The government has promised Anglo American that its mining rights will be renewed under new rules governing the industry — even as data summarised in the budget shows just how badly regulatory barriers continue to limit South Africa’s ability to cash in on the biggest commodities boom in living memory.
Anglo CEO Cynthia Carroll has been working at improving relations with the government, and her sanguine remarks about the electricity crisis were quoted approvingly by President Thabo Mbeki in his State of the Nation address a fortnight ago.
Top government officials, including Minerals and Energy Director General Sandile Nogxina and Deputy Finance Minister Jabu Moleketi, were in London on Wednesday for the company’s results announcement, apparently after top mining executives approached Mbeki in a bid to get him to break the licensing logjam in Ngoxina’s department.
The conversion of existing mining rights to “new order” rights, requires companies to meet complex empowerment criteria, and budget documentation attributes slack performance in the sector directly to problems in the rights process.
Regulatory barriers and production woes continue to limit South Africa’s ability to cash in on the biggest commodities boom in living memory, budget data released by the National Treasury suggests.
Despite a sharp increase in investment in the mining sector, and record prices for precious metals and coal, the contribution of mining to the economy grew by just 0,5% in 2007, after falling slightly in 2006.
The Budget Review attributes the “sluggish” performance to a 0,2% fall in overall production, largely thanks to a 6,5% fall in gold output.
The picture would have been considerably worse were it not for a 28% surge in precious metals prices and a platinum price that breached $2Â 000 an ounce this month.
The Treasury argues that sharp investment increases by mining houses (42,8% in 2006 and 19,2% in the first half of 2007) “bode well for improved productivity, output and exports over time, once power failures are overcome”.
But other numbers released by the department show just how deep the gap is between record prices and the ability of the local minerals sector to take advantage of them.
Export coal prices, for example, rose 87% in 2007, from just more than $50 a tonne to $95 a tonne, yet output from the vast coalfields of Mpumalanga and KwaZulu-Natal increased by only 0,8%.
Problems in Spoornet’s coal line no doubt played a role here, but the uncertainty that lingers over empowerment rules and licensing clearly persists too.
Not mentioned in the Budget Review is the extremely slow and fraught process of converting existing mining rights to new-order rights and of ensuring that new prospecting and mining licences comply with onerous empowerment rules.
According to the Treasury’s Estimates of National Expenditure, only 24% of applications to convert old-order rights had been finalised by the end of the past financial year.
“This is due to challenges in complying with the broad-based socio-economic charter for the mining industry [the mining charter]”, the estimate concludes.
Lacklustre growth in mining output dents job-creation efforts and puts a cap on South Africa’s ability to respond to changes in the global economy.
Weber Wentzel Bowens partner Peter Leon places the blame for the industry’s tardy growth squarely on the regulatory regime ushered in by the mining charter and the Minerals and Petroleum Resource Development Act, which set the new licensing regime in motion.
The industry, he says, has voted with its feet, investing heavily outside the country, particularly in the rest of Africa, while neglecting South Africa.
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