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Mining: Resource nationalism all the rage

The increased taxation of mines is a worldwide trend, which can be linked directly to the changing face of mineral supply, mining experts told delegates at the Invest in Africa Mining Indaba in Cape Town this week.

The ANC's decision at its electoral conference in December to consider the higher taxation of mines rather than nationalism was criticised by the mining sector and analysts, who warned that it would make South Africa less attractive as a investment option and drive away mining companies already dealing with high electricity and labour costs.

David Humphreys, who has served as an analyst for Rio Tinto and Russia's top mining company, Norilsk Nickel, a major sponsor of the African mining indaba, said this week that resource nationalism was being seen worldwide and had to do with a shift in global supply.

In the past the total global surface was controlled by the superpowers or the countries that fell under them.

"Not so any more," he said. "Demand is now coming from countries with no material production, like China and India. In an increasingly fragmented world, cross border investment becomes more challenging."

Humphreys said minerals spoke to people "in a profoundly significant way" and they objected to companies coming in to their country, digging it up and removing it. The fact that resources were nonrenewable was also a contributing factor.

Resource nationalism
Ernst & Young's survey of business risk in mining shows clearly how concerns about resource nationalism have increased since 2009. In that year the industry ranked resource nationalism ninth out of 10 risks to doing business; it rose to eight in 2010 and peaked at the number one in 2012.

"Resource nationalism manifests itself in the following ways: we see increases in taxes and royalties, there are more costly and demanding conditions, such as the 'use it or lose it' policies, social investment requirements increase, [as do] restrictions on foreign ownership and requirements for indigenous shareholdings," he said.

Resource nationalism is occurring in countries as diverse as Canada, Brazil, the United Kingdom, India, Iran, Russia and Ghana.

The boom in commodity prices also prompted governments to ask what they were getting out of the mining of non-renewable resources in their countries.

Humphreys said, for producer countries, the focus was now on broader considerations, such as the development of other sectors from the windfall of mineral resources, the impact on income levels in the country, on communities who live in the mining areas, on the country's exchange rate and on the environment. He said the perception that governments were losing out was not borne out by research. He quoted a Deutsche Bank study that found that governments, through taxes, received the biggest benefit from mining companies, followed by senior management and employees, with shareholders coming in at a lowly fourth place.

State ownership of mines was not at the top of the list of priorities for producing nations, because states viewed indigenous shareholdings as giving them enough leverage, making state ownership unnecessary, said Humphreys.

"In Russia, for example, the state is significantly involved in the oil and gas sector, but you don't see them doing the same in the mining sector."

Beneficiation
Calls for the beneficiation of minerals are also on the rise, as producing countries show an increased inclination to get as much out of their minerals as they can.

The comments by Minerals Resources Minister Susan Shabangu at the mining indaba on Tuesday are a case in point. She said that the government planned to promote beneficiation in South Africa, because it was essential to create jobs in the mining industry and also to maximise the use of the country's mineral deposits.

She called on mining companies with operations in South Africa to discuss how beneficiation could ensure that the country benefited directly from its resources.

Humphreys said it would become an increasing challenge to find a  balance between the interests of international investors in mining and mineral host countries. "Global miners will have to learn to operate in this more political world and position themselves as partners in the economic and social environment in which they are investing."

China's race for resources has raised alarm bells in Western countries and among some commentators in developing countries.

Neocolonialism
The growth of the Chinese economy has fuelled a demand for raw materials, principally oil and minerals, that is way beyond what the domestic economy is able to provide. The upshot of this is massive Chinese investment by both state-owned and private companies in oil, mining and other projects, primarily in Africa. This has led to allegations of Chinese neocolonialism and the use of slave labour.

Damisa Moyo, an international economist, said China was being driven by a need to ensure growth and job creation and would achieve it at any cost, even if it meant overpaying for mining operations in sectors where it needed the resources.

"Eventually China will have less competition so it will become cheaper for it to buy assets."

In Africa, China has provided aid or infrastructure in return for access to mineral and oil reserves and enterprise zones that allow for minimal or reduced taxation.

"The reason there is more concern about China investing in Africa than in China investing in countries like America is because it is generally felt that America can regulate Chinese investment and there is concern that African countries will not be able to," said Moyo.

China's growth was unlikely to stop and, if African countries had concerns about China's expansion, then they should put regulations in place to control it, she said.

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