Business

Miners and the state look to find each other

Lynley Donnelly

The mining industry is set to continue talks with the African National Congress in lead-up to the crucial Mangaung conference.

Global mining giant Anglo American has argued that mining is 'not a panacea' and should not be seen as ‘a silver bullet for all of South Africa’s socioeconomic challenges’. (Oupa Nkosi, M&G)

The Gallagher Estate dust may have settled, but the policy outlook for the mining industry is no less murky after resolutions from the recent ANC policy conference on the economy provided ­little clarity on what the future may hold for a sector so pivotal to South ­Africa's economy.

But for all the criticism levelled at the ANC's policy proposal on state involvement in the minerals sector (Sims) and the political brinkmanship that featured in the debates on economic policy - notably calls for wholesale nationalisation – the document has achieved one thing at least: it is forcing the mining industry to re-examine itself and its role in the economic development of South Africa.

Calls from influential mining figures such as AngloGold Ashanti chief executive Mark Cutifani, who argued for greater involvement by mining houses in the debate on the future of the sector ahead of the ANC's national conference in Mangaung in December, is evidence of this shift.

It is also evident in global major Anglo American's detailed response to the ANC report. The company argued for structured dialogue on the issues the report raised.

"The Sims report has forced the mining industry to examine its developmental contribution and this is a healthy achievement," the company said.

Rapprochement
It is not surprising, then, that the industry looks set to continue talks with the ANC and government leaders in the months leading up to Mangaung, where the policy resolutions will be given flesh.

Some kind of high-level rapprochement is clearly necessary.

The industry has a history of exploitation and environmental degradation to answer for and it has not sufficiently transformed as far and as quickly as the government would like. At the same time, the space in which mining companies have to achieve these goals and remain competitive is directly linked to how easy it is for them to grow and reinvest profits into local operations and communities.

The local industry has missed a commodities boom cycle, thanks in large part to infrastructure backlogs, energy constraints and a regulatory regime that has been characterised by inefficiencies and delays.

High-level dialogue between senior ANC leaders, the mining industry and the government is potentially on the horizon, the Mail & Guardian understands, although it is unclear what form these discussions might take. It is also unclear what can be achieved given the internal battles that will plague the ANC as it heads towards Mangaung – particularly if contestation over economic policy becomes a proxy for factional leadership battles, derailing what could otherwise be informed debate.

Critical challenges
The Anglo American document is an example of what at least one major company, and possibly other players, view as critical challenges that have hampered the industry. It also includes what positive proposals can be brought to the table.

Crucially, it argues that mining is "not a panacea" and should not be seen as "a silver bullet for all South Africa's socioeconomic ills".

The gains that the Sims report assumes, Anglo argues, are predicated "on one consistent fundamental – a growing mining industry".

The resource-rent taxes proposed in the report assumes a consistently thriving wealthy industry, unhindered by the cyclical nature of the commodities market.

Anglo American identified four constraints to that growth, which policy­makers should prioritise in the state's efforts. They are policy uncertainty, regulatory inefficiencies, infrastructure bottlenecks and skills deficiencies.

Strategic nationalisation
Dramatic policy shifts such as calls for nationalisation have done nothing to help. But the ANC has eased the tension by agreeing that "strategic nationalisation, where deemed appropriate on the basis of evidence", is the preferred policy option.

Both Anglo subsidiary Kumba Iron Ore and its customer, ArcelorMittal South Africa, have been punted as candidates for, if not outright nationalisation, much more direct state intervention in their pricing practices, particularly because of their perceived influence on the iron-ore and steel value chain.

Kumba and ArcelorMittal are in a contractual dispute over the supply of 6.25-million tonnes a year of iron ore to the latter, at a rate of cost plus 3%. It was prompted after a share of the mineral rights to Kumba's Sishen mine, previously held by ArcelorMittal and forming the basis of the supply agreement, lapsed.

Anglo argues that it is not clear that South Africa can produce steel competitively, for a number of reasons including limited local market demand, even if the government fixed iron ore prices.

It nevertheless offered a state entity an iron ore supply of 6.25-million tonnes a year at a rate of cost plus 20%, ostensibly to boost downstream beneficiation. This is, however, on the condition that the arbitration case with ArcelorMittal is awarded in its favour and it gets 100% of the Sishen mineral rights.

Regulatory inefficiencies
It also recommends that this developmentally priced ore is destined for an export-orientated coastal steel mill. How this is will aid the local downstream industry to access cheaper steel is not clear.

Anglo American's battle over the rights to Sishen is an extreme example of another growth constraint -regulatory inefficiencies.

The sloppy administration of mineral rights created the space for the Sishen mineral rights debacle, which is still being fought in court.

The department of mineral resources has worked to correct its administrative challenges and limit room for exploitation. It does, however, have continuing capacity ­constraints and many regulatory positions remain unfunded.

Capacity problems in other departments and how various pieces of legislation and policy relate to one another also affect how the state regulates businesses.

Constraints
The example often cited in mining – and noted by Anglo – is the issuing of water licences alongside applications for new mining licenses.

It does not help that promised improvements to the Mineral and Petroleum Resources Development Act have yet to make their way to Parliament.

The infrastructure challenges that hamper growth, particularly energy and rail constraints, also continue.

Anglo asked that the "government consider the partnering or concessioning of key mining rail infrastructure and the facilitation of market entry for independent power producers".

 Included in what the company seeks to bring to the table is promised support in finding "innovative models for independent power ­producers related to the mining sector".

Another critical constraint is skills shortages and there is an acknow-ledgement that the private sector can work more with the government to develop skills.

Making it work
A space for further consultation between mining companies and political leaders can only be a good thing. But the concerns raised by the Anglo and other industry players begs the question – why can we not simply get the current system to work better?

The trouble with implementing the Mineral and Petroleum Resources Development Act notwithstanding, it is a progressive piece of legislation – as is the transformation agenda of the county's black economic empowerment policies.

In a recent interview with the M&G, Sandile Zungu, Black Business Council leader, said the mining sector policy environment was a good one.

It emphasises transformation and allows the ample regulation of mining activity by the state. It allows for the improved involvement of black capital in the sector on a risk-and-reward basis and it also promotes social development through social investment and labour plans.

"We simply need to make it work," he said.

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