adminZimbabwe is currently in the process of implementing its indigenisation programme, which will see foreign-owned mining firms – as well as other foreign companies in other sectors – sell a minimum of 51 percent of their equity (at fair value) to indigenous Zimbabweans.
However, the principal idea behind the programme, in terms of the local mining sector, is that Zimbabweans should benefit from the exploitation of the finite mineral resources.
To this extent, the Government in conjunction with mining firms has initiated Employee Share Ownership Schemes that will help workers in these companies to acquire equity stakes, and platinum giant Zimbabwe Platinum Holdings, owned by South Africa’s Impala Platinum has taken the initiative.
Although the Zimbabwean indigenisation programme has taken some beating from sections of the international community, it appears now that the trend towards nationalising critical mineral resources is taking common feature in other countries across the globe.
Ernst & Young’s mining and metals team director in London Mr David Russell told Bloomberg that the trend was spreading extensively.
“If I was having this discussion a year ago I would be hard pressed beyond talking about Zimbabwe and possibly South Africa.
“But now we easily jump from country to country,” he said.
Some analysts, however, associate nationalisation, or its various forms with high levels of risk in terms of doing business.
Although rising government demands for higher taxes and royalties can be considered a risk concern to mining companies, it is perhaps an overstatement that its effects are comparable to the global financial crisis that has wiped US$6 trillion off stock market values since July as some “experts” claim.
“You can’t ignore it and the problem is gathering pace. It’s almost like a contagion. The key risk is an inability to plan,” said Mr Russell.
Ernst & Young, in its annual risk survey published in August, said resource nationalism, jumped to being the number one concern among mining executives this year, replacing capital allocation.
At least 11 countries from Australia to Ecuador have this year raised or revealed plans to increase taxes or royalties on sales of resources such as gold and coal, according to Deutsche Bank AG.
Ghana, Africa’s second-biggest gold producing nation, said this week it will raise corporate taxes on mining companies to 35 percent from 25 percent, and introduce a “windfall tax” of 10 percent, in steps announced by the country’s Finance Minister Kwabena Duffuor in his 2012 budget.
Guinea and Zimbabwe are among countries that have sought greater stakes in mining assets, while Zambia last week doubled some royalties on minerals. Resource nationalism ranked fourth among mining executives’ concerns a year ago and ninth in 2009.
“Resource nationalism just leap-frogged right to the top this year. In the last year there has been a shift. Now we are facing a situation where resource nationalism could just continue as a contagion until this issue is resolved,” said Mr Russell, who has 30 years of experience in the resources industry in Africa, Canada and Australia.
Capital allocation, referring to decisions around applying funds amid uncertain global economic conditions, topped the firm’s risk survey in 2010. Containing rising costs was the key concern in 2009.
According to Bloomberg, some of the instances that show increasing resource nationalisation (with differing levels of successes and/or failures) include:
BHP, Rio
The advance of resource nationalism has accompanied record profits at the world’s largest producers. BHP Billiton Ltd and Rio Tinto Group announced net income this year that totalled almost US$40 billion combined as prices soared.
“Quite a few treasuries are finding themselves depleted and they are casting their eyes around as to where they can actually lay their hands on funds,” Ernst & Young’s
Russell said. “They are looking at the resources sector which at the same time is reporting massive increases in earnings.”
Australia, the world’s biggest exporter of coal and iron ore, this month placed before lawmakers legislation for a 30 percent tax on profits for the two raw materials. The government has pledged to use the increased revenue from the levy to lower the overall corporate tax rate. The tax aims to raise A$11,1 billion (US$11,3 billion) over three years from companies including BHP, Rio Tinto and Xstrata Plc.
Zambian metals
Zambia, where Glencore International Plc and Vedanta Resources Plc are among companies that own mines, said it will double its mineral royalty on base minerals to 6 percent and raise the royalty on precious metals to 6 percent from 5 percent.
The increase and a tax change on mining income will raise about 981 billion kwacha (US$195 million) for the nation, Africa’s biggest copper producer, Finance Minister Alexander Chikwanda said.
Venezuelan President Hugo Chavez ordered the nationalisation of the gold industry in September and gave companies 90 days to form joint ventures with the state.
“Venezuela is quite disturbing with respect to the moves to nationalisation there,” Russell said. “The similarities between Africa and South America are not that far removed when you start talking about resource nationalism.”
Crystallex in Venezuela
Crystallex International Corp, based in Toronto, had its right to operate the Las Cristinas mine removed in February. An arbitration hearing on the dispute will begin next month as Crystallex seeks to regain ownership or win more than US$3,8 billion in damages from the government.
Peru’s President Ollanta Humala, a former army rebel, was elected in June on pledges to raise mining royalties and tighten state control over resources. Peru is the world’s third-largest copper producer and the tax increase has been estimated to generate US$1,1 billion in annual revenue.
Mining companies are trying to fend off demands from governments to gain a greater share in projects or raise taxes on royalties on sales. Last month, Rio and partner Ivanhoe Mines Ltd. halted a bid by Mongolia to raise its stake in the Oyu Tolgoi copper and gold mine which has been estimated to make up one-third of the nation’s economy by 2020.
“History has shown nationalisation doesn’t work,” said Richard Adkerson, chief executive officer of Freeport-McMoRan Copper & Gold Inc, the world’s largest publicly traded copper producer. “Everybody wants more. Governments want more, workers want more, shareholders want more and so in running a company it’s balancing those interests in the right way.”
Congo Delay
Adkerson’s Freeport delayed expansion of the US$2 billion Tenke Fungurume mine while the Democratic Republic of Congo’s government completed a review of mining deals which took more than three years. The review resulted in the government’s ownership in the mine increasing to 20 percent from 17,5 percent.
In South Africa, mining companies have said a debate about nationalising assets is deterring investment.
“South Africa is looking very carefully about how it can actually use natural resources for the benefit of the nation where unemployment is very high and poverty is still very high,” Ian Farmer, chief executive officer of Lonmin Plc, the world’s third-largest platinum producer, said.
“I’m sure when that debate settles, it will find the right balance between fairness and competitiveness that will enable us to continue to grow our business and invest with confidence,” he added.
What is becoming abundantly clear is that governments are no longer waiting on the sidelines as the large multinational corporations make super-profits at their expense.
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