of revenue to be paid to black investors before other shareholders would have consumed 95% of total industry dividends if applied last year, according to the chamber.

MAKING SENSE

“We are struggling as everybody else to try and make sense of this charter,” said Andile Sangqu, speaking in his position as vice president of the Chamber of Mines. “That’s why we’ve opted to go to court.” Sangqu is also executive head of Anglo American Plc’s South African operations.

Mining Minister Mosebenzi Zwane defends the new rules, saying they are necessary to resolve the inequities of apartheid. As the world’s biggest gold producer for a century to 2007, South Africa’s mining industry was a key beneficiary of white minority rule, which ensured cheap labor and few environmental regulations.

More than two decades after that ended, average earnings for black households are a sixth of those of their white counterparts, according to the nation’s statistics agency.

“Anybody who does not want to see black people empowered, anybody who still wants to see black people treated like slaves, raise up their hands and say they are not part of the progressive South Africa,” Zwane told reporters June 23, referring to the charter’s critics.

The regulations’ timing couldn’t be worse. The economy unexpectedly tipped into a recession in in the first quarter, and business confidence reached a more than three-decade low in September, amid political uncertainty. Though the June reading improved, the new mine rules pared its gain.

While South Africa’s mining industry is a shadow of its former self — it peaked in the 1970s — it still represents 21% of exports and employs 457 000 people, about 7% of total employment. Many mineworkers migrate from rural areas and have as many as 10 dependants.

Investors aren’t waiting for the court decision to make a call on South African mining securities. About $3 billion was wiped off Johannesburg-listed mining companies’ market value on June 15, when the charter was announced, although a U.S. rate rise the previous evening also hit commodities stocks globally.

South African mining stocks have traded at a price to book discount for the last five years, according to data compiled by Bloomberg.

If the charter is implemented, shareholders are likely to push back on providing more equity to fund additional black empowerment deals, according to Douglas Rowlings, a Dubai-based analyst for Moody’s Investors Service. That means mining companies would be forced to use existing cash reserves or borrow money.

“That’s a credit negative from our point of view,” Rowlings said. “The market response was hugely negative and contrary to the ANC’s policy of fostering inward investment into South Africa. The effect of the mining charter is totally opposite to that and would result in job losses.”

 

Source: Mining Weekly

Sub-Saharan Africa remains home to riskiest mining sector – BMI

Sub-Saharan Africa’s mining sector will remain the riskiest in the world over the next few years on the back of policy uncertainty, underdeveloped infrastructure and political risk.

BMI Research on Monday said that, overall, sub-Saharan Africa scored 38.9 points out of 100 – behind all other regions – in the global Risk/Reward Index (RRI).

This was a result of low scores in country risk, industry risk and business environment indicators.

The firm pointed out that a series of regulatory changes across major mining countries eroded investor sentiment, leading to policy uncertainty, with the region further threatened by underdeveloped infrastructure and high political risk.

“Policy uncertainty will be a particularly pertinent theme that will hamper growth opportunities in sub-Saharan Africa in the coming years as major mining markets in the region make changes to their regulatory frameworks,” BMI commented.

Despite this, the region performed well in BMI’s mining industry value growth score, which indicates that, despite the high-risk environment, sub-Saharan Africa’s mining sector is dynamic and remains attractive to investors owing to low labour costs and a solid competitive landscape.

Ghana will be the region’s best performing country with a strong industry risk profile, surpassing the European average.

“Ghana has improved its score from 53 during the last quarter up to 55.5 currently, allowing the country to leapfrog South Africa and Botswana and come top of our regional scores,” the firm highlighted, pointing out that all three countries were expected to perform well on a variety of business environment indicators.

The three countries obtained an average aggregate score of 54.1 on the RRI, slightly above the Americas region average of 50.1, but still below the Asian regional average of 56.1.

“This score reflects miners’ on going priorities to tread carefully and avoid overexposure to high-risk environments as they look to improve balance sheets rather than engage in risky growth ventures,” BMI said.

Further, infrastructure deficits and high political risk solidified the position of Sierra Leone, Liberia and Mauritania as regional laggards and the three worst performing countries on the index.

Mauritania, in particular, has seen its score fall from 26.5 during the last quarter to just 20.7 currently, as a result of a less favourable risk outlook.

 

Source: Mining Weekly

DMR approves Lesedi mining right transfer to Samancor Chrome

The Department of Mineral Resources has approved the transfer of the Lesedi mining right from South African subsidiary International Ferro Metals Limited (IFMSA) to Samancor Chrome, London-listed International Ferro Metals (IFM) said on Thursday.

Once registration of the cession of the Lesedi mining right at the Mineral and Petroleum Titles Registration Office gets under way, a process that takes four to eight weeks, a R140-million purchase consideration will become payable by Samancor.

“The proceeds will be distributed to creditors of IFMSA in accordance with the amended business rescue plan,” IFM said, pointing out that it was not likely that IFM’s shareholders would receive any distribution from the conclusion of the business rescue process.

Further, the conditions are in the process of being fulfilled for the remaining transaction – the sale of IFM’s 80% equity interest in Sky Chrome Mining for R100 and IFMSA’s claims against Sky Chrome for R70-million.

“The outstanding conditions include obtaining regulatory approvals, specifically Ministerial approval for the transfer of the Sky Chrome mining right and consents of other parties to certain material contracts, which are usual for transactions of this nature,” IFM stated.

IFM entered into business rescue in August 2015 after falling into financial distress, owing to deteriorating business conditions. It subsequently agreed to sell its IFMSA subsidiary to Samancor.

Source: Mining Weekly

Markets bloodbath as Zwane shocks mining sector

Cape Town – There was a bloodbath on the floor of South Africa’s markets on Thursday, after Mineral Resources Minister Mosebenzi Zwane announced a new stringent law that will force mining firms to restructure their ownership to ensure they have 30% black ownership within 12 months.

The rand dived by almost 2% and mining firms saw about R30bn shaved off their combined market capitalisation, with the biggest losers being Sibanye (down 6.8%), Kumba Iron Ore (down 6.4%) and Assore (down 5.85%).

Anglo American (down 5.81%) lost the most value as its market capitalisation is leagues above the rest, at R242.06bn.

Azar jammine, chief economist at Econometrix, views the release of the Mining Charter to be negative for the economy.

“The Chamber of Mines has not agreed to the updated charter, government has gone ahead with it ‘willy nilly’,”  he told Fin24 on Thursday. “This will stifle further private sector investment, and will only directly benefit those well-connected to the president.”

When asked if it will create investor certainty, he said: “On the contrary, it will cause more damage, the government has carried on without considering what the private sector says.”

According to Sanisha Packirisamy, economist at MMI Investments and Savings, a lack of clarity around economic policy direction in the mining industry has played a role in dampening investment spend in the sector.

“Mining investment has tracked largely sideways since the global financial crisis,” Packirisamy told Fin24. “Today’s announcement of onerous regulations imposed on the mining sector is unlikely to instill much confidence in the sector and as a result, we expect the recovery in mining investment and hiring to be slow.

“The rating agencies have also voiced concerns about a lack of progress on meaningful structural reform in SA.

“Though today’s announcement brings to an end more than a year of indecision around the revised charter, the lack of broader consultation and potential negative impacts on the mining sector and growth in the economy as a whole is unlikely to placate the rating agencies,” she said.

It will be good for GDP, “if” miners buy-in

Thabi Leoka, economic strategist at Argon Asset Management, said “it is good that the Mining Charter has been finally released”.

“Investment has been held back because investors were waiting for clarity on the charter,” he told Fin24. “The charter will be positive for GDP and investment if there is buy-in from the industry and if it is satisfied with the charter.”

This seems unlikely, as the Chamber of Mines boycotted a meeting with Zwane an hour before his announcement on Thursday.

It said it would not “be co-opted into participating in an attempt by the DMR (Department of Mineral Resources) to provide any support into what we believe has been a flawed process by the DMR”.

Zwane shocked the industry on Thursday when he announced the charter would increase the level of black ownership at mining companies from 26% to 30%.

In addition, mining prospecting rights need to have a minimum of 50 plus one, while companies will be required to give 8% of their shares to workers.

He said mining companies will have 12 months to adhere to the new ownership requirement.

“The Charter is being gazetted this afternoon,” Zwane said. “The button has been pressed. There’s no turning back. The success of this Charter to me is when we collectively get to a point where the minerals of the people in this country is shared among the people of South Africa.”

Source:  www.fin24.com

Despite a gloomy outlook, Baxter highlights opportunities for emerging miners

JOHANNESBURG – While the South African mining sector still faces significant challenges, Chamber of Mines (CoM) CEO Roger Baxter believes that great opportunities still exist in the sector, particularly for emerging miners.

Presenting the keynote address at the Junior Indaba, in Johannesburg, on Wednesday, Baxter noted that the CoM played a leading role in promoting junior miners to its members, including smaller mining associations, such as the Clay Brick Association of South Africa and the Aggregate and Sand Producers Association of Southern Africa.

He highlighted that, of the 75 CoM members, 30 fell within the category of emerging miners.

“Our Emerging Miners’ Desk provides advice and support for juniors, while also acting as a resource centre for the chamber’s smaller member companies. It also seeks to recruit and assist new entrants to the South African mining industry in implementing programmes to ensure they understand and comply with the mining laws.”

Baxter added that the CoM had brought in a team of experienced ex-mining executives to support junior miners, wherever possible. He remarked that these emerging miners paid a reduced membership fee but had full access to the chamber’s resources.

“We have run a number of workshops with these emerging miners, covering a range of topics including regulatory frameworks [and] financial, environmental and health compliance matters, among others,” he pointed out.

Baxter commented that most emerging miners in South Africa operated in the coal sector, after which diamonds and, to a lesser extent, manganese and iron-ore were favourites among the juniors.

“The sector remains a critical part of the South African economy and emerging miners form an important segment of this. If laws and regulations that enable the growth of emerging miners are introduced, through consensus with industry stakeholders, this will certainly assist in improving the country’s economic prospects going forward,” he stated.

Source : Mining Weekly

Gigaba slams Eskom’s ‘mistake’ of contradicting government policy on renewables

Finance Minister Malusi Gigaba says Eskom made a “mistake” by raising its corporate difficulties in relation to the signing of power purchase agreements (PPAs) with renewable-energy generators in a way that undermined the policy position of government on both the energy mix and the renewable-energy programme.

Speaking ahead of his departure for the Spring meetings of the International Monetary Fund and the World Bank in Washington DC, Gigaba stressed that government policy with regard to the integration of independent power producers (IPPs) into the country’s electricity network “remains unchanged” and that there should be no “uncertainty as to our commitment to the energy mix and the renewable-energy programme”.

“That is why, in view of the recent statements by some executive directors at Eskom . . . we’ve had Cabinet coming out to say: ‘We remain committed to renewable energy, to the renewable-energy targets that were outline in the Integrated Resource Plan (IRP) 2010 – we remain committed to all our plans as we have outlined’.”

Gigaba had also met with newly appointed Energy Minister Mmamoloko Kubayi to discuss the delayed signing of PPAs arising from the most recent bid windows of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

The 37 outstanding contracts were scheduled to be signed on April 11, but the signing was postponed to enable Kubayi to become fully informed on the progress made under the REIPPPP and to ensure “concurrence” between herself and Public Enterprises Minister Lynne Brown.

It had been agreed that Gigaba and Kubayi would meet with Brown to address both Eskom’s concerns and its public statements that conflicted with stated policy. The issue Eskom was raising would be looked at collectively by the three Ministers, or by the Inter-Ministerial Committee (IMC) on Energy.

“The mistake that Eskom would make is to deal with corporate issues in a manner that undermines the policy decision of government.”

Nevertheless, Gigaba expressed serious misgivings about the manner in which Eskom had dealt with the IPP issue.

“If there are any concerns which have to do with corporate agreements, the strength of their balance sheet, they have to follow the proper channels to raise these issue with government as the shareholders.

“The best for Eskom would have been to go to the Minister of Public Enterprises and say to her: ‘Minister, we have the following issues’. Then the Minister will have to come to me, or call a meeting of the IMC on Energy, which will then deal with the issue collectively. But there is no single entity of government that can just make policy pronouncements on behalf of government, otherwise they will turn us into a Mickey Mouse organisation.”

The South African Renewable Energy Council (Sarec) expressed concern about the missed April 11 deadline, pointing out that “financial closure of duly procured renewable power for 37 PPAs now stands at almost two years.

Sarec chairperson Brenda Martin said that, since President Jacob Zuma’s State of the Nation Address confirmation that all outstanding PPAs would be signed, Eskom and the affected IPPs have been working to ensure that the necessary paperwork was up to date, so that financial closure could be achieved and construction could begin.

Eskom has indicated that it is willing to sign, but that it wants certainty on the cost-recovery mechanism in light of legal uncertainty surrounding the application of the Regulatory Clearing Account (RCA). The use of the RCA has been thrown into question by a Gauteng High Court ruling, which determined the most recent RCA adjustment to be “irrational, unfair and unlawful”. The National EnergyRegulator of South Africa is appealing the judgment, but will not process further RCA applications until legal certainty had been established. Therefore, it has only granted Eskom a 2.2% tariff increase for 2017/18.

In the absence of the RCA, Eskom argues that it does not have a clear mechanism to secure the revenue required to pay for the electricity arising from the renewables power stations. The utility has written to the signatories of the Government Support Framework Agreement (GFSA) – which guarantees support for the State-owned utility in meeting its obligation to buy electricity from renewable-energy IPPs – to discuss a possible triggering of government support in light of the RCA uncertainty. However, there has been no triggering of the GSFA.

PUBLIC-PRIVATE PARTNERSHIPS

The 37 renewables projects carry a combined investment value of R58-billion, as well as the potential to create 13 000 construction jobs. In addition, the REIPPPP has been held up as a model for public-private partnership in South Africa, with the previous bid windows having facilitated 102 projects, with a combined capacity of 6 370 MW and a combined investment value of R194-billion.

Gigaba indicated that he saw even greater scope for private-sector participation in South Africa’ infrastructureprogrammes and indicated that he planned to present short- and medium-term plans to Cabinet soon regarding ways to inject private capital into South Africa’s R1-trillion infrastructure programme.

The plans would reflect the fact that the balance sheets of many of South Africa’s State-owned companies (SoCs) were constrained, as well as the limitation government faced in extending further guarantees to enable those entities to raise the capital required to implement their infrastructureprogrammes. These constraints had been tightened as a result of the decisions of S&P Global Ratings and Fitch Ratings to downgrade South Africa’s foreign currency sovereign credit rating to junk.

“I have asked the department to work seriously on finalising the private-sector participation plan for the infrastructure programmes, because, quite clearly, we need to look at various sources of funding for our infrastructure build.”

 

Source : Creamer Media – Engineering News

Lacklustre mineral laws costing Zambia dearly

Lusaka – Zambia, like other countries endowed with mineral resources, is losing an estimated US$1 trillion in revenue annually due to investors harbouring corrupt deeds.

This is contrary to the resolution made by Southern African Development Community (SADC) recently calling upon all 15 member states, endowed with vast mineral resources to promote equal share of proceeds (beneficiation) with the investors they harbour.

According to Zambia Extractive Industry Transparency Initiative (EITI), the country’s quest to be world leader in copper production is being frustrated by some unscrupulous company owners using Zambia’s laxity in mining laws to exploit the country.

And they are involved in acts of corruption and illegal deals, resulting in the country losing an average US$1 trillion annual in unsecured revenue.

Zambia is presently ranked seventh among the top 10 copper producers globally and is competing with other countries including Chile and China.

But the shortcomings in legislations laws to keep in check those flouting the law are costing the country dearly, the EITI says in its report.

The 51-member EITI findings show that Zambia the situation is compounded by delays to review the Mines And Minerals Act and compel the mining companies that have invested in the country to disclose who are the rightful owners.

This lacklustre in legislations has resulted in some illegal and corrupt deals including transfer pricing of the minerals mined in the country.

The findings suggest that there is need to review legislation or the country may probably lose more in revenue given the latitude extended to mine owners.

An urgent review of the Mines and Minerals Act if expedited EITI said will ensure beneficial owners of such companies are identified and will assist in curbing the vice that is not only rife in Zambia but rampant in many mineral extractive countries.

Siforiano Banda, the head of EITI at a recent stakeholders meeting noted that there is need to review the law and curb the practices that were ‘robbing’ the country of much needed revenue.

“The lack of access to beneficial ownership information of key players in the extractive industry by law enforcement and other competent authorities is a significant impediment,” Banda says.

He said this lack of vital information, made it impossible for authorities not knowing or being able to trace some of the dubious activities.

“There is need to empower the relevant authorities and assist them to identify the actual owners of the companies or indeed the persons who are responsible for such activities for onward action,” he said.

Financial institutions that are essential in the fight include banks, which have the information of actual beneficial owners and can assist prevent the misuse of corporate vehicles in the financial system.

Many countries, including Zambia, face various challenges when implementing measures to enable the availability of accurate beneficial information.

These are in addition to legal owner of the corporate vehicle as it is not collected and sufficiently verified at the time the corporate vehicle or crime is committed or at any stage throughout its existence.

“This frustrates the efforts of law enforcement and other competent authorities to follow the money in financial investigations that involve corporate vehicles.” Banda added.

SADC Heads of States at their annual summit held in Victoria Falls in 2014 resolved that member states needed to devise laws that ensure mineral beneficiation to bolster domestic economies.

 

Source – The Southern Times

 

Zimbabwe: Premier Seeks Debt Finance for Mining

London Stock Exchange listed commodity firm Premier African Minerals is in the process of securing debt finance for its tungsten mining project situated in the Kamativi tin belt in Matebeleland. The project is being spearheaded by the company’s subsidiary RHL Tungsten limited, the company said.

Premier African Minerals Limited is a multi-commodity exploration and development company focused on Southern and West Africa.

It has a diverse portfolio of multi-commodity projects which includes tungsten, rare earth elements, gold, lithium, tantalum and uranium in Zimbabwe and Togo, which span from brownfield projects with near-term production potential to grass-roots exploration

In a statement, Premier African Minerals chief executive Mr George Roach said resource upgrade, and the completion of the mineralogical and metallurgical studies was the company’s focus at the moment.

The mining firm said it is engaging strategic partners to make sure the Kamativi tungsten mine project takes off.

“We are engaged in further discussions with potential off-take partners to make our dream project a success. In addition we are also talking to debt finance providers who have indicated a willingness to invest in Zimbabwe,” said the company.

Premier Africa Minerals could not reveal the amount of finance needed for the project. The development of the RHA tungsten project in Zimbabwe moved a step forward last year when the firm inked a non-binding memorandum of understanding with an industry off-take partner to supply tungsten from the site, which lies in the Kamativi Tin Belt.

Premier African Minerals has a 49 percent interest in the Kamativi project while the Zimbabwean Government holds the remainder.

The company revealed that at RHA, additional drilling as recommended by the preliminary economic assessment has begun with three out of a planned 13 holes sunk.

Drilling at the project is expected to be completed by the end of this year and geological logging has begun.

Visible tungsten mineralisation in the form of coarse grained wolframite has been intersected in all the three holes that have been drilled so far.

The signing of the first off-take MOU is another key development for the commercialisation of RHA as a mining company.

The company’s current objective for drilling at RHA is to upgrade both the quantity and the quality of the code-compliant resource, basically from inferred and indicated to indicated and measured.

Premier African Minerals continues to assess financing alternatives for the construction of RHA.

Source – AllAfrica

Zimbabwe revokes diamond licence, Marange miners on notice

Government has withdrawn the diamond mining licence of Gye Nyame Resources (GNR), its joint venture with a Ghanaian investor, over non-performance, Mines Minister Walter Chidhakwa said on Monday, as the state moves to consolidate its control of the Marange gems.

Chidhakwa last week said he had informed diamond companies in Marange that only one or two of them will be left to mine after they failed to account for revenue from their operations.

The Gye Nyame was at the centre of a bribery scandal last year when President Robert Mugabe claimed that the former Zimbabwe Mining Development Corporation (ZMDC) chairman, Goodwills Masimirembwa, had demanded $6 million in bribes to facilitate its entry into diamond mining. Mugabe eventually cleared Masimirembwa of any wrongdoing.

State firm ZMDC is Gye Nyame’s partner in the joint venture.

“We have withdrawn the Gye Nyame licence purely because of non performance. We will take two mining concessions because they do not belong to anyone. All other concessions will fall under Marange Resources,” Chidhakwa told journalists on Monday.

“We now expect to meet with our Chinese and Lebanese partners (in other mines). We intend to outline to them how we wish the industry to be run to ensure maximum value of the people of Zimbabwe.”

In addition to Gye Nyame, there are six diamond miners in Marange, including Anjin Investments, Diamond Mining Company, Jinan, Kusena, Marange Resources and Mbada Diamonds.

He said government has tasked the new ZMDC board, chaired by former Bindura Nickel Corporation managing director David Murangari, to breathe life into redundant state-owned mines.

“There are things that were left by the previous board that must be fulfilled. These include the resuscitation of the mines. You have in your portfolio a whole list of dead institutions—from Kamativi to Mhangura, from Mhangura to Zvishavane,” Chidhakwa said to the new ZMDC board members he met at his central Harare offices.

“All these are properties that sit on your balance sheet and yet do very little to enhance your balance sheet and it is the responsibility of the board to ensure that all these institutions are given life again. Most of these were closed because the prices of minerals were very low and I’m happy to announce that the prices then and now are very different.”

Mining has overtaken agriculture as the leading export earner, with mineral earnings of $1,97 billion in 2013 making up 64 percent of total foreign currency earnings.

“I want to say it from the onset that the shareholder does not have financial resources, all we have is the support that we can give you to ensure that you leverage (the sources), that you think of ways of raising financial resources whether through joint venture partnership or through loans and credits–you have to think about those things,” Chidhakwa said.

Source – Zimbabwe Situation

Africa’s push to add value to minerals now a riskier gamble

African government efforts to force mining companies to process minerals before export may backfire as they come up against weakening commodity prices and investor demands that firms reduce risky investments.

In the last year alone, Zimbabwe, Zambia, Democratic Republic of Congo (DRC), Namibia, South Africa and others have hinted at, announced or put in place measures aimed at adding value to minerals exports, which would boost tax revenue, encourage formation of new businesses and add jobs.

But with falling metal prices and a drastic reduction in the capital available for the mining industry, wary companies are increasingly shying away from investment in countries where the rules of the game can change quickly.

“Investment sentiment in the last year has moved against the mining sector, but the governments tend to have a lagging view of how this is going to affect investment in their countries,” said Mike Elliott, global mining and metals leader at Ernst & Young.

“They continue to argue that mining needs to make a bigger contribution to their economies, but you’ll have to see investment severely tail off to make them think they need to attract investment rather that scare it away.”

Consultants say governments could find more targeted and effective ways of adding value to local economies.

For example, they could push local companies that provide services for the mining industry such as logistics, security, catering and construction to become more competitive and then tighten regulation around the procurement of such services, consultant Tom Wilson at Africa Practice suggested.

“Ultimately you can’t turn market forces on their head. You have to figure out where the country has the capacity to fill the need for goods and services and provide some structures that actually help indigenize some businesses,” Wilson said.

The top five mining companies are slashing total capital spending from a peak of about $70-billion in 2012 to an expected $46-billion in 2015, according to Reuters I/B/E/S.

Mining firms have been taking costly writedowns following years of risky bets to pursue growth, and they now need to prove to shareholders they can use their cash more wisely.

“Companies need to decide whether they wish to continue mining in these countries and face what the governments want to do in terms of beneficiation or pull out. And in some cases it will be a pull-out strategy,” said Kevin Goodrem, vice president of beneficiation for De Beers Group.

THE HARD LINE

Zimbabwe, which holds the world’s second-largest platinum reserves after South Africa, has taken a hard line. President Robert Mugabe late last year threatened to stop exports of raw platinum in a bid to force mining firms to process the metal domestically.

The government said last month it had short-listed two companies to build a refinery by 2016, but industry players expect the project will take much longer than two years.

A source at a mining company operating in southern Africa said the volumes mined in Zimbabwe are not enough to make construction of a $2-billion to $3-billion refinery economically viable, and he was sceptical that the energy supply would be sufficient to run it.

But companies operating in Zimbabwe, which include top world platinum producers Anglo American Platinum and Impala Platinum Holdings, have to remain engaged with the government to avoid losing assets.

“For the platinum miners who operate in Zimbabwe, it is a very concerning time. And it is a bit of a tragedy for Zimbabwe, because they are a very significant producer, but no global capital is going to go there today with that policy uncertainty,” Elliott said.

The DRC and Zambia, Africa’s largest copper producers, are also trying to boost downstream investment.

Kinshasa is trying to implement a ban on exports of copper and cobalt concentrates but has so far encountered the resistance of the powerful governor of Congo’s copper-producing Katanga province.

Many in the industry say the ban is unrealistic as acute electricity shortages hamper processing activities in Congo.

In Zambia, President Michael Sata in October revoked a law that had suspended a 10% duty on exports of unprocessed minerals including copper, iron, cobalt and nickel.

Miners say that although some plants are being built, Zambia does not have enough smelting capacity to process all its copper, so they are accumulating high stocks of concentrate.

“Some of these countries are trying to run before they can walk,” Deutsche Bank analystRobert Clifford said.

“I understand why they want to do it, but they have to provide some assurance to companies that they are not going to pull the rug out from under their feet and change the rules once they have spent billions of dollars.”

Also new smelters and plants may not make sense if their products are expensive and uncompetitive in global markets.

Mining experts say governments should avoid blanket policies and instead target parts of the industry that will actually benefit from downstream investment.

They cite Indonesia’s controversial ban on exports of unprocessed mineral exports as an example.

The ban is expected to boost downstream processing investment in the next few years in nickel, where the country is competitive. But in copper, it is expected to achieve little besides souring the relationship between the government and producers.

Wary of the risks, Namibia seems to have taken a softer approach so far. The government has commissioned a study to identify the commodities it would be more beneficial to process.

“You have to be careful with value-addition policy, because the risk is that it could be value disruptive,” said Magnus Ericsson, founder of the Raw Materials Group, a consultancy that advices governments and companies on mining issues.

“One policy doesn’t fit all. That’s a recipe for disaster.”

Source – Mining weekly