/ 11 February 2011

Mining bosses wary of doing business in SA

Mining Bosses Wary Of Doing Business In Sa

“If my clients want to invest billions of rands in your mining industry but they’re worried about nationalisation, I’ll tell them to rather go to West Africa. Things are better there.”

These chilling words from a South African adviser to one of the world’s largest mining companies graphically underscores the effect that South Africa’s nationalisation “debate” has had on foreign perceptions.

At the African mining indaba hosted by the South African government this week in Cape Town, the Mail & Guardian spoke to representatives from large mining concerns. They asked for their names not to be published.

The adviser said that he was telling clients to “tread carefully” when it came to investing in South Africa.

“Business operates on sentiment — it reacts to what is being debated, not necessarily what has been decided,” he said. “So the minister [of mineral resources, Susan Shabangu] can say government is not nationalising now, but what happens in the future?

“Those are risks we can’t take and we’re saying to clients you may have better and more exciting prospects in West Africa.”

The mining ministries of West African countries, including Gabon, Ghana and Guinea, were well represented at the indaba but the most popular was the Democratic Republic of Congo. Even the government of Afghanistan hired a stall at the indaba, which drew more than 5 000 delegates, according to government officials.

Although delegates say a strategy is under way to develop an industry position on nationalisation, industry players are wary of talking about it because this might imply that companies “have accepted nationalisation and are now willing to discuss the modalities”, one delegate said.

‘A sense of holding back’
A South African delegate, linked to an international mining company with interests in many parts of Africa, said bluntly that foreign direct investment in South African mining ventures had already declined.

“There’s been a sense of holding back. There are so many resources in this country. South Africa is considered one of the most underinvested countries. But this debate is making people take a wait-and-see approach because they’re worried about security of tenure,” the delegate said.

Delegates said that mining operations required investments that could span two decades. “They don’t just think of what is happening right now, they’re thinking generations ahead,” another delegate said.

Shabangu drew the ire of the stridently pro-nationalisation ANC Youth League on Tuesday when she told indaba delegates that nationalisation was “not the option” for South Africa. Anglo American chief executive Cynthia Carroll added fuel to the fire by saying mining companies would not invest if they could not be sure that the assets they created would be secure.
“In ignoring this truth, the false prophets who argue for nationalisation are advocating the road to ruin, a path we must not follow.”

Hitting back, the league called for “maximum [ANC] discipline” for Shabangu, presumably on the grounds that she pre-empted the ANC’s internal inquiry into the merits of nationalisation. But government insiders said her position as a member of the ANC’s national working committee member meant that she had the backing of the party’s top leadership.

No sleep lost over Malema’s comments
Government officials continue to insist that the nationalisation debate has no influence on decisions by mining companies to do business in South Africa.

Said one: “The Carrolls of the world know government is not going to wake up one day and tell them their time is over. No CEOs [chief executive officers] are losing sleep over [ANC youth leader] Julius Malema’s comments,” a mining official said.

Shabangu plans to travel to the United States later this year to explain to shareholders of mining companies that nationalisation poses no threat to their assets. She was due to begin her charm offensive last November, but moved the trip to 2011.

“The problem is that the money that Anglo invests in mining in South Africa comes from pension funds around the world. People know what happens to their investments if Anglo’s share price drops,” said an official involved in planning the visit.

Bheki Khumalo, Shabangu’s spokesperson, said the government was working on factors that could inhibit investment, such as a complicated regulatory environment and the lack of dependable energy. Also being studied was the removal of the human element in the granting of mining licences to lessen the risk of corruption.