South African Finance Minister Trevor Manuel, in his Budget Speech on Wednesday, is likely to detail the country’s soon to be introduced mining royalty system or Money Bill, which has been developed by the Treasury.
Minister of Minerals and Energy, Phumzile Mlambo-Ngcuka, has said the mining royalty system will be competitive with any other in the world, comparable with those in Russia, Botswana, Chile, Canada, and any other country with a mining industry.
“The royalty system will not place any additional burden on mining companies,” she has said.
Mlambo-Ngcuka said recently that Manuel will unveil the royalty system during his budget speech. However, Finance Ministry representative Logan Wort said he couldn’t comment about what would be in Manuel’s speech.
Analysts expect that the mining royalty system won’t be a blanket royalty but instead will vary according to each commodity’s margin. Manuel is likely to make broad references to the royalty and a detailed document is likely to follow, analysts said.
South Africa’s has 59 minerals and metals of which platinum group metals, gold and coal are the most important in terms of export revenue.
Analysts say that a mining royalty of 3% to 4% or more of revenue will be “onerous” while 1,5% to 2% will be “market neutral”.
“I would be very disappointed if the mining royalty applied to revenue rather than operating profit. That would be disastrous for the marginal mining companies like gold miner Durban Roodepoort Deep (DRD, DUR) for instance,” an analyst said.
However, another analyst said the government was likely to be careful about how it implemented the mining royalty, as it wouldn’t want to damage the mining industry.
“The royalty is likely to target the revenue of mining companies and be between 3% to 10% of revenue. Each budget is likely to re-examine the mining royalty or there could be a built in formula,” he added.
The implementation of the royalty is likely to be complex. Unlike the mining charter, the royalty has been kept under wraps and there have been no leakages about its contents like the charter.
“I think the government has learnt some expensive lessons,” an analyst added.
The mining royalty is likely to be promulgated with the rest of the new mining legislation in June 2003 and be effective soon after that.
The mining royalty is likely to the only new tax to be announced in Wednesday’s budget.
Representatives of the Chamber of Mines (CoM) have held discussions and have been consulted on the mining royalty but the CoM has “no idea” what the final form of the royalty will be, Peter Bunkell, CoM Executive Manager, said.
“We hope the royalty won’t be excessive,” he added.
“We expect that any reference to royalties will be competitive in terms of those prevailing in other mining countries,” said Marion Dixon, a representative
for commodity giant Anglo American (AGL). – I-Net Bridge