South Africa part of global threat to mining  industry

While the debate about possible nationalisation of the mining industry has become  highly emotional and extremely polarised in South Africa, three recent international reports show that resource nationalism has become the number-one threat to the industry globally. It might even hamper overall financial global recovery, one of the reports warns.

The first of the reports by global business advisor Grant Thornton International warns that “government intervention in the mining sector worldwide is causing increasing uncertainty among companies and investors. This threatens not only the long-term growth of mining, but also that of the global economy.”

Mark Zastre, global leader for mining at Grant Thornton International, said at the time of the release of the report in August: “Intervention is having a real impact on the mining sector. The threat of nationalisation in South Africa, for example, is emblematic of the situation facing mining companies around the world.”

Early in September a report by Australian law firm Gilbert Tobin stated that in addition to South Africa, nations said to be looking at options of nationalisation include China, India, Australia, Canada, the United States, Brazil, Peru and Chile.

A spokesperson for the firm warned at the time of the report’s release that while the  mining industry, simplistically, appears to be highly profitable due to high commodity prices, the industry as a whole was experiencing significant costs.

While individual companies posted extraordinary profits  “… the state should not be seduced by the performance of these companies, as the do not represent the endeavours of the industry as a whole,” he said.

In its yearly report Business risks facing mining and metals 2011 – 2012 consulting firm Ernst and Young comes to the conclusion that resource nationalism has replaced capital allocation as the number-one business risk facing mining and metals companies. Second and third on the 2011-list is skills shortages and infrastructure access.

Resource nationalism has become the number-one risk for mining and metals companies as governments globally continue to make demands in order to increase their slice of the profit pie.

The report also noted that, interestingly, climate change, which was deemed number 10 in the previous year’s risk list , is now no longer on the radar This is possibly due to increased confidence that any action that will impose real costs on mining and metals is still a long way off.

“Fraud and corruption, which was just off the radar last year (ranked number 14), has now moved up to number 10 on our list given recent regulatory developments, while Interruptions to supply is new to the top 10 this year,” the report states.

About  resource nationalism the report says that because the “mining and metals sector rebounded quickly from the global financial crisis, it became an early target to help restore treasury conditions. In a number of producer nations, concerns over “Dutch disease” or two-speed economies have led to plans to tax mining more heavily, and provide tax relief to other sectors.

“From the outset of 2011 we have seen numerous countries changing their fiscal environment (taxes, royalties), and some have invoked ‘use it or lose it’ clauses. Governments worldwide have also been looking to increase local participation in projects and we think that this trend will only increase. South Africa’s new royalty regime came into effect on 1 March 2011, Ghana plans to double royalties on mining to increase government revenues, and the Australian government’s proposed Minerals Resource Rent Tax is still on with its draft legislation.”